Streamline your Accounts Receivables Process to Improve Cash Flow Efficiencies

An accounts receivable function in any company, if managed efficiently can result in high dollar savings every year. For large conglomerates, where the scale of operations is huge, there is a wide range of sources for accounts receivable, including dealers, agents, retailers and many such disparate sources. For such a firm, maintaining a clear visibility on the cash flows and keeping a track on credit management of different sources becomes a problem.

Hence, these companies lose out on millions of dollars due to extended DSO (days sales outstanding) periods and no clear visibility with respect to future cash flows. This hampers the decision making of CFOs and top management due to lack of a consolidated picture of cash flow and working capital.

The onus then is on the A/R department to manage this process effectively so as to minimize losses due to bottlenecks in the process. Most A/R teams collaborate with the treasury department and chart out clear cut strategies on streamlining the process. The CFO needs to take an initiative in revamping existing processes to improve efficiencies and in turn the bottom-line.

For instance, the CFO charts out a set of key performance metrics with inputs from the treasury department. The Six Sigma wave has influenced several large corporations, especially after GE revolutionized the concept and continues to do so by extending it to its customers. Most companies look at implementing a Six Sigma process in the accounts receivable cycle. Using Six Sigma metrics helps the company to identify patterns and to measure existing bottlenecks and take corrective measures in improving the collections management process.

Large Enterprise software companies like SAP, help to better manage transactions by creating an automatic entry in the books of accounts, as and when a transaction takes place. This helps collection agents gain a clear picture on the overdue receivables and prioritize collection efforts. Most of these sophisticated ERP products from global vendors like SAP, Microsoft and Oracle, give in-depth reporting capabilities on past trends and all information pertaining to the A/R process.

Almost all large organizations have these sophisticated systems in place. However companies still lose out on millions of dollars due to inefficiencies in the process or workflow of the accounts receivable cycle. For example, issues like deductions and disputes occur outside the A/R department. Lack of a clearly defined workflow and an optimized set of metrics for these issues can lead to higher DSO’s and bad debts for the company.

For example, consider Syngenta, a $10 billion organization, which did a complete revamp of their existing processes in their A/R department. Facing challenges in collections and credit management, Syngenta put performance metrics in place for their A/R processes and introduced new policies to minimize their DSO’s. These steps resulted in a drastic reduction of their DSO to just 4.5 days and a whooping $3 million to their bottom line savings annually.

To stay competitive in today’s economic scenario, more and more companies, not just large corporations look to generate savings and add to their bottom line by managing the accounts receivable process more efficiently. Various cash flow management softwares are easily integrated with ERP systems, and are being used by organizations to gain a stronghold on their entire receivables process.

Companies are even looking at adopting newer business models like that of deploying a Shared Services centre which would centralize the accounts receivable process and streamline the customer-to-cash cycle. Be it a small company of just fifty employees or a Fortune 500 company, an efficient accounts receivable process goes a long way in charting out the right growth and investment strategies and for the long term growth of the company.

Growing Technology Awareness and Enterprise Software Adoption in Small and Medium Sized Businesses

The term ERP was essentially coined for large enterprises and perceived as a tool for Fortune 1000 companies. Smaller companies shrugged from the term ‘ERP’ itself because of the preconceived notions of huge costs, high maintenance and large number of resources required to maintain this high end technology. However perceptions are fast changing, and with innovation in the cost structures and application architectures, ERP adoption is on a rise, with the SME segment beginning to see value in these offerings.

Technology giants like SAP, Oracle, Microsoft, and Sage have been dominant in large companies, with virtually every large enterprise having a robust ERP application to integrate its processes. However most mid market companies and SMBs do not have a robust solution in place and are unsure of the economic viability and ROI it would generate.

To cater to these apprehensions and to leverage on this huge opportunity, Enterprise software companies are focussing on developing products which are tailor-made to suit the business needs of these companies. For instance SAP Business One and Microsoft Dynamics NAV are products targeted to suit the operational needs of smaller companies.

They are also aggressively priced, keeping in mind the budgetary constraints of SMEs. The space for ERP providers in the SME segment is becoming highly competitive with local vendors going toe-to-toe to compete with large vendors like Microsoft, Oracle and SAP. This creates additional confusion in the minds of companies to identify the right solution for their businesses. Most of these software companies spend a lot on their marketing expenditure to create targeted campaigns to increase the level of awareness among SMBs with respect to technology adoption and its long terms benefits to business growth.

SMEs would take a call more often based on referrals from existing partners, suppliers and customers. A tried and tested solution in the industry then tends to become the preferred solution in the particular vertical, and most companies then prefer to go ahead with that solution. However some of the key issues for any company to implement an Enterprise solution would be its economic feasibility, time to implement, the Total Cost of Ownership (TCO), scalability, maintenance, ease of use and its long term ROI.

Keeping all these things in mind, Enterprise providers are gearing up to consolidate their shares in the highly growing SMB market which shows large revenue generating potential. SAP has already set a goal to reach 100,000 mid-market customers by 2010. Traditionally an on-premise solution, SAP is also innovating on its technology architecture to enable partners to build more customizations, and it is also planning to roll out a newer version of the Business ByDesign product for midmarket customers, which is essentially based on the on-demand model.

With huge competition from Microsoft and Oracle, the market for SME enterprise solutions has become fiercely competitive, not to forget the ever increasing base of local Enterprise software providers. Which vendor comes out to be a winner in 2010 is still to be seen; yet the SMEs would benefit from innovations and new value additions from these software companies which would increase their operational efficiency and profitability in 2010.