Why Now May Be the Right Time to Examine Your O2C Process - Modern Distribution Management

Why Now May Be the Right Time to Examine Your O2C Process

Streamlining the order-to-cash process can play an important role in helping distributors to stay on top of accounts receivable and reduce DSO at a time when cash generation is of paramount importance during the COVID-19 economic slowdown.
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The cost for a company to manually process a customer order is between $10 and $16.50, according to American Productivity and Quality Center. At the same time, just 10% of companies are able to meet their service-level agreements by getting their products to their customers in the agreed upon timeframe, and a little more than half (56%) can retrieve order information immediately if requested by a customer, a study from consultancy CXP Group found.

These statistics underscore areas of improvement for the B2B market that can potentially be addressed through automating the order and payment process. In a recent MDM webcast, Order-to-Cash Excellence: Why Automation Should Be on Every Distributor’s To-Do List, Esker’s Jason Anderson and Chris Graves shared why now is a particularly important time for distributors to examine their order-to-cash (O2C) processes. 

With many businesses in at least a partial shutdown period right now due to COVID-19, getting paid has the potential to be much more challenging for distributors. Days sales outstanding (DSO) and cash conversion cycle can also be tied into company bonuses. Being able to bring in cash that is owed by customers will be key to recovery, said Anderson, Esker business development manager. 

Be the Squeaky Wheel

Accounts receivable will be “a huge focus” for distributors who have to pay employees, keep utilities running, order products, and perform other business-maintaining operations. An AR interface that shows what companies owe, and how long they have they had the invoice, can help distributors prioritize getting money into the company bank account as quickly and strategically as possible, Andreson said. “Each day it's not in your bank account, you're basically losing interest,” he added. “For large companies, DSO can mean millions of dollars per year by just reducing it by one or two days.”

The squeaky wheel gets the oil, and an automated solution can send out automated statements and invoices to customers who have not paid. “Managing that process of what's outstanding and providing different ways to make payment is very important right now,” Anderson said. 

Also see: “Get the Most out of Remote and Reconfigured Work.”

By removing the need to manually enter orders, industrial automation supplier Electro-Matic Products, Inc. was able to grow its order volume by 30% while maintaining its current headcount — a key consideration in an economic slowdown where bringing on new employees may not be feasible. While the company previously automated about 10% of its 3,400 monthly orders, they have now been able to more than double the number of orders that are automatically being processed, according to Graves, Esker senior business alliance manager. 

Plan Ahead to Avoid Surprises

Like any major change, going through an automation process can be a large undertaking. Graves recommended working with a service provider that can provide a project timeline with time intervals for each step of the project, and who is responsible for each step. Distributors should have “as much information about the expectations of the project as possible up front,” he said. 

Graves also recommended asking for a functional specifications document upfront so that the distributor’s technical team knows what's going to be required on their end in order to bring in the right people and avoid surprises from the beginning.

As for internal company use, Graves said to expect pushback from customer service reps who have been used to doing things another way for a long time. He recommended distributors “draw a line in the sand” to say the company is using the new system. “Yeah, there's going to be some grumbling, but once a CSR starts to use the system, they see how much time it's saving them and how much easier it is and they don't want to go back.”

Join MDM for our next webcast, 4 Key Things to Evaluate When Planning for a New Integrated ERP, on Thursday April 30 at 1 p.m. EDT. 

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