SSOs Operating in a Liquidity-Strapped Environment Have the Opportunity to Boom and Bloom
A constant challenge for any shared services organization (SSO) practitioner is how to define and create value. Even when you think you’re creating value, how do you get fair recognition where it counts, at the business end? The good news is that when it comes to defining value, generating additional cash is a no-brainer. Through smart management of receivables, SSOs can really win hearts and minds across the business spectrum as the following examples highlight.
A global media company measured and discussed Days Sales Outstanding (DSO) at month-end. Finance’s frustration was typically about the result: "nearly (never) won the race." Credit control’s focus was on cash collected but not on DSO: "we collect cash, not DSOs!" The SSO’s solution was to develop cash targets at the beginning of the month that equated to the desired DSO target. Through simple modeling and use of transactional data, the SSO produced an easy-to-use tool that aligned the required DSO target with cash collection targets. It emphasized aligning business performance and cash collection targets at the beginning of the month when something could be done to actually win the race. They tested the tool with the business and rolled it out enterprise-wide. The focus on the tool’s ease-of-use and visibility of each market result across the global finance community gave that extra zest and competition which resulted in an ongoing and consistent 97-percent-plus target achievement.
A global consumer goods manufacturer’s current receivables were only 62 percent of total receivables. Alarmingly, 23 percent were 120+ days past due, and money invested in the problem was not making any inroads. The SSO determined 70 percent of the problem was invoicing quality, which split between pricing and order quantity differences. Its campaign to fix the problem involved convincing salespeople that a sale is not a sale until cash is collected, and logistics people that a delivery is not a delivery until the customer’s GRN agrees to the P.O. and invoice. And getting the right people around the table to discuss and resolve the problem was akin to herding cats! The SSO focused on brief audiences with the business heads to outline the problem and explain the bottom line impact (e.g., DSO, but also profit through adverse aged bad debt provisioning, credit notes through sales write-offs, corporate capital charge on assets in use, etc.). Today, that company is committed and successfully on the path to get receivables less than 10 percent past due with invoice production, dispatch and credit control in the safe hands of its SSO.
Staying close to your SSO customers will constantly prompt improvement opportunities. Understanding the problem, having a well thought-out solution, and selling it to the right people are paramount. Practice your elevator pitch for those rare, fleeting moments when you bump into the corporate heavy hitters and influencers: "…great strategy you presented today, and by the way, I’ve found a way to generate $x million cash and reducing DSO by x days…" – then wait for the invite!
About the Author
David O'Sullivan is the former Vice President of Finance for Newell Rubbermaid;prior to holding that position he was the builder and leader of shared service organisations for Whirlpool and Reuters.
This article first appeared in SSON's May 2008 Finance Services Delivery eAlert. For information on how to register for this targeted e-Alert click here.