Dec 26, 2012

Are Your OTC Metrics the Right Metrics? The Wrong Ones Can Cost You

December 26, 2012 - Measuring Order to Cash (OTC) and Accounts Receivable (AR) performance is critical, but there is a fine line when it comes to the metrics you use to do it. Many companies incorporate reams of irrelevant data into their monthly reports, at the cost of time, expense, and data overload. Others measure too few, denying themselves visibility into problems and opportunities.

Genpact uses a proprietary framework called Smart Enterprise Processes (SEPSM) to identify, benchmark, and measure key performance drivers for achieving client business goals. SEP contains some 150 OTC metrics to choose from, and companies should choose carefully. Metrics should measure how effectively and efficiently you manage the revenue stream, provide clear insight into operations and challenges, and minimize the time and cost of reporting. Yet it is easy when sub-par results are reported to devolve into an accelerating spiral of special reports and new analytics to spot the problem, entailing more days in each month devoted to reporting and fewer days spent actually improving operations.

The essential Key Performance Indicators (KPIs) any finance organization should measure boil down to these:

  • Effectiveness and Efficiency KPIs for reporting overall results. SEPSM includes business outcome and performance measures such as the billing accuracy, which measures the accuracy of contract and pricing administration, order processing, and invoicing, and helps you maintain good customer relations. Others include Asset Turnover, Asset Quality, and Asset Risk as well as efficiency KPIs such as Cost of Operations and Cost/Benefit of Results to help you understand your actual AR costs.
  • Operational KPIs (SEPSM performance drivers) related to collections, payment processing, credit, deductions, invoice and order processing. These monitor the four essentials: throughput volumes, timeliness, accuracy, and backlog. Neglecting these can directly impact revenue. For instance, failing to measure turnaround times can lead directly to high processing backlogs, while not accurately tracking invoice payment can lead to collectors dunning customers who have already paid.
  • Analytics used judiciously for periodic deep dives into data, such as quarterly or half-yearly reports that delve into the AR portfolio to understand the impact of certain accounts, to craft strategies for the next quarter, and to set DSO targets. Here is where many companies get carried away, converting one-time requests for information into ongoing monthly reports.

Just because your reporting system supports “unlimited” reports does not mean you should track a cornucopia of metrics to create dozens of reports no one but the most dedicated number cruncher will read. Identify the essential KPIs that will drive performance and customer satisfaction and help you reduce revenue leakage, and report on those. Save your time, energy, and manpower for the information you really need.

Author: John Salek - Vice President, Business Services of Genpact’s Order to Cash Group