WEBINAR · 2020. 11. 4. · The slides will be available after the webinar at . Your O2C process...

WEBINAR

Presenters

Sarah FaneHead of Content

sharedserviceslink

Bryan DeGrawAssociate Principal, Finance

Advisory ServicesThe Hackett Group

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Questions

Your copy of the slides

The slides will be available after the webinar at

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Your O2C process has never been so important.

In a struggling economy, cash flow and cash flow forecasting are priorities 1 and 2.

The pressure on modern day O2C operations has arguably never been this intense.

Today we explore

• What the Top 10 characteristics of a World Class O2C department are• What essential KPI differentiators do World Class C2C organizations monitor such as:• Real-life examples from large multinational companies• Game-changing technology you need to be thinking about today

Context

November 2020

Bryan DeGraw | Associate Principal and Program Manager, Customer-to-Cash

The Hackett Group Reveals Secrets to Top Performing O2C KPIs

7© 2020 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.

§ Hackett C2C Process Overview§ C2C Top Performance by process

– Credit Risk Management– Order Management – Customer Billing– Cash Application– Collections Management– Dispute Management

§ C2C Process Crisis ReadinessContents


Customer-to-Cash End to End Process

Credit Management

Order Management

Customer Billing

Collections Management

Dispute Management

Cash Application

Collections Approach Dispute IdentificationCash PostingUnbilled Management and Billing TriggersOrder Entry

Collections Activity Dispute ResolutionAR ReconciliationBill Calculation and VerificationOrder Processing

Targeting Dispute Escalation and Arbitration

Unallocated and Unapplied cashCustomized BillingCustomer Service

Litigation and Debt Provision

Root Cause EradicationShort PaymentsCredit Note ProcessingContract

Administration

Customer Segmentation

Customer Credit Management

Credit Policy

Commercial Interface

… across the building blocks of effective change: Strategy, People, Process, Technology and Information

RelationshipsMetrics and GovernanceCustomer-to-Cash Policy

Organization and Systems

Hackett’s Customer-to-Cash end-to-end covers all processes and activities from credit risk assessment through to collections and cash application


3

Top Ten Characteristics of World Class Customer-to-Cash organizations

CREDIT POLICY – provide framework for the end-to-end process including roles and responsibilities across the C2C process

MASTER DATA – complete and accurate master data to ensure accurate and timely billing and basis for BI and analytics

STANDARDIZE PAYMENT TERMS AND CONTROLS - Standard payment terms are defined, non-standard payment terms are controlled through approval process

DYNAMIC CREDIT MANAGEMENT –Defined inputs, outputs and strategies. Reviews undertaken by exception

ELECTRONIC INVOICING – eliminate manual billing triggers, reduce time to invoice and increase accuracy

SEGMENTATION TO SUPPORT COLLECTION STRATEGIES – Define segmentation based on risk and value and drive collections based on segmentation

PROACTIVITY - Ensure key customers are receiving routine customer service calls so issues can be addressed early in the process

TECHNOLOGY LEVERAGE – driving digital engagement, process efficiencies and an exceptional customer experience

EFFECTIVE DISPUTE MANAGEMENT -Disputes are logged in a central repository, workflow underpinned by resolution matrix

PERFORMANCE MEASUREMENT -Performance measurement framework aligned with objectives and targets

12

3

456

7

8

910

CUSTOMER-TO-CASH KEY

CAPABILITIES


What have been your top 3-5 areas of interest in 2020?

A. C2C Operating Model and Service PlacementB. Customer Master Data ManagementC. Credit Risk ManagementD. Order ManagementE. Customer ServiceF. Customer Billing Automation (i.e. EIPP)G. Dispute/Deduction ManagementH. Working Capital OptimizationI. Cash ApplicationJ. Dispute ManagementK. C2C Process Performance MeasurementL. Global Process OwnershipM. Smart Automation tool selection / implementationN. Collections Certification and TrainingO. C2C Policies, Processes and Controls

Polling Question


2019 top 10 inquiry categories requested by global C2C Advisory Members

Source: Key Issues Study, The Hackett Group, 2020

1 Revenue cycle benchmarks

2 Smart Automation – definitions, technologies, adoption, indicators of opportunity, heatmaps, use cases

3 C2C Scorecard Design - principles of scorecard design, commonly use C2C metrics, scorecard examples,

4 Cash application – benchmarks, best practices, approaches to drive automation and leverage of technology

5 C2C operating model / organisational set-up - service placement, optimised process splits, member profiles

6 Collections - best practices including customer segmentation, collection strategies, case examples, solution vendors

7 Working Capital – Industry and peer DSO comparisons, working capital performance measurement and management

8 C2C Top Performer / Trends – performance metrics and trends across the C2C process

9 Policies, processes and controls - credit policy framework, examples, business process management

10 Payment terms and methods – payment terms harmonisation, payment methods


Taking an end-to-end view World-class organizations have a significant staffing and process cost advantage

0.012% 0.008%

0.030%

0.005%

0.020%

0.008%

0.025%

0.007%

0.014%

0.008%

0.102%

0.037%

Overall Database World Class

Process Cost* as % Of Revenue

1.5 0.9

4.0

0.7

2.6

1.1

3.7

0.8

1.7

1.0

13.5

4.6


FTE’s Per $ Billion Revenue

Credit Process Customer Billing Cash Application Collections Dispute Management

The process cost and staffing gap is significant…

64%

66%

Source: 2020 Hackett Finance BenchmarkNote: Process cost = Labor costs + Outsourcing costs


World-Class organizations are leveraging sophisticated, automated, and dynamic credit modelling tools to deliver fast, prudent results

3.0

1.0


Automated Versus Manual Credit Modeling and ScoringAverage time that it takes to complete new credit reviews (business days from receipt of credit application to final decision)

10%

75%

90%

25%


Automated ManualSource: 2020 Hackett Finance Benchmark


Involving the Credit team early in the customer acquisition cycle results in a healthier receivables portfolio

38%

24%

17%

21%

Potential Customer Identification / ProspectingProposal or Pricing DevelopmentAfter a firm order is receivedOther

Organizations that involved Credit during the

Proposal or Pricing Development Stage

reported Average Days Delinquent

Lower

Than organizations that assessed customer credit

after a firm order is received

Stage of new customer acquisition when credit review is conducted

“Other” Criteria

All of the above depending upon country

At customer set up

Depends on the customer type

In preparation of submitting order & receiving the credit application

No involvement

When prospect is converted to a Customer


Standardization and automation have enabled World-Class organizations to optimize costs in the Order Management process

Process Cost* per OrderPercent of orders processed automatically per orders received

Orders per FTE

Source: 2020 Hackett Service BenchmarkNote: Process cost = Labor costs + Outsourcing costs

$8.3

$2.9

Peer Top Quartile

8,518

12,262

Peer Top Quartile

14%

58%

Peer Top Quartile


Top Performing organizations deliver a better customer experience through faster order fulfill cycle times

Top Performing organizations deliver a better customer experience through faster order fulfill cycle times

Source: 2020 Hackett Service Benchmark

8

3

Peer Top Quartile


Top Performers process orders with greater accuracy and reflect less orders requiring modification through the end-to-end order lifecycle

Percent of orders requiring modification per orders processedPercent of orders requiring modification per orders received

15.4%

0.3%

Peer Top Quartile

14.4%

11.0%

Peer Top Quartile

Source: 2020 Hackett Service Benchmark


World-Class organizations reflect lower billing process costs and cycle times however opportunities exist to increase automation


0.030%

0.005%


3

2


Average Time it Takes to Bill (i.e., days from order fulfillment to bill

being sent)?

Customer Billing Cost* % of Revenue

70%

80%


Percent of “Handsfree” Customer Invoices(Invoices generated and distributed electronically)


World-Class organizations are more effective, by having less errors and disputes in the Customer Billing process

2.5%

2.0%


2%

2%

2%

1%


Volume Based Value Based

Percent of Invoices Related to DisputesPercent of Customer Invoices Corrected for Billing Errors



Twice the percentage of “hands-free” Cash Application transactions provides a significant World Class advantage


44%

80%


$3.2

$2.4


Process Cost* per Customer Remittance

Automatic remittance posting match rate

22,659

26,002


Customer Remittances per FTE


The Cash Application Process Challenge Is Not Just Payment Automation But Also Electronic Receipt Of Remittance Advice (Coupled Is Ideal)


$6.55

$4.82$4.52

$4.04

$5.08

$3.80

$2.74

$1.89

$2.72$2.47

$1.06

$0.64

>=25% 25%-60% 61-95% >95%

Electronic Cash Remittance VS Cash Application Cost per Transaction

Bottom Quartile Median Top Quartile


World-Class organizations deliver more effective receivables portfolio management

Source: 2020 Hackett Finance Benchmark

9

3


80%

91%


Percent of Credit Sales That are Collected Within TermsAverage Days Delinquent (DSO less Best Possible DSO)


Achieving higher productivity rates and lower costs per contact


7,661

19,133


$10.4

$2.5


Process Cost per Collection ContactCollection Contacts per FTE

World Class organizations

have redefined

collections. Many

customer interactions are service

oriented that prevent

disputes and aging AR.

Autom

ated

Proactive

Strategic


Customer segmentation should be defined to enable a ‘Fit for purpose’ approach to collections management rather than a one size fit all

A1 High Sales Good

Payer

A2High Sales

Average Payer

A3High SalesSlow Payer

B1Average Sales

Good Payer

B2Average SalesAverage Payer

B3Average Sales

Slow Payer

C1Low Sales

Good Payer

C2Low Sales

Average Payer

C3Low Sales Slow Payer

Payment Behaviour Poor PayerGood Payer

Reve

nue

High

Low

§ Proactive approach

§ Customer visits to focus on relationship

§ Dunning candidates

§ Customer profitability assessment (potential growth candidates)

§ Past due recovery

§ Frequent & early contacts

§ Total account coverage

§ Involve sales / escalate

§ Sell via other channel

§ Credit card / direct debit for identified candidates (i.e., small / poor payer accts)


Collections strategies can be then be developed and customized based on the defined customer segmentation

Billdispatch

Bill receivedby customer

A2A3B3

A1B1B2

B+10days

B DD-7days

Billdispatch


Due date:No payment

B+10days

B DD-7 / -14days

D+1-5days

D+2-7days

D+9-14days

D+16/21days

Proactivecall made

by Collector

Due date:No payment

Follow-upcall made

by Collector

Dunning letter sent

Possible 2nd

call byCollector

Internalescalation

C1C2C3

B+10days

B DD-7days

Billdispatch


Due date:No payment

Dunning letter sent

D+30 / 35 days

D+1-5days

D+2-7days

D+9-14days

D+16/21days

Follow-upcall made

by Collector

Dunning letter sent

Possible 2nd

call byCollector

Internalescalation

Dunning letter sent

D+30 / 35 days

D+2-7days

D+16/21days

Dunning letter sent

Internalescalation

Dunning letter sent

D+30 / 35 days

Automatedreminder

SMS

Key Call Dunningletter

EmailMessage

SMS Escalationint/ext

B Billdate

D Duedate


What is a Dispute?

§ Dispute Management focuses on disputes related to bills§ Disputes have a value tagged to them and therefore impact payment§ Dispute Management does not tend to focus on the wider field of CRM

> Specific problem that will prevent payment of all or part of a bill

> Problem relates to quality of the product, delivery or documentation

Dispute> Serious issues which are

the result of particularly poor service or treatment

> Usually addressed to senior management (i.e. Chairman etc..) for resolution

Complaint> Can relate to almost

any function in an organisation

> Does not usually indicate that the customer is in any way dissatisfied

Enquiry

ü û û

“Any unmet customer expectation, real or perceived,that results in short or non-payment of a bill.”


What is Dispute Management?

Identify§ Everyone throughout the organisation

can identify a dispute§ The other functions are pre-determined

depending on the nature of the disputeResolve§ The person or function who is most

appropriate to solve the issue will be responsible for resolving the dispute

Analyse§ Tracking and measuring disputes

is the only way to monitor the size, duration and nature of the problems

Prevent§ The whole objective is to stop the same

problems from happening over and over again

Predict Prevent

Perform

IdentifyIdentify disputes

early andpro-actively Capture

Capture all info& Categorisethe dispute

PrioritisePrioritiseresolutionby value

EscalateEscalate alldisputes not

resolved withintarget

MeasureMeasure & report

on processperformance

EradicateAnalyse

& eradicateroot causes

TargetSet timetargets to

drive activity

AllocateAllocate disputesto clearly defined

responsibilities

An effective disputes management process will increase level of customer satisfaction whilst also reducing overdue debt


Top Performers have end-to-end C2C processes that result in a lower percentage of disputes and have a faster cycle time to resolution


Average cycle time (in days): Dispute Identification date to Resolution date

2%

1%


Percentage of invoices that result in disputes(Based on invoice value)

18

15



A dispute management scorecard allows continual tracking of dispute types, values, volumes and resolution performance

Example Dashboard

Disputes initiated every month. Each bar on the chart should have up to 2 colors, one indicating the disputes that were initiated but closed at the time of the report while the other indicates disputes that were initiated but still open at time of report

This line of charts represents the Value of disputes

This line of charts represents the Volume of disputes

This line of charts represents the Weighted Days Open for disputes

Breakdown of open disputes by Category / Reason (Open Disputes as of Date of Report)

Breakdown of open disputes by Dispute Status. Each bar on the chart should have up to 3 colors. First indicating Open Disputes within Targeted Resolution Cycle Time. Second, indicating Open Disputes in the Escalated Status.

Disputes as % of total invoices and Weighted time disputes have been open during the Initiation phase.

0

200

400

600

800

1000

1200

1400

1600

ME Jan 06 ME Feb 06 ME March 06

Volume of Open CQTs

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000


Value of Open CQTs 0%

25%

38%

33%

2% 1%1%

Collections Order / Invoicing Payment / Terms PriceShipping Freight Charge Tax

Value by Problem Description

1%

37%

6%

40%

8%1% 7%

Collections Order / Invoicing Payment / Terms PriceShipping Freight Charge Tax

Volume by Problem Description

0

10

20

30

40

50

60

70

80

90


Days

Weighted Age of Open CQTs

0

20

40

60

80

100

120

140

160

180

Collections Payment /Terms

Shipping Tax

Days

Weighted Age by Problem Description

0

100

200

300

400

500

600

ID Review Adjustment Approval PendingCompletion

Volume by CQT Status

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000


Value by CQT Status

0

5

10

15

20

25

30


Days

Weighted Age by CQT Status

0%

1%

2%

3%

4%

5%

6%

7%

8%

ME Jan 06 ME Feb 06 ME Mrch 06

Percentage

Dispute Amount as % of Invoice Amount

0%

2%

4%

6%

8%

10%

12%


Percentage

Number of Disputes as % of Total Invoices

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5


Days

Weighted Identification Cycle Time

Select Prob lem Description:

These charts will show the breakdown of disputes by Status within the Resolution process. The selection can be made for “All” Categories or for each one.


Hackett COVID-19 Crisis Quick Poll Key Points

Finance gets high marks for maintaining critical operations through the crisis. 100% immediately transitioned to remote work. • Automate more processes to operationalize the virtual workplace• Expand VPN bandwidth to ensure data security• Embrace cloud solutions to broaden access to tools and data

Remote works!

Cash preservation/margin protection are top of mind. 75% took immediate steps to improve working capital management.• Take a strategic approach to managing AR to accelerate cash• Deploy cloud-based solutions to improve visibility into the E2E cash

process and use advanced analytics to improve cash forecasting

Make Cash king


Hackett COVID-19 Crisis Quick Poll Key Point

Organizations are doubling-down on existing efforts to go digital; most inflight projects are on track. 64% are launching select new initiatives.• Leverage increased IT investment commitment to secure funding• Start by focusing on efficiency/quick ROI new projects• Bolster business case with business unit support

Accelerate digital

init iat ives

Aim for a “better ”

normal

75% said the long-term impact will be a transition to an agile operating model; the goal is not just a return to normal, or the next normal, but a “better” normal. The crisis proved bold and rapid changes are possible.• Redesign the SDM for the future, e.g., agile teams, enterprise COEs,

and transition of all TX activity to GBS organizations


Quick Poll Question

The 2020 Covid-19 crisis impacted organizations in different ways, broadly in three categories. Which one applies to your organization?

Select the most appropriate response for your organizationq Significantly Disrupted

q Moderately Disrupted

q Minimally Disrupted

Significantly Disrupted:Companies that experienced significant revenue impacts, i.e., organizations that have been affected by forced closures of stores, sites, etc. As incoming cash has dropped significantly, they are liquidity strapped.

Moderately Disrupted:Companies whose customers are struggling, leading to weakening in demand and slower payments, which in turn affect their ability to pay suppliers.

Minimally Disrupted:Companies that are doing well because they provide goods and services needed to react to the coronavirus crisis, which should be preparing for the ‘new normal’ while ensuring supply chain sustainability.


Introduction

Customer-to-Cash Crisis Readiness Imperatives

Against the backdrop of Covid-19 disruption, “Cash is King” is center stage.

There is a clear need to immediately evaluate and address deficiencies in

policies, processes and procedures to protect working capital, optimize cash flow,

and make prudent credit term extension decisions. Within the following slides are

a series of near-term actions you can take to improve both the visibility and

management of your receivables.

1 Enhance cashflow and receivables visibility

2 Industry scan

3 Communicate and collaborate with customers

4 Invoice frequently, accurately and electronically

5 Manage requests for extended payment terms

6 Expedite receivables


Near-term actions to improve both the visibility and management of receivables (cont’d)


Managing requests for extended payment terms

Examples of Credit Policy language relative to term extension requests:

§ Example 1 - Extensions:- Credit limits are always temporary, and their starting date and expiry date should be registered. If temporary extensions are granted,

the limits must be reviewed prior to the end of the extension period. If a credit limit is not reviewed prior to its expiry date, the credit limit must automatically be set to zero and remain zero until such time that the credit limit is reviewed and approved.

§ Example 2 - Requests for extended terms- Extension of payment terms has a negative impact on ABC Co. cashflow, therefore should be avoided. Where required, a business

case quantifying the incremental benefit for revenue, margin and cash flow must be completed by the business unit and the following approval matrix applies:

Outcome ApproverClear economic benefit to ABC and cashflow

impact less than $150KGBS Regional Credit & Collections manager

Clear economic benefit to ABC and cashflow impact equal to and more than $150K

Regional controller


Near-term actions to improve both the visibility and management of receivables (cont’d)


Expedite Receivables§ Prioritize your customer touchpoints based on a combination of value and risk§ Check that your invoices have been received and payment has been processed§ Ensure robust mechanisms exist to capture customer contact history and payment promises § Make sure credit risk processes are robust and up to date with the latest information, whether that be external information or internal

information§ Monitor payment behaviour changes, if a customer always pays on a specific day of the month and they pay even one day later than

usual it should be flagged and considered a warning signal§ Establish cross-functional teams to triage and look to resolve disputes and invoice related queries§ Where your customers are struggling to pay and your own cashflow permits look to be creative in terms of agreeing and establishing

payment plans (both for existing and potential new customers)

Remember your customers have multiple suppliers requiring payment, and if they have cashflow issues they will need to think about what services and goods are more critical to them and prioritize their payments accordingly. The closer you are to your customers and the better you understand their situation from an operational and cashflow perspective, the better placed you will be to manage and optimize your own cashflow.


Foundational Customer-to-Cash best practices are crisis critical:


1 Standardized process for credit decisions on a company wide basis

2 Increased efficiency and effectiveness of account review process by minimizing manual efforts

3 Ability to increase frequency of reviews through automation provides advanced early identification capabilities

4 Reviewing by exception allows for targeted focus on areas of higher risk

5 Proactive credit limit adjustments

6 Improved visibility of customer risk with associated reduction in future write-offs

7 Consistent and accurate response sponsors strategic partnership with Sales

8 Improved internal controls (SOX compliance)

9 Improved customer service


Questions?

Thank you !


Statement of Confidentiality and Usage Restrictions

This document contains trade secrets and information that is sensitive, proprietary, and confidential to The Hackett Group the disclosure of which would provide a competitive advantage to others. As a result, the information contained herein, including, information relating to The Hackett Group’s data, equipment, apparatus, programs, software, security keys, specifications, drawings, business information, pricing, tools, taxonomy, questionnaires, deliverables, including without limitation any benchmark reports, and the data and calculations contained therein,

may not be duplicated or otherwise distributed without The Hackett Group Inc.’s express written approval.

www.thehackettgroup.com

Reproduction of this document or any portion thereof without prior written consent is prohibited.

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