Can We Extract More Value from the OTC Cycle?
Can We Extract More Value from the OTC Cycle?
Can We Extract More Value from the OTC Cycle?

Can We Extract More Value from the OTC Cycle?

Without a doubt, the answer to this question is yes. Based on on-the-ground experience, this is true for every company we talk or work with. Despite all the talk for decades, significant advancements in ERP software, and even the emergence of robotic process automation and AI, there is still much room for improvement in B2B processes. This includes integration with customers, autonomous activities, workflow, and deductions analysis. In short, B2B order to cash optimization is still in its early stages of development.

We have learned from our four decades in the Order-To-Cash (O2C) BPO and automation sectors that investing in this area remains a massive opportunity for corporate ROI. The Order-To-Cash (O2C) cycle is an opportunity that remains to be tapped by many businesses, especially middle-tier companies. Strategically realigning OTC and including new technologies can improve business performance and the bottom line. Recognizing this, companies are reviewing how to streamline OTC to ensure future business success.

Order-To-Cash is complex due to the many cross-functional activities involved, including sales, credit, order management, invoicing, billing, logistics, collection, cash application, deduction, and dispute resolution. Some of these activities are departmental, and others inter-departmental. Many functions are still stuck in departmental silos vs. collaborative steps in one extended process.

For example, large customers such as big-box retailers treat “Purchase to Pay,” the other side of the coin, as a seamless, integrated supply-chain process. In contrast, vendors still have siloed functions, and unconnected systems, often resulting in finger-pointing but not producing comprehensive solutions.

In addition to the negative profit impact of problem OTC operations, there is a long-term impact of poor supplier fulfillment ratings, ultimately leading to a loss of business.
For better or worse, the results show up in accounts receivable in relevant metrics such as Days Sales Outstanding (DSO) delinquencies, disputes, and deductions, including claims for supply chain compliance failures. By looking at O2C as a unified challenge, companies can improve operations, profits, and customer satisfaction.

The OTC Optimization Strategy. In the long term, technologies like blockchain can streamline Order-To-Cash (O2C) and eliminate vendor-customer orders, invoicing, payment, and dispute resolution. For now, however, we do business in separate environments for each party in a hybrid paper and electronic world with the expected snafus, disconnects, data problems, and communication issues that impede performance and hurt profits.

Still, plenty can be done today, including, for example, implementing robotic (RPA) processes to access supplier records on customer platforms or automatically obtaining proofs of delivery from transportation carrier systems. For now, several bolt-on software applications optimize ERP systems for the OTC cycle; these systems, including such as HighRadius™ and Carixa™, deliver a high level of ERP integration combined with RPA, configurable workflows and autonomous actions that drive operations to meet the corporate goals.

When the O2C process is decentralized or systems need to be better integrated, the process is more vulnerable to errors, inefficiencies, costs, and customer dissatisfaction. In addition, since many large customers evaluate suppliers by their order fulfillment metrics, businesses that receive poor performance grades will impact profitability and shareholder value.

Integrating Invoice to Pay

Integrating the invoice-to-payment process involves linking various stages, from invoice generation to payment receipt, into a seamless and automated workflow. It has been done most effectively involving small B2B to B2C transactions, with Intuit being the perfect example.

Invoice-to-pay software providers have also gained a good foothold on transactions where the seller is generally a big company in a position to mandate the process, and the buyers are small, say in the building materials industry, dental products wholesale, etc. However, when the customers are bigger than the sellers, the power is with the customer. An obvious example is that no supplier will tell WalMart how they have to process payments. Ultimately (blockchain, etc.), there may be an industry-wide solution, but that will likely be decades (if ever).

Here is a summary of the process and benefits of integrating invoice-to-pay:

  • Invoice Generation. Invoicing begins with issuing invoices to customers, either manually or through an automated system.
  • Invoice Submission: Invoices are submitted to customers through preferred channels such as email, electronic data interchange (EDI), or online portals.
  • Invoice Receipt and Validation: Customers receive and validate the invoices against their records, ensuring accuracy and matching them with the corresponding purchase orders or contracts.
    Approval and Dispute Resolution: In some cases, invoices may require approval from relevant stakeholders within the customer’s organization. Disputes or discrepancies may also arise, which need to be resolved through effective communication and negotiation.
  • Payment Processing: The customer initiates the payment process once the invoice is approved. This can involve various methods such as electronic funds transfer (EFT), checks, credit cards, or online payment platforms.
  • Payment Receipt and Reconciliation: The supplier reconciles the payment with the corresponding invoice, verifying that the correct amount has been received and accounted for.

Credit Management

Business-to-business (B2B) credit scoring and credit line monitoring are essential processes that enable companies to assess the creditworthiness of their business customers and manage credit risk. Here are some of the critical steps involved in these processes:

  • Collect data: Collecting relevant customer data is the first step in B2B credit scoring and credit line monitoring. This may include information about the company’s financial statements, credit history, payment behavior, and industry performance.
  • Analyze data: Once data is collected, it must be analyzed to determine the customer’s creditworthiness. This involves using statistical models and algorithms to assess credit utilization, payment history, and debt-to-income ratios.
  • Assign credit scores: A credit score is based on customer data analysis. This score is used to determine the level of risk associated with extending credit to the customer.
  • Set credit limits: A customer credit limit is set based on the credit score and other relevant factors. This limit determines the maximum amount of credit that the customer can access.
  • Monitor credit lines: Once credit is extended, it is essential to monitor the customer’s credit line to ensure they are within their limit and making timely payments. This involves regular review of the customer’s payment behavior and credit utilization.
  • Credit scores: Credit scores should be reviewed regularly to ensure they are up-to-date and accurate. If a customer’s creditworthiness changes, their credit score may need to be adjusted, and their credit limit may need to be revised.

Overall, B2B credit scoring and credit line monitoring are critical processes for managing credit risk and ensuring that companies can extend credit to their customers responsibly and sustainably. By collecting data, analyzing it, assigning credit scores, setting credit limits, and monitoring credit lines, companies can reduce the risk of defaults and improve their overall financial performance.

Accounts Receivable

Cash application is a critical process in accounts receivable management, where incoming customer payments are matched and applied to open invoices. It involves accurately and efficiently reconciling payments received with the corresponding invoices. Unfortunately, traditional cash application processes can be time-consuming and prone to errors, leading to delays in updating accounts and potential financial discrepancies. However, software solutions can significantly enhance the speed and accuracy of cash applications through various approaches. Let’s explore some of these ways:

Automation: Software can automate the cash application process by leveraging advanced algorithms and machine learning techniques. By extracting relevant information from remittance advice, bank statements, or electronic payment files, the software can automatically match payments to the correct invoices. This reduces the manual effort required and minimizes the chances of human error.

1. Optical Character Recognition (OCR): OCR technology enables software to read and interpret data from scanned or electronic documents, such as remittance advices or checks. By extracting critical information, such as invoice numbers and payment amounts, OCR can accelerate the cash application process by automating data entry and reducing manual input errors.

2. Integration with Payment Gateways: Cash application software with payment gateways or electronic payment platforms allows for seamless and direct receipt of payment information. When a customer makes a payment online, the information is automatically transmitted to the cash application software, eliminating the need for manual data entry. This integration ensures faster and more accurate payment matching.

3. Machine Learning Algorithms: Cash application software can learn from historical data patterns and improve its accuracy over time by employing machine learning algorithms. These algorithms can identify and understand customers’ various payment patterns and behaviors, leading to more accurate and efficient matching of payments to invoices.

4. Exception Handling: Cash application software can handle exceptions, such as partial payments, overpayments, or unidentified payments, more effectively. It can apply predefined rules or algorithms to handle these situations, ensuring proper allocation of payments and minimizing manual intervention. This reduces the time spent on resolving exceptions and improves the overall speed of the cash application process.

5. Real-time Monitoring: Software solutions can provide real-time visibility into the cash application process, allowing users to track and monitor the progress of payment matching. This real-time monitoring enables quick identification of any discrepancies or issues that may arise, facilitating prompt resolution and reducing delays in updating accounts.

6. Integration with Accounting Systems: Seamless integration between cash application software and accounting systems, such as an Enterprise Resource Planning (ERP) system, ensures the automatic transfer of updated payment information. This eliminates the need for manual data entry in multiple systems, reducing errors and streamlining the overall process.

7. Data Analytics and Reporting: Cash application software can leverage data analytics to provide insightful reports and dashboards. These tools offer a comprehensive view of payment trends, outstanding balances, and potential bottlenecks in the cash application process. By analyzing this information, businesses can identify areas for improvement and make data-driven decisions to optimize their cash application efficiency.

In summary, software solutions can significantly enhance the speed and accuracy of cash applications by automating manual tasks, leveraging OCR technology, integrating with payment gateways, employing machine learning algorithms, handling exceptions efficiently, providing real-time monitoring, integrating with accounting systems, and offering data analytics and reporting capabilities. By adopting these software enhancements, businesses can streamline their cash application processes, reduce errors, and improve operational efficiency.

Collections Management

The software can significantly improve the B2B accounts receivable (AR) collections process by streamlining operations, increasing efficiency, and enhancing overall effectiveness. Here are several ways software can improve the B2B AR collections process:

  • Automation: Software can automate various collection tasks, such as sending payment reminders, generating invoices, and tracking payment statuses. This automation reduces manual effort and ensures consistent and timely communication with customers.
  • Integration: Software can integrate with accounting and customer relationship management (CRM) systems, consolidating relevant data in one place. This integration enables quick access to customer information, payment history, and communication logs, empowering collection agents with comprehensive insights.
  • Workflow Management: Software can facilitate the creation and management of collection workflows. It can assign tasks, set reminders, and track progress, ensuring that collection efforts follow a structured and efficient process.
  • Customization: Good software allows businesses to customize cash collection strategies based on their unique needs. It enables the creation of personalized communication templates, escalation procedures, and prioritization rules, aligning collections activities with specific customer segments or risk profiles.
  • Reporting and Analytics: Software can provide robust reporting and analytics capabilities. It can generate real-time dashboards and reports, offering insights into collection performance, outstanding balances, aging trends, and customer payment behavior. These analytics help identify bottlenecks, evaluate strategies, and make data-driven decisions.
  • Communication Channels: Software can facilitate multi-channel communication, including email, SMS, and even integrated customer portals. It allows for automated, consistent, and personalized communication, reaching customers through their preferred channels and increasing the chances of prompt responses.
  • Dispute Resolution: Some software solutions offer features for managing and resolving customer disputes. These tools enable efficient tracking and resolution of invoice discrepancies, reducing the time and effort required to address disputed amounts.
  • Collaboration and Documentation: Software can enable collaboration among collection agents and other relevant stakeholders. It allows for shared notes, document attachments, and task assignments, ensuring everyone involved has access to the latest information and progress updates.
  • Predictive Analytics: Advanced software solutions employ predictive analytics to forecast customer payment behavior. By analyzing historical data and customer patterns, the software can estimate the likelihood of timely payments or potential defaults, allowing businesses to address high-risk accounts proactively.
  • Integration with Collection Agencies: In cases where collections are outsourced to third-party agencies, the software can facilitate seamless integration and data exchange. It ensures transparency and effective collaboration between the company and the collection agency, enabling smoother workflows and better outcomes.

By leveraging software in the B2B AR collections process, businesses can enhance productivity, reduce manual errors, improve customer communication, and make informed decisions. These improvements ultimately lead to faster payment cycles, reduced outstanding balances, and improved cash flow, contributing to the organization’s financial health.

Customer Deductions Management

Deductions automation software can significantly enhance enterprise deduction management by providing automation, centralization, and real-time visibility. Here are some ways in which software can improve the deduction management process:

  • Automated Workflow: Deduction management software can automate various tasks, such as capturing deductions, routing them to the appropriate teams for resolution, and tracking the status of each deduction. This automation eliminates manual handling, reduces errors, and ensures consistent and timely processing.
  • Planned Deduction Access: Software can provide centralized access for organizing deduction-related documents, such as invoices, purchase orders, and supporting documentation. This centralization streamlines access to information, allowing teams to retrieve relevant documents during the resolution process quickly.
  • Intelligent Matching and Validation: Deduction management software can employ intelligent algorithms to match deductions with corresponding invoices or purchase orders. It can automatically validate the accuracy and legitimacy of deductions, flagging potential discrepancies for further investigation.
  • Collaboration and Communication: Software enables seamless collaboration and communication among teams involved in deduction management. It allows for sharing notes, attaching documents, and assigning tasks within a centralized platform, facilitating efficient resolution and reducing response times.
  • Analytics and Reporting: Deduction management software provides robust reporting and analytics capabilities. It can generate real-time dashboards and reports that offer insights into deduction trends, root causes, and resolution times. This data helps identify recurring issues, assess the impact on profitability, and make informed decisions for process improvement.
  • Workflow Automation and Escalation: Software can automate the deduction resolution workflow, ensuring that tasks are assigned, deadlines are met, and escalations occur when necessary. It helps teams prioritize and manage deductions based on predefined rules and criteria, reducing manual intervention and ensuring efficient resolution.
  • Documentation and Audit Trail: Deduction management software maintains a comprehensive audit trail of all activities and actions taken during the resolution process. This documentation is essential for compliance purposes, internal audits, and dispute resolution, providing a clear history of the steps taken to resolve each deduction.
  • Integration with ERP Systems: Deduction management software can integrate with enterprise resource planning (ERP) systems, synchronizing data between platforms. This integration enables a seamless exchange of information, such as customer master data, sales orders, and credit memos, ensuring accurate and up-to-date deduction records.
  • Alert and Notification System: Software can incorporate automated alerts and notifications to keep stakeholders informed about critical deduction-related events. These alerts can be triggered based on predefined conditions, such as high-value deductions, approaching deadlines, or changes in deduction status, ensuring timely action and preventing missed opportunities.
  • Compliance and Dispute Resolution: Deduction management software can assist in managing compliance requirements and dispute resolution processes. It can help track and manage customer claims, document the resolution process, and provide insights into dispute trends and outcomes.

By leveraging software in the enterprise deduction management process, businesses can streamline operations, improve efficiency, reduce errors, and enhance visibility. This leads to faster deduction resolution, improved cash flow, and better customer relationships, ultimately contributing to increased profitability and customer satisfaction.

Integrating Trade Promotion Management with Deductions

Trade promotion management is critical in the fast-moving consumer goods (FMCG) industry, where manufacturers and retailers work together to drive sales through various marketing and promotional activities. However, managing trade promotions can be challenging, especially when tracking and reconciling retailer deductions, which can often result in significant losses due to errors and discrepancies. As a result, many companies are turning to automation and machine learning to address this issue to streamline their trade promotion management processes and reduce the risks of erroneous deductions.

One of the critical challenges in trade promotion management is the complexity of the process. Trade promotions involve various activities, such as discounts, rebates, free products, and other incentives, which can be challenging to track and manage manually. In addition, retailers may have different requirements and processes for submitting claims and reconciling deductions, which can further complicate the process. As a result, many companies struggle to keep track of their trade promotions, leading to errors and inaccuracies that can result in significant losses.

Integrating trade promotion management with deduction management software is highly beneficial for businesses, particularly those in the consumer goods industry. Here are some key reasons why this integration is essential:

  • Improved Efficiency: Integration enables seamless data flow and automation between trade promotion and deduction management systems. This eliminates manual data entry and reduces errors, saving time and effort. In addition, the integration streamlines processes, allowing teams to focus on analyzing data and making informed decisions.
  • Enhanced Visibility: Trade promotion management software helps plan, execute, and evaluate promotional activities. By integrating it with deduction management software, businesses gain a comprehensive view of promotional campaigns’ impact on deductions and vice versa. This visibility facilitates better analysis, decision-making, and identifying trends or patterns.
  • Accurate Deduction Tracking: Deduction management software tracks and manages deductions taken by customers, such as trade promotions, rebates, and chargebacks. By integrating it with trade promotion management software, businesses can accurately track deductions associated with specific promotions or activities. This ensures that deductions are accounted for and reconciled appropriately, reducing revenue leakage and improving financial accuracy.
  • Seamless Workflow: Integrating trade promotion management with deduction management software enables a smooth workflow between sales, finance, and other relevant departments. Teams can easily collaborate, access real-time information, and share insights. In addition, this integration streamlines claims validation, settlement, and dispute resolution, leading to faster and more efficient operations.
  • Data-Driven Decision Making: Integration allows businesses to leverage the wealth of data generated by trade promotion and deduction management systems. By analyzing this integrated data, organizations can gain deeper insights into the effectiveness of promotions, the impact on deductions, and the overall profitability of their trade spend. Data-driven decision-making helps optimize promotional strategies, identify areas for improvement, and maximize return on investment.
  • Improved Compliance and Auditability: Integrating trade promotion management with deduction management software enhances compliance and audibility. All relevant information, including promotional activities, customer deductions, and related documentation, is consolidated in a single system. This simplifies the audit process, ensures compliance with internal policies and external regulations, and provides a clear audit trail for future reference.

In conclusion, integrating trade promotion management with deduction management software brings numerous benefits to businesses. It enhances efficiency, provides better visibility and accurate tracking, streamlines workflows, enables data-driven decision-making, and improves compliance and audit. As a result, this integration helps businesses optimize trade promotions, effectively manage deductions, and drive profitability.

Is Order-to-Cash Outsourcing a Good Option?

To create a robust O2C process, many organizations look for managed service providers (MSPs) to improve the process. Well-managed, automation-enabled BPOs and MSPs have proven to deliver a significant return on investment for many companies with a lower cost-to-serve than in-house. In addition, managed services can provide organizations with a sustainable management plan that links all activities to achieve their business objectives.

Outsourcing, especially offshore,  has clearly become part of large enterprises’ status quo, but we recommend caution.

One issue of concern is that many BPOs, even including those with thousands of offshore employees, lack sound systems. Few have invested in modern software to optimize accounts receivable processes; others use the client’s ERP (which is rarely optimized for an AR production environment). Many, believe it or not, still use spreadsheets for basic receivables functions such as collector call sheets, to-do lists, deduction call lists, etc. We are not implying that offshore BPO is not a good option, only that it must be evaluated far more deeply than most companies have done.

If evaluated only for straightforward offsetting of high-cost labor with low cost (“labor arbitrage”), the results in the long term may be disappointing. As with any onshore operations, highly efficient automation is needed to keep labor expenses from creeping higher and to improve corporate financial results through the superior performance of the OTC cycle, invoicing to cash and deduction management. In addition, an important overlooked factor is the need for subject matter expertise, which most offshore outsourcers lack.

Summary Unlocking More Value From Order-to-Cash

Whatever the industry or existing level of process sophistication, all businesses can benefit from optimizing their O2C processes, and based on our experience, they all have room for improvement. Effective management of O2C processes could be one of the most cost-effective and quickest ways to improve financial operations and enhance shareholder value. While activities in the O2C process may seem simple, integration and experienced management are needed and challenging. Yet, it is a worthwhile challenge that delivers sustainable, lasting results and offers continuous improvement opportunities for ongoing success.

Even small changes can deliver significant ROI. For example, for a $10 billion consumer goods company,

  • A three-day reduction in Day Sales Outstanding will produce $82 million in additional cash, with autonomous collections reducing administrative costs by a large percentage.
  • A 5% reduction in customer deductions would represent millions of additional profits.
  • Control of trade promotion accruals and claims validation will ensure that trade funds are providing an ROI vs. giving free money without performance.
  • Automation of cash application speeds closing the books and supercharges the deduction validation and resolution process while eliminating 50% of the labor.

Advanced, integrated automation built on best practices can help businesses achieve significant success with core objectives, including increased cash flow and enhanced customer experience.

State-of-the-art automation can have a swift ROI and deliver a sustainable plan to continue to improve and work towards unlocking more benefits and value. As improving O2C is a whole-business approach, your organization must consider all aspects of people, processes, and technology to achieve a significant return on investment. Therefore, it is essential to consider O2C as not just a quick win to cut costs today but a fundamental, continuing business strategy that will help growth, customer satisfaction, and shareholder value.


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