Customers are the lifeblood of any business. They hold the growth of our business in the palms of their delicate hands. We rely on them for consistent revenue, future sales and sometimes advocacy for our products or services. Yet all too often, we create situations where these critical relationships are victim to inefficient business processes translated into errors through the Order to Cash management cycle.
The Order to Cash Cycle encompasses all the processes within Order and Credit Management, Billing & Invoicing, Accounts Receivable, and Cash Application. The potential for bottlenecks throughout these business functions is massive and has a direct impact on a customer’s satisfaction level. Moreover, AR departments are often understaffed and lack the strategic thought processes to dive into the root cause of these issues. The impact of which, can be felt all the way to the bank. So how does this all shake out?
Let’s just stop for a moment here and say that the most important document sent to a customer after a sale is their invoice because without it, we don’t get paid for our products or services. Creating a customer invoice requires all the pre and post (invoice) processes to be effective and accurate. As customer relationships get more complex, the potential for errors increase, creating delayed payments, increased DSO and bad debt reserves. Normally, business rely on an accounts receivable collector or cash applier to employ manual work processes to support the complexities. This may work in the short term, but it never gets to the root of the problem.
During my career, I’ve seen firsthand how these problems can impact a business. One case that comes to mind was a customer that delayed payment for 13 months because their unit wasn’t installed timely. When my team was consulted on the receivable, I personally spoke with the customer and the whole reason for delay was because their installation wasn’t completed. They had a unique situation because they were on a remote island in Alaska and no one from the company contacted them to arrange a time to complete the work. He even had all the product sitting in the attic waiting for someone’s call. One of my team members worked with the customer, forced the tech department to address the issue and after a few short months, payment was received and the customer was finally satisfied.
Now that might be an extreme case, but let’s analyze it for a minute. The customer said he was waiting for our call with product sitting in the attic of his business. He was waiting for someone to call. So why did it take 13 months for us to call him? This wasn't a bad customer. They didn't cause the delay and they made several attempts to have the service completed. Had the business fulfilled their obligation to the customer, they would have paid without issue. The delay was caused by the lack of effort and ineffective strategy of the receivables department. Our team focused on areas of this particular business that were causing delays and together with our client, we created an environment with controls and processes in place so this type of issue wouldn't repeat itself.
This example also speaks volumes to what occurs on a micro and macro level. Simple customer disputes aren’t captured timely when an AR department isn’t operating proactively. It might be something as easy to fix as a pricing issue, but it needs to be addressed promptly so that the error doesn’t propagate for months before being addressed. Visibility to these issues is step one in creating a solution that works inside a business. The solution may be harder to achieve, but working with process experts, especially in O2C, can help reduce the financial and time investment.
If we consider that the AR department may be the only point of interaction a customer has with a business, it's critical to make the investment to improve not only how invoices are treated, but how we approach the customer. It's an investment in improving the customer's experience with your business, which will lead to happier customers and more importantly, cash in the bank.