Delivery Director
Bluefin Solutions
Why you can’t afford not to improve the performance of your accounts receivable team
18 Nov 2010
ERP, ERP Finance, Consumer Business
My focus is on the drinks industry, which has seen the UK profit pool from beer decrease by 30% over the last 5 years. From working with large enterprises in this sector it’s clear that all are undertaking initiatives to improve working capital, in order to create competitive advantage in this tricky climate.
A common theme seems to be extending supplier payment terms in order to have more cash in the bank to spend on activities that can increase profit , market share or strengthen brands. In fact one global brewer achieved a 170% rise in group cash flow from extending its terms, compared to the same 6 month period the previous year.
This trend is not restricted to the drinks industry. When times are tough several large players extending payment terms can rapidly change the industry standard and a trickle down effect ensues.
So if you are getting paid later what can you do to increase your cash flow?
The answer is to increase the effectiveness and efficiency of your accounts receivable team. As a business you will need to:
- Reduce the time taken to collect debt from customers after the invoice has been issued. Subject to your new payments terms!
- Prioritise, allocate and record interaction with the customer more effectively, reducing time to resolve issues and therefore get paid faster and more consistently.
- Be able to identify where the risk of bad debt is forming and put in place measures to address these before it can affect business operations.
- Put in place the ability to measure the KPIs, such as those below, and the people/process/systems to move them in the stated direction:
- Number Days Outstanding Sales (DSO). [Reduce].
- Number of active customers against the number of customers contacted - [Reduce]
- Number of promises to pay made against the number of promises to pay achieved - [Reduce]
- Number of disputes raised broken down by reason code - [Increase]
- Duration of elapsed time to resolve customer disputes - [Reduce]
- Value of debt overdue for over 90 day - [Reduce]
At the end of 2009 the total UK amount owed in late payments was £24bn (Source: Bacs Payment Schemes).
There is still therefore plenty to go after, even if payment terms have been extended. By empowering the AR team with tools to automate their processes, and dashboards to help spot collection opportunities or identify risk of bad debt, it’s possible to get a quick ROI on the improvement project. It should then take fewer working hours to collect every thousand pounds of debt and allow you to operate with a smaller AR team, freeing individuals up to add value in other areas.
Who knows, the improvement in cash flow could help faster entry to new growth and profitability initiatives. Combined with improvements that pay for themselves very quickly - isn’t that a business case that’s pretty hard to turn down?
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