Point of View

Refocusing invoice to cash as businesses recalibrate priorities

How to reduce payment risks while maintaining cash flow and customer relationships

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COVID-19 has affected all industries, but some more acutely than others. Though the pressure on global supply chains has been a significant challenge for many businesses, the effects have been felt downstream too, and the invoice-to-cash (I2C) cycle is no exception.

Some suppliers have seen a spike in orders as consumers have stocked up, which has led some buyers to max out their credit limits or request new or amended terms. This can result in higher days sales outstanding (DSO) and a higher percentage of past-due invoices for accounts receivable (AR) functions.

Business need to prepare for late payments and a greater volume of credit defaults. It's the proactive companies that can make accurate cash-flow forecasts that are best placed to limit short-term losses and build longer-term resilience.

For CFOs and their finance teams, the demand for forecasting cash flow, revisiting credit-limit strategies, and having complete visibility into cash has never been greater. The response to COVID-19 is impacting four key areas of the invoice-to-cash function:

  • Credit: Credit practitioners may need to review existing credit policies and work with the leadership team on a short-run policy to make sure it is able to deal with today's circumstances. Secured credit providers will tighten trade or business credit. And companies may need to determine to what degree they can offer extended terms, credit, or investment in a customer's business. This will maintain a sustainable income and build the longer-term benefits of being a supportive partner
  • Collections: With many customers unable to pay on time, service disruptions in the supply chain can cause discrepancies, disputes, and partial payments, which can impact inbound cash flow. Similarly, because of widespread remote working, accounts payable teams may not have the contact details they need, and so they're relying more heavily on email and other channels for collections, which is driving the need for automated AR management workbenches
  • Disputes: Cash-flow issues fueled by payment delays, incomplete payments, and supply chain deductions or claims can lead to disputes with customers
  • Opportunistic fraud: Cybercriminals will see enforced shutdowns as an opportunity, for example, to redirect essential goods or services using phishing or other methods. This will lead to losses and other revenue loss for some businesses

Figure 1 highlights how different industries are experiencing the impact of COVID-19 and its implications for I2C functions.

Figure 1: Impact of COVID-19 and its implications for I2C functions across different industries

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Over the next 12-14 months, we believe that companies will refocus their priorities as they deal with the aftermath of Coronavirus. The invoice-to-cash organization should focus on three priorities and phases: agility, cost to serve, and resilience (figure 2). It can measure these initiatives across four key dimensions: speed to value, cost, business impact (BI), and user experience (UX). 

Figure 2: Three phases and priorities for I2C functions

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  • Agility (0-60 days): Tasked with preventing and reducing bad debts, credit teams face challenges as they must review multiple sources of data to make credit decisions quickly. And for many companies, an increase in orders, credit blocks, and customers requesting amended terms will stretch capacity. When the demand for products is greater than a company's production capacity, or when there's an industry-wide shortage, businesses may limit sales to a select group of customers and cut credit limits to marginal customers. I2C teams have to find the capacity to support their organizations' increased need for data-driven insights and business partnering to stay ahead. Arming the credit team with intelligent data from predictive analytics – for example, to better understand payment behavior or credit risk – can help provide the business with insights that support accurate decision-making at speed.
  • Cost to serve (60-180 days): The ripple effects from Coronavirus will remain for a long time. For recovery planning, improving the cost to serve will be a critical source of cost savings. Increasing process efficiency can directly reduce process costs. Automation will cut down cycle times, eliminate manual errors, reduce cost, and improve user experiences. With the shift in current buying habits to online channels, capitalizing on self-service options and shifting to the cloud will increase efficiency and optimize the way you service your customers.
  • Resilience (180-360 days): COVID-19 is not only exposing some organizations' weaknesses, but also uncovering improvement opportunities. Company leaders need to evaluate their current and future business models, and develop contingency plans that sustain and reimagine the scale of change needed for the post-pandemic landscape. Businesses will build on the speed to value, cost to serve, business impact, and customer experience as they realign their businesses. Organizations can use a global delivery model underpinned by digital technologies to boost their recovery. I2C teams will need to focus on centralization – or even remote working – by ramping up technology adoption. In this way, they will drive productivity and gain actionable insights from data to maximize cash flow and plug revenue leaks. An organization's ability to make key decisions when faced with disruption will prove its resilience.

Looking ahead

At times like these, companies need to proactively evaluate their cash-flow and cost requirements, understand how to act within multiple scenarios, and assess the potential risks to their revenues and customer base. For this, I2C functions must reprioritize their initiatives – focusing on their agility, cost to serve, and resilience – to help their organizations survive in the short term and be ready for future growth.

Companies can adopt and combine scalable operating models, predictive insights, and AR-automation toolkits to build a robust, forward-looking invoice-to-cash function. One that delivers better forecasts, reduces credit risk, enables faster debt collection, improves the use of available cash, and enhances the customer experience.

This point of view is authored by Akshay Belwalkar, AVP, I2C Service Line, and Jacqueline Korner, AVP, I2C Service Line, Genpact.

Learn more about how Genpact can help with invoice to cash.

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