Case Study

€16MM annual cash flow impact revealed by OTC process diagnostic for a European industrial manufacturer

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Client: Industrial manufacturer

Industry: European industrial manufacturing

Business need: Reduce complexity in the client’s current order to cash (OTC) process and improve cash flow

Genpact solution: Conducted a Smart Enterprise Processes (SEPSM) diagnostic to formulate transformative solutions for the credit, collections, and master data management processes that would reduce bad debt and enhance end-to-end OTC performance

Business impact:

  • Cash flow and liquidity
  • Standardization and simplification
  • Risk mitigation and compliance

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A leading European industrial manufacturing company wanted to improve its collections strategy and overall process effectiveness. Issues related to customer master data, a proliferation of payment terms, and the lack of a clear-cut credit management policy and process were affecting cash flow. By analyzing and redesigning the customer’s collections, credit, and master data management (MDM) processes, Genpact showed this client how to raise an additional €12-16 million of cash annually and €1.15 million in annual P&L impact.

Business challenge

This manufacturer’s complex OTC function included upstream processes with limited controls and policies. The company also lacked a defined collections strategy. Just 7% of the firm’s customers contributed to 70% of the days sales outstanding (DSO); however, the company was unable to collect on these clients effectively. With no clear credit policy and process in place, the manufacturer was exposed to bad debt risk, and experienced a negative impact on cash flow because of invalid payment terms and a large number of relatively small customers. Although the customer was implementing a new collections tool, it had not yet designed the "to be" collection strategy.

Genpact approach

Genpact guided this client toward more intelligent credit and collections processes, beginning with an end-to-end analysis of current OTC transaction data and performance. We engaged with senior finance executives within the industrial manufacturing industry in France and across Europe to understand market nuances and designed a transformational roadmap that included opportunities for cost savings and improved performance.

Genpact solution

Genpact used its proprietary Smart Enterprise Processes (SEPSM) framework to analyze the client’s OTC process. This combination of smarter analytics, processes, and technologies holistically assesses all aspects of OTC down to the sub-process level to spot silos, process gaps, revenue leakage, and policy noncompliance. It then links key performance indicators (KPIs) to desired business outcomes.

We used SEPSM to examine the client’s credit, collections, invoicing, cash applications, order and contract management, and customer master data management (MDM) processes. After consulting industry experts across Europe, we designed a transformational roadmap focused on the following key areas. 

Collections strategy Genpact designed a new collections strategy prior to implementing the new collections tool, with a clear view of the client’s specific priorities, including:

  • Customer segmentation
  • Self-payer analysis
  • Portfolio restructuring

Credit management The manufacturer needed a credit management process that would address exposure to bad debt. Genpact recommended a clear-cut methodology for setting up an effective end-to-end credit process:

  • Identify project resources and set up milestones
  • Create a credit and collections policy
  • Provide training to sales teams and branches
  • Implement the steady-state process

Customer master data management Genpact’s key recommendations for MDM included:

  • Tracking KPIs across the OTC function to analyze process health
  • Centralizing the MDM function with increased and improved process and quality controls

Payment rationalization Our solution addressed the lack of standardized payment terms to increase cash flow and reduce the client’s exposure to bad debt. Genpact:

  • Designed a cross-organization project to reduce the number of available payment terms
  • Proposed to organize training for sales teams and branches
  • Recommended a payment term matrix based on annual sales volumes

Business impact

The diagnostic identified opportunities for:

  • €12-16 million in cash flow improvement
  • €1.15 million EBIT impact
  • €.92 million net incremental savings per year

Competitiveness is enhanced by more effective OTC processes. The improvements identified by Genpact will lead to significant business impact and process efficiency for this forward-looking European industrial manufacturer.

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