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4/6/17 at 11:44 AM 0 Comments

Avoiding a Cash Flow Crisis with Effective Order-to-Cash Management

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Cash flow is, without a doubt, one of the most critical factors responsible for the survival and success of any business. Even companies with healthy margins and a good turnover can suddenly find themselves in a cash flow crisis, potentially crippling their business.

Roughly 90 percent of business failures can be attributed to cash flow-related issues. If you cannot pay suppliers or procure new stock, you will not be able to make sales to bring in more cash. If you fail to pay your staff on time, you are in for even bigger problems. It is that simple. You need cash to run your business.

This certainly should cause you to pay particular attention to the cash flow situation and especially your order-to-cash(OTC or O2C) process. It is vital that you have an efficient, streamlined order-to-cash process from start to finish. Delays or snags in the system could unnecessarily slow the process down, resulting in a decrease of your cash flow.

First, you need to take an objective, close look at the timeline, from processing to invoicing to the collection of payments. Surprising inefficiencies are often discovered when this is done. Some may have been happening for many years in some cases. Some are minor issues, others larger, but all will slow the process down and most can be resolved relatively easily.

With the necessary checks and balances (without adding new delays), a few adjustments could have a dramatic and instant positive effect on cash flow. A simple error or omission in any part of the process could lead to lengthy and unnecessary delays. These can easily be avoided with proper analysis and order-to-cash management.

To effectively analyze the OTC process, it would be wise to include all relevant parties, from the warehouse and logistics department to sales and accounting.

One of the two main aspects you want to focus on is the order process, from how it is initiated, how it gets sent to the warehouse, how it is processed, how it is fulfilled, delivered, and where applicable, installed.

The second aspect is the bill-to-cash process. In other words, how it is invoiced and how payment is received.

Walk the team through the process more than once, using various products or services and observe the flow and speed of the various stages.

Delays and inefficiencies can and often do occur at any stage in the process. Seen in isolation, many of them may appear trivial but when combined they will no doubt have a detrimental effect on cash flow, not to mention customer service and other issues resulting from these problems.

Once you have identified the inefficiencies, you need to develop a plan to eliminate them and prevent them for recurring. There are a number of strategies to streamline and improve the systems.

Order Management Optimization 

Eliminate any outdated processes and automate the systems. Synchronize processes across all departments, so they all talk to each other and update simultaneously. This is where Enterprise Resource Planning (ERP) is invaluable.

The latest software with built-in intelligence will aid in continuously improving this process as well as advising you of weak links in the chain.Ensure sales personnel, particularity field sales agents have up to the second inventory data to minimize backorders or delays that could otherwise be avoided.

Order-to-Cash Optimization 

It is important to reiterate that while OTC is vital, you cannot expect to receive the payment until the order is successfully fulfilled. The two systems, therefore, need to be looked at in tandem. Before we look at OTC optimization, let’s take a quick look at some of the common inefficiencies that can be avoided:

- Keep it simple. Make invoicing understandable, clear and easy to pay.

- Avoid quote errors or discrepancies. Ensure pre-sales are perfect to avoid disputes and delays in invoicing.

- Avoid conflicting data from different sources. Again, this is where ERP will ensure uniformity and accuracy of data.

- Again, automate processes as much as possible to speed up the process and avoid human error.

Some Ideas to Optimize OTC:

- Automate through a sales order management solution that will accurately apply necessary data to avoid errors.

- Centralize invoicing and payment functions and information.

- Ideally, have one point of contact for accounts, queries, and disputes.

- Implement electronic invoicing as much as possible and utilize a vendor portal for ease of account information access and electronic payment.

- Proactively manage overdue accounts using analytics and real-time reporting.

While you may well accept the importance of cash flow and efficient order management and order-to-cash management, the task might appear overwhelming. This may be the case with legacy software and each department working in isolation, but with the correct technology, the process is easily managed.

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