One silver lining to the market volatility and anxiety-inducing economic ups and downs of recent years is that many accounting teams are increasingly focusing on a more data-driven approach to cash management. This article presents an example of a multinational manufacturer that the author’s company has worked with over the past three years to build an exemplary strategy for data-driven cash management.
Adjusting accounts payable data
In this case study, the client’s accounts payable situation will be familiar to most CPAs. This multinational manufacturer had hundreds of different contracts with various suppliers, some based on a net 30-day payment cycle and others based on a 45-day cycle. . For some items, he could receive a 1% discount in exchange for early payment. Some had a 0.5% discount, while others had no such arrangement. What’s more, the contracts governing these payment schemes reside in a jumble of PDFs in a procurement team member’s email inbox, in his DocuSign files stored on the company’s servers, and in a mostly vacant office. It was managed using handwritten paper contracts. In the middle of a pandemic.
Before anyone on the accounting and finance team can begin to understand how to optimize accounts payable or free up cash flow, they first need to be able to ensure consistency about who owes what and when. there was. This meant systematically reviewing, consolidating and streamlining key processes to standardize accounts payable data, storing it in the cloud and making it accessible in real-time across geographies. Only by being able to store and manage this disparate, unstructured information as tangible data will clients be able to actually start optimizing their money management processes.
Optimize accounts payable through analysis
With a clean dataset of global accounts payable requirements, the author can begin the process of analyzing that data to determine a more optimal payment cycle timeline for this client. This includes redesigning operational workflows as well as calculating maximum cash flow optimization and renegotiating payment terms to create incentives for suppliers to adhere to customers’ ideal payment terms. .
One of the most important examples of seemingly simple workflow adjustments that resulted in significant efficiency gains was the centralization of payment operations. The company had a disjointed and disconnected accounts payable process, making payments completely ad hoc and requiring valuable resources to issue and process payments for suppliers’ one-time requests. I wasted a lot of time and resources. However, by standardizing the underlying terms, payment execution can be centralized and the process of physically issuing payments to suppliers can be performed simultaneously across all suppliers. This created discipline around accounts payable and promoted best practices throughout the organization.
Rethinking accounts receivable
Of course, accounts payable is only half the equation, and a similar process had to be implemented on the accounts receivable side. It is important to recognize that our client’s business was growing rapidly through merger and acquisition (M&A) activity and had entered into a number of non-standard agreements on the accounts receivable side. Some customers have had their credit extended, others have started making payments on different agreed upon schedules, and others have started making payments. Until the credit limit is reached. The first step was to understand the unstructured data before analyzing it.
Once that happened, the author discovered that the client had approximately 500 medium-sized accounts and had already utilized more than 70% of the agreed credit limit. Naturally, this realization raises some red flags, with finance and accounting teams scrambling to shore up cash ahead of a potential downturn.
But with a data-driven approach to accounts receivable, you can quickly assess the relative credit risk of those accounts and take steps to delay or push payments if payment concerns are warranted. We were able to implement an aggressive digital collections strategy to reconcile existing accounts. Paying the bill contrary to the scope of the contract. Additionally, by digitizing a layer of collections requirements, the company’s accounts receivable department is automating most of the routine follow-ups and prompts while adding top collectors to strategic accounts that require a more nuanced touch. I was able to concentrate.
combine all the pieces
The multinational manufacturer’s finance function is now well on its way to becoming a digitally enabled, data-driven organization of the future. Automated, intelligent workflows and real-time insights have enabled this client to identify initial results such as:
- ▪ AI-driven automation saves 280 hours of manual time per month
- ▪ Reduce weekly paper bills by 37%
- ▪ Increase productivity by 30% with email management alone.
As the multi-year transformation effort enters its next phase, the focus remains on codifying workflows to remove guesswork and one-time variables from the accounting equation.
