I found this article posted on Article City and I thought it was well written. It explains real benefits of receivables management and why it is important.
CFOs Need To Know the Fallacies Behind “Business as Usual” for Accounts Receivable
by: Kevin Calhoun
The title, "CFOs Need To Know the Fallacies Behind 'Business as Usual'" is an installment of a series of white papers focusing on Business Process Improvement. This installment highlights:
•The vital role Accounts Receivable plays within a business environment
•Enormous hidden costs associated with generating Accounts Receivable documents
•Accounts Receivable vs. Receivables Management
•Proven real world solutions to eliminate these skyrocketing costs
The goal of this white paper is to enlighten CFOs that "Business as usual" is not always efficient business.
"US businesses are paying over 200% too much per invoice transaction" - IDC
Business As Usual
Over the past decade, business has primarily focused on improving core business processes: Manufacturing, Distribution and Enterprise Resource Planning. In these areas, companies are rapidly automating processes, cutting costs and boosting productivity. At the heart of every business flows its lifeblood – CASH!
It can be argued that revenue generation is the most critical function of any company. Management of these receivable assets is a demanding task. Converting these receivables into cash though requires a substantial level of involvement.
The staff and processes that manage receivables assets:
•Manage 100% of a company’s revenue
•Act as a service touch point for virtually all customers. (Only Sales and Customer Service speak more with customers.)
•Incur thousand of dollars of hard and soft costs in processing receivables
•Injure or enhance customer service and satisfaction, leading to an increase or decrease in revenue
Management of the receivables assets is a complex task. It addresses the ramifications of practices outside the control of the responsible manager. It requires balancing opposing priorities. It is affected by the state of the domestic and global economy, interest rates, foreign exchange rates, banking regulations and practices, business laws, and other factors.
Excellence in receivables management is a combination of art as well as science; it involves business processes, technology tools, staff skills, motivation, corporate culture, change of behavior in customers and coworkers, organization structure and metrics, incentives, and flexibility to deal with changing external influences.
Even though the process to manage receivables is very involved the management’s expectations for success are extremely high. If answered truthfully, most companies expect a Days Outstanding of 30 days or less and only tolerate a bad debt of less than one tenth of one percent. All of this is to be accomplished for a cost equal to about two or three tenths of a percent of revenue.
Are these desires real? Yes, but are they realistic? To find this out, we must analyze the environment that has been established for the management of our receivables. Kevin Craine, Author of Designing a Document Strategy said it best, "The way we manage documents says a lot about how we manage business." The question to ask is, "Does this traditional accounts receivable environment promote success or failure of the above desires?" As necessary as receivable processes are to a business, the associated costs are not.
Manual Steps for Invoicing
•Paper orders come into the company via mail or facsimile
•File folder is used to start order packet
•Order is entered in the system
•Paper order acknowledgement is mailed or faxed back to the customer
•Paper pick ticket is generated, then sent to the warehouse to pull the product
•Multiple copies of bill of lading is printed for shipment
•Signed copy of the bill of lading is returned to the company
•Paper invoice is mailed or faxed to the customer
•Order packet, which includes the customer order, order acknowledgement, pick ticket, signed bill of lading, and a copy of the invoice is physically filed in a filling cabinet that consumes valuable office space
Today's business leaders are more compelled than ever to streamline their business processes in order to cut costs and improve efficiency. If an organization's core business is to produce product "X", its second line of business is to manage the documents that control the flow of that product. Unfortunately, market research firm eMarketer Inc. estimates that "84 to 98 percent of all business-to-business receivable processes still involve a large volume of paper costs." This means that organizations have achieved only a fraction of the opportunity to cut costs. These costs include:
• Printer wear and tear
• Pre-printed forms
• Postage (which went up 5.4% in January 2006)
• Cover pages
• Facsimile charges
• Filling supplies
• Cabinet space
• Office space
• Labor time to manage and move these invoices
Companies have the ability to make great economic strides by implementing a document management solution. By transforming paper based invoicing processes into electronic creation, distribution, and storage processes. Gartner Inc. believes that companies should expect to lower the typical cost of producing a paper invoice from $5 to $1.65. This would be achieved by reducing labor, postage, paper, office space and equipment costs.
Electronic Steps for Invoicing
• Order is received electronically at desktop and never printed
• No physical folder is need
• Order is entered in the system
• Order acknowledgement is automatically customized with an electronic form and electronically distributed back the customer
• Pick Ticket is generated with a bar code. When the completed copy is scanned back into the system it is automatically indexed
• A Bill of Lading is generated with a bar code. When the signed copy is scanned back into the system it is automatically indexed
• An Invoice is automatically customized with an electronic form and electronically distributed to the customer, then filed electronically
• There is no need for a physical filing cabinet.
• The electronic order packet includes the customer order, order acknowledgement, pick ticket, signed bill of lading, and the invoice. It is accessible to anyone with the correct security clearance on demand
10 Benefits of Receivables Management
• Improved cash flow
• Higher margins
• Reduced bad debt loss
• Lower administration costs
• Enhanced customer service
• Added value to existing ERP investment
• Improved control and compliance
• Enhanced security
• Smoother audits
• Reduce administration burden on sales force
What Are You Waiting For?
As you can see, fallacies behind the phrase "business as usual" are not immediately apparent. When companies take the time to look for ways to improve business, these problems are discovered, especially when it comes to Accounts Receivable.
Managing documents will make your business run more efficiently. Moving from a manual process to an electronic process leads to a better managed, more profitable business. What are you waiting for? Let us help you uncover your hidden document costs.
Cornerstone Communications has helped over 800 CFOs streamline their document processes. We do not know your specific situation or if we can help you. Contact us today to explore how document management might affect your company's Accounts Receivable process.