Why Latin American Order-to-Cash Operations Are Ripe for Shared Services



Ankur Jain
01/30/2015

Latin America is an emerging market for BPO & Shared Services; as a result, we expect the Order-to-Cash process to come under greater scrutiny in the immediate future. This article compares global OTC processes with what exists in Latin America today, based on the author’s experience of working with these markets.


In the environment that exists today, most companies prefer to hold back their investments and look at getting a faster "bang" for their buck. The business environment is not conducive to making large-scale investments without the warranty of reaping significant returns quickly. Nowadays, companies are keeping a tight vigil on their cash reserves and are open to letting cash sit in safe havens, earning a low return.

Over the last few years, the industry focus has shifted from "Aggressive" to "Cautious." Cash is the lifeline of any company and it flows through the order-to-cash cycle. In order to preserve the health of the company, cash must flow freely through various channels. The increasing cost of energy, fuel and transportation, however, impact all businesses. Combine this with increased global competition and a slow economy, and there’s an increased incentive to contain or reduce costs in order to preserve margins and profitability. Given this situation, improving cash flow has been – and continues to be – one of the biggest focus areas for corporations globally.

Cash flow can be increased by reviewing the end-to-end Order-to-Cash process. Though all OTC functions can be improved through a more pro-active management approach, there are certain areas that – if managed effectively – can result in significant improvements in optimizing cash.

As the OTC cycle involves cross-functional interaction within a company, best in class players take complete advantage of Enterprise Resource Planning to streamline, standardize, integrate and automate processes end-to-end. Some companies use complimentary applications, plugged into an ERP to streamline interoperability and coordinate order fulfillment and collection of funds. If we go a step further, the most successful players enable processes by applying technologies such as workflow automation.

Regional Trends and LatAm Highlights

When we talk about the OTC processes globally, the US & Europe are much ahead in the game compared to emerging markets like Latin America, Africa & Middle East & Asia. The focus of this article is to briefly review the situation in Latin America.

Latin America is viewed as the next important global outsourcing destination, according to leading industry research firms, possessing as it does several factors that give it an edge over established BPO locations such as China and India.

Firstly, Latin America has nearshore value, due to time zone and proximity to the biggest consumer of BPO services, the US. From an operational perspective this makes an enormous difference.

Secondly, outsourcing certain business processes to Latin America could help US firms provide better service to the fast-growing domestic Hispanic market, which represents the fastest-growing minority group for the US.

A majority of Latin American countries still follow long-established practices for the order-to-cash function. With the exception of one or two, all other countries have manual, labor-intensive processes. Brazil, for example, has quite a lot of automation driven primarily by the Government – electronic orders, the electronic invoicing system – Nota Fiscal Eletronica (NF-e) and the Boleto system for payments are a few examples.

The culture and practices across the majority of Latin American markets are driven by old schools-of-thought, and changing this may take some time. They still perform most of their transactions manually with little automation. Using fax/phone/personal interactions to place orders; paying through checks; and a heavy engagement of sales-force collections are just a few practices being followed in Latin America, which are already becoming extinct in the more developed economies.

A Closer Look at the Revenue Cycle

Each activity in the revenue cycle has multiple sub-processes. Some are listed below to help us understand the opportunities for improvement and automation.

Sales Order – Sales orders can be received from clients using electronic media, instead of paper/fax/phone/personal interaction. Examples include EDI orders and web-based tools for clients to enter order information.

Order Entry – Orders can be entered automatically or manually, depending on the way they are received. For example – Direct import of EDI orders into ERP/Accounting systems, or direct import of client data from web-based tools into vendor system.

Order Review – Before an order can be released it has to be reviewed according to certain criteria to ensure the company is not exposed to risks for that specific customer & their order. Some of these conditions could be: terms of sale; price on PO versus prices agreed; number of overdue invoices; available credit limit; bad debt history of client; etc. The system can be programmed to check such criteria automatically without the need to perform any manual checks.

Order Hold & Release – Orders can be put on hold or released automatically depending on the criteria. An Integrated order management system could allow the A/R department to work solely from a single platform. Released orders can then be passed to warehouse & logistics for picking and invoice generation.

Billing or Invoicing – The process of invoice generation can be automated using functionalities within the ERP or with the help of bolt-on tools.

Order Tracking – Movement of goods from the time they are ordered until they reach the client’s doorstep can be tracked automatically. Mobile apps are offering new opportunities.

Collections – The collections activities can be automated using functionality within the ERP/Accounting system or with the help of bolt-on tools commonly available.

Cash Application – Cash application activity can be automated using OCR or other capabilities with the ERP system that enable automatic download and extraction of data from banks, check lockboxes, and remittance image files, and helps post it in ERP/Accounting system.

Automation

Now, let’s look at the benefits of implementing automation tools.

1. Automating Order Receipt & Entry

Resources: Focus resources on other high priority work instead of tedious manual data entry into ERP/Accounting system. Invest in tools that automatically schedule and process without human intervention.

Speed: Reduced business cycle times provides a healthy competitive advantage; sending an electronic document across the country or around the world takes seconds or minutes, not days as it does via the postal system.

Accuracy: Each time data is manually entered into a system there is the chance of errors being introduced. With electronic orders, or EDI, accuracy is improved in several ways:

  • All data moved electronically has likely passed through a validation layer; thus the data is clean, resulting in a decrease in costly chargeback’s.
  • Regardless of how many additional parties may be adding information to the document, data accuracy remains intact.

Operational efficiency: In addition to the above benefits businesses are impacted in other ways:

  • Increase trading partner relationships with improved efficienciesin supply chain management. By agreeing on how the electronic or EDI documents will be sent and received with the trading partner, customer's satisfaction can be strengthened.
  • Greatly improve planning and processing. Processing documents electronically allows suppliers to process orders more quickly and schedule shipments accordingly, allowing the manufacturer to anticipate and schedule tasks in advance.

2. Automating Order Review

  • Increased approval accuracy using prescribed filters with minimal manual touch point
  • Workflow approval of special pricing
  • FTE Productivity improved as manual effort becomes minimal
  • Electronic capture of approvals
  • Integrated credit approval
  • Faster review

Note: SSON is spearheading a detailed OTC survey, in partnership with automation experts OmPrompt, to identify the root causes of process inefficiency in OTC. Please take 5 mins to contribute to our research HERE. (We will send you a summary of the findings).

3. Automating Order Management

Accurate and faster processing, reduced finance expenses, transparency in operations, and better visibility and reporting for management as real time data can be made available.

4. Automating Billing

Vendors

  • Increased efficiency as manual effort is minimal
  • Eliminate paper processing, printing, envelopes, mail
  • Invoices delivered directly into buyers’ accounting systems
  • Faster invoice processing and approvals
  • Better reporting, visibility and customer relationships

Clients

  • Eliminates paper processing
  • Increased data quality
  • Better reporting and visibility
  • Greater opportunity to take early payment discounts
  • Better supplier relationships

5. Automating Collections

  • Visibility on the number of calls, letters and promise-to-pay transactions made and performance metrics such as DSO and percent current for clients
  • Preparation of Management Dashboards with A/R metrics
  • Automated cash forecasting
  • Automated Dunning and collections letters to improve customer service

6. Automating Cash Application

  • Turnaround Time or Time Lag – Immediate application of cash in the system without any delay as bank files interface with the ERP/accounting system and post cash
  • Efficiency – No need for manual cash application by individuals, hence the number of resources required for Cash Application can be reduced
  • Accuracy – Helps drive accuracy of cash posting as the program requires standardized remittance files with direct reference to invoice numbers unlike manual cash application where customers provide spreadsheets with remittance information or resources have to log into customer portals to retrieve remittance details.
  • Errors – Reduced number of errors or incorrect posting as the Auto Cash program runs on a fixed logic
  • Bank Fee Avoidance – Elimination of bank fee incurred on data entry of check information, lockboxes etc.

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Conclusion

Given the enormous changes that have been implemented in the OTC process by global organizations, around the world, Latin America still offers lots of scope for improvement. Although Brazil is leading in terms of process transformation in the region, the absolute numbers of companies still using outdated approaches is still high.

Corporations in Latin America need to seriously consider their approach to OTC activities and challenge the status quo. Most of this will come down to the mindset, culture and practices followed in the region, which may be difficult – but possible – to overcome.

I would expect momentum to increase steadily over the next five years, and see a lot of potential for providers to the OTC market in Latin America.

*This article is a repost of an earlier posting on SSON.