It’s the lifeblood of the business, the fuel for the corporate machine: money. And it’s O2C’s job to secure it and pipe it in, as smoothly and efficiently as possible. Choke up here and you’re depriving your organization of critical energy at the worst possible time; get all channels running fluently, however, and without obstruction, and you’ll be driving the business forwards on injections of high-octane cash.

We know that everyone’s on the lookout for O2C wins, especially in still-turbulent times, so SSON asked network members to share their thoughts on the best ways to ensure such unobstructed O2C perfection. The responses made for some very useful reading – so without further ado we present Top Ten Tips for an Optimal Order-to-Cash Process. Enjoy…

1. Know the customer

It’s easy to get carried away with process efficiencies and technology-enabled savings – but at the end of the day it’s crucial to keep sight of the most important element in the order-to-cash chain: the customer. Maintaining optimal relationships requires solid and reliable information on what exactly each customer is worth to the business – and how much it costs. Regularly updated and analyzed, this data will help keep your O2C function focused on what really counts as well as ensuring as holistic as possible an approach to customer relationship management through the business.

“Do not start just with orders, but customers,” says Atos Consulting’s Sachi Fujii-Bautista. “Your finance Shared Service Centre may not have a sight of customers while dealing with tons of papers (issuing invoices and credit/debit notes). But it is critical to have a sense of value of each customer (even a sheet of paper), not just in view of annual gross sales, but overall profiles of customers (profitability, number of complaints/disputes, returns, your firm's overall account strategy, etc.). I have come across one SSC which was dealing with a well-known retailer. The perception of the SSC agents was that the retailer was one of the top customers based on sales volume, but after a customer profile analysis, it turned out that it was not necessarily the most profitable customer due to lots of returns and complaints - the total cost of dealing with the customer was much higher than expected. Feeling the weight of each paper while dealing with tasks and handling it appropriately in view of the customers' true value to the company does make sense. This also leads to defining and implementing an appropriate corporate-wide customer relationship strategy.”

2. It’s a risky business (so know how risky)

Keeping up to speed with your customers also helps when it comes to looking at risk. In economically straitened times a true understanding of risk and exposure is indispensable and this has to be founded within the order-to-cash process. Learning to identify – and taking steps to mitigate against growing risk at the customer level is an area where O2C practitioners can really show their worth to the organization and will continue to be so throughout the downturn and beyond. This doesn’t necessarily have to involve a full health-check every week, but a closer look on a more regular basis than what was being conducted in the boom times would be a start…

“Managing credit risk has become more important than ever,” says Brian Shanahan, senior director at REL. “The credit insurers and ratings agencies have largely failed the business community and it is time to re-learn the basic skills of managing credit risk. Most companies have a lot of information to hand in the form of customer interactions where they fail to recognize the signs of increasing customer risk.”

3. Keep the sales team risk-aware…

The sales floor is the engine-room of the business – and as such, as any mechanic will testify, it’s where a lot of things can go very wrong indeed. OK, so everyone knows times are tough and getting those deals in might be harder than it’s been for a long, long time – but you’ve got to do what you can (even from what might at times seem like a very long way away) to make sure your sales team aren’t hamstringing the rest of the company when it comes to the agreements they’re making with customers. Try to get the sales managers to keep their teams in line on areas such as payment terms: obviously the more homogenous these terms the easier it becomes to ensure a smooth O2C process (and vice versa…).
 
“It is essential that in these hard times that the sales force are not giving away payment terms in an uncontrolled manner,” urges Brian Shanahan. “While there may be selective cases for extending terms, this is not the time for a wholesale giveaway.”

4. …And make sure risk policies are adhered-to from the start

In a perfect process there are no corners to cut – and that applies to customers just as much as to your own organization. If the sales team is on the case from the beginning as far as risk is concerned, then every other element of the process should be as well. Have a single coherent risk plan and then ensure it’s applied as end-to-end as possible – and that means increasing the priority of credit-checking.

“Suppose your SSC has established company-wide credit policies and is dealing with credit evaluation in a consistent way,” says Fujii-Bautista. “But sometimes having a policy does not mean it is compliant in reality. How the defined policy is implemented and monitored is an issue. Your sales unit might have sold a big deal with a customer who has got unpaid invoices and it might be the case that its defined credit limit is already over. It is advisable to implement the process that the credit limits can be checked against a number of things such as latest credit-worthiness ratings from organizations like Dunn and Bradstreet, or look internally at invoice payment performance etc and dynamically set new limits without the need for manual interference - and stop the order if appropriate.”

5. Smooth out the collection process from the front

The sales team won’t like it, but the more responsibility for collection that can be front-loaded into the sales process, the better for the rest of the system - up to a point, of course. The more successfully your team can make it their business to follow up the cash their contracts are securing – with suitable incentives, of course – the fewer the wrinkles that come down through the process.

“I meet good sales guys who told me ‘cash collection is part of my sale’,” says Fujii-Bautista, “while I also meet sales guys who do not care about cash collection as they can claim ‘sales’ for his or her performance. There are more companies which started setting up a KPI on cash collection/DSO against sales people as it is fundamentally true that sales only, does not give cash for the organization! It is important to set appropriate KPIs for all the stakeholders who get involved in order-to-cash processes and develop an appropriate rule on who to contact whom for what profile of customers. The way you want to handle this process must be quite different for customers which are giving you a seamless cashflow to the ones which have got blockages in the flow.”

6. Diplomacy is at a premium

With markets still jittery it’s easy to panic already-stressed debtors, and personal contact, while increasingly important, becomes consequentially more important to get right. Remember things might be an awful lot worse at the other end of the phone and look to take simple and non-provocative steps towards a mutually satisfactory conclusion.

“Ensure that the first collection call to the customer is proactive,” recommends Shanahan. “Proactive calling helps to highlight disputes at an earlier point and can be the best aid to the early signs of customer risk. In these difficult times, it is worth reviewing the quality of outbound calls to customers. Many collectors will need training particularly on dealing with difficult customers.”

7. Get strict on dispute management

With the above in mind, and even with the best team in the world in your corner, sometimes there’s no avoiding a falling-out: some people, and some situations, are just too inflammable. If this occurs, make sure you don’t take any of the fire: no matter what the other side says or does, stick to a formalized and rigorously stress-tested dispute management process. Needless provocation needn’t provoke - and shouldn’t as long as requisite levels of professionalism are maintained – and if the other side wants to throw toys out of the pram, well, as long as you’re playing it by the book it’s not your problem.

“This is quite a sensitive process within the order-to-cash process. Therefore, the rule for handling this process needs to be carefully defined and roles and responsibilities need to be established with an intention to regain and maintain good customer relationships for the future, not just for ‘now’. It is also critical to make this process as transparent as possible for customers as well as internal stakeholders. This process is normally time-consuming and to be honest it is not pleasant. Identifying causes of typical disputes and preventing the process from reaching this stage would make much more sense I think!”

8. Get the dunning down pat

Whatever the state of communications between yourself and an errant customer, the I’s need to be dotted and the T’s crossed. Ensure you have a clear, compliant dunning procedure in place from the start of operations and test the system regularly – and make sure your team, as well as your software, know precisely what should be done at each stage, and why. 

“Make sure that promises to pay are recorded and followed up when not fulfilled,” Shanahan says. “While most companies have an escalation process, it is important to do exactly what you promised. Otherwise the value of overdue debt will grow and grow. For those customers that are not called, there must be an effective and strict dunning cycle. If there is a sequence of letters it is worth considering reducing the number of letters or reducing the time lag between each step.”

9. Remind the organization: it’s about you too!

Running O2C from a shared services organization has its advantages but it isn’t a miracle cure-all – so make sure everyone knows that. While you understand that a great deal of work still needs to be done outside the SSO, the business at large might not be aware of its retained responsibilities, and it’s your responsibility to get that message out – because the process can’t be optimized without the necessary efforts outside your own domain. 

“Typically most of the real issues in the order-to-cash process are caused in the upper-stream, not within SSC,” says Fujii-Bautista. “Wrong terms being set with customers, wrong prices in sales agreements, customers credit limit exceeded without any notice, goods actually returned (and customers made a complaint due to inappropriate chase for payment for returned goods), etc… Tackling order-to-cash issues just within SSC would not dramatically improve the process performance.  Having said that, just tightening the belt within SSC could make quite a difference, but what I am trying to say is having a collaborative approach with sales could make a miracle in the order-to-cash process! In most cases I worked on, revenue leakages were not truly recognized in the organizations in a broader sense as the order-to-cash initiative was dealt with by just Finance communities.”

10. Get the buy-in (from everybody)

Collaborative working is the future – both within the organization and without. Obviously it’s crucial to have senior sponsorship (always high on the wish-list) and to leverage it effectively – but getting true support from all stakeholders, not just the board, is increasingly important. Proper communication and, where appropriate, change management – approached from an end-to-end perspective – are an absolute must-have to get full engagement from all actors, within your SSO as much as within the wider organization. And include your customers among your stakeholders; consultation about possible transformations, or even just general customer relationship management, can result in input which can itself help in the optimization process.

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A comment to this article after it was published  from Gerry Dempsey PIIA FRSA , Chairman and CEO of  Dempsey Group

Tell the client what your credit terms are, what the ramifications are for non-compliance and HAVE THE CONVICTION TO FOLLOW THROUGH!!

This is simple to do with new clients in a B2B market where you can establish the boundaries in advance of providing the service. But it is more difficult to do for existing clients with whom you have tolerated bad behaviour. For example, during initial meetings with new clients we set the expectation that we manage our cash quite closely and that by managing this risk we are able to keep costs low for all our clients. During subsequent meetings we discuss this in more detail with them so that they fully understand the consequences of not paying on time. Depending on the risk factor and the client profile we treat clients in one of two ways:

1.  We suspend the service immediately and do not resume until payment has been made

2.  We add x% interest per day on the invoice amount but if the invoice is not paid within 2 weeks we suspend the service.  

If clients repeat a pattern of not paying on time, and if our escalation of the issue is not successful, we terminate the business relationship.

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