Assembling a liquidity council to maximize operating cash flow
Focusing on DPO and days sales outstanding (DSO), we took on the five-week assignment and formed a dedicated liquidity council. It included the firm's finance professionals and our own specialists in analytics, order to cash, and procure-to-pay. This band of experts went to work to find quick, short-term fixes and more structural improvements for longer-term cash-flow management.
This elite squad determined that on the DPO side, meeting payment terms to avoid interest charges and penalties would dramatically improve liquidity. To do that it had to standardize payment terms and streamline the payables process. For the DSO part of the equation, we focused on the factors impacting collections, deductions, and credit management.
We analyzed data, interviewed the people managing both receivables and payables, and performed a root-cause analysis to reveal process vulnerabilities. We began by delving into data from the past two years and sifting through spend figures, accounts payable and receivable transactions, vendor and customer master data, and contract data. We followed deduction trails and scoured credit-policy documents.
More power to procurement
In procurement, we recommended discontinuing contracts that renew automatically and advised that the team should have more authority to negotiate. We also noted that busy buyers were only using procurement-approved contracts 20% of the time and weren't exploring extended payment terms. We proposed standardizing payment frequencies, which had been scattergun until then.
A new receivables regime
In accounts receivables our goal was to exceed DSO performance and sustain it. We defined what the best possible DSO landscape looked like by examining the company's past-due trends, following its shipping procedures, and conducting regional analyses of its customers. Through global customer segmentation and analytical insights into payment behavior, we are helping the company decide which clients to concentrate on when collecting and servicing. We also analyzed the upstream supply chain issues causing the most deductions and applied standardized reason codes, using predictive analytics to reduce preventable deductions.
Continuing the cash-management journey
The liquidity council is now helping the company revamp is global credit policy, develop a robust credit-scoring mechanism, and apply automation to create credit reports.
And with our liquidity management control tower, the company's leaders will have dynamic insights at their fingertips. The control tower will highlight ways they can unlock value by making changes that impact DSO and DPO. And by benchmarking the company's DSO and DPO metrics, it will help the company reach its cash-management goals faster.
We're also deploying technology from Celonis, a leader in artificial intelligence-enhanced process mining, to improve receivables management and introduce automation. This will cut manual work, reduce errors, and accelerate processes.