Background
A $1 billion PE-backed Industrials client faced significant challenges related to customer billing and invoicing, master data management, order entry, and collections. These issues culminated in over $200 million in aged receivables and a rapidly increasing Days Sales Outstanding (“DSO”), which threatened the company’s cash flow and operational efficiency. Recognizing the urgency of the situation, CFGI was engaged to drive a comprehensive initiative to revamp the company’s accounts receivable processes and systems, aimed at improving customer onboarding, billing accuracy and collections effectiveness.Identifying the Issues
CFGI performed a comprehensive analysis of the company’s current-state accounts receivable operations and identified several key problems:- Inaccurate Master Data: The lack of a unified and accurate customer master data repository led to billing errors, necessitating frequent credits and rebills
- Inefficient Order Entry: The order entry process was plagued by inconsistencies and delays, further complicating the billing cycle
- Collection Challenges: A disorganized collections strategy resulted in high DSO and an influx of aged receivables
- Customer Disputes: A large majority of customer disputes were driven by pricing and quantity billing inaccuracies, incorrect tax status, and missed service issues.
Strategic Initiatives
To address these challenges, CFGI drove several strategic initiatives:- Policy Development: The first step was to establish clear policies and procedures governing customer onboarding, master data management, order entry, dispute resolution, and collections activities. This structured approach ensured consistency across departments and improved accountability.
- Master Data Review: A thorough review of customer master data was conducted. The team cross-referenced existing records with source documents to verify accuracy, which was crucial for ensuring reliable order processing and billing. This step reduced the need to issue credits and perform rebills by 50%.
- Account Segmentation: Accounts were segmented based on AR balance, service types, and customer affinity categories (e.g., Government, Events, National, etc…). This segmentation allowed the collections team to tailor their strategies to different customer profiles, enhancing the effectiveness of their outreach.
- Collection Strategy Design: A new collections strategy was developed to better allocate accounts and improve customer engagement. This strategy included setting prioritized outreach based on the segmentation and the institution of a structured dunning process, allowing for more targeted and efficient collection efforts.
- KPI Establishment and Reporting: Key Performance Indicators (KPIs) were established to measure the effectiveness of collections efforts and drive accountability amongst collections staff. A monthly reporting package was created, providing insights into collections metrics, customer disputes, credits and rebills, and overall AR health.
- Technology Implementation: To modernize the collections infrastructure, the company implemented Sidetrade, a collections and disputes management software. This technology enabled greater scalability and customer touchpoint frequency, automation of routine tasks, and enhanced analytics for decision-making.
- Communication Enhancements: The company instituted order and equipment pickup notices to improve communication with customers about their orders. Self-service capabilities were introduced to allow customers to check order status and manage payments, reducing the administrative burden on the collections team.
- Auto-Payment Strategy: An auto-payment strategy was rolled out for lower balance customer accounts, driving timely payments and reducing manual collection efforts.
Results
The results of these strategic initiatives were transformative:- Reduction in Aged Receivables: the company achieved a remarkable $75 million decrease in aged receivables and a $40 million influx of cash. The enhanced processes and systems led to faster collection cycles and improved cash flow.
- Decrease in DSO: The company successfully reduced its DSO by 14 days, a significant achievement that directly contributed to improved liquidity and financial stability.
- Decline in Customer Disputes: There was a notable 70% reduction in customer disputes. The accuracy of billing improved due to better master data management and streamlined order entry, leading to enhanced customer satisfaction.
- Increase in Customer Touches: There was an 80% uptick in customer touches due to dunning letter distribution, customer outreach enabled by technology efficiencies, and enhanced collections strategy.
Conclusion
The case illustrates the critical importance of effective billing and collections processes in maintaining financial health. By implementing a structured approach to master data management, order entry, and collections strategies, the company not only addressed its immediate challenges but also set a foundation for sustainable growth. The successful integration of technology and strategic policy development allowed the company to enhance customer relationships, improve cash flow, and reduce operational inefficiencies.Key Takeaways
- Accurate Master Data: Maintaining accurate customer master data is fundamental to reducing billing errors and enhancing collections efficiency.
- Segmentation Strategy: Tailoring collections strategies based on customer segments can significantly improve engagement and recovery rates.
- Technology Utilization: Modern collections software can automate processes and provide valuable insights, supporting scalability and efficiency.
- Continuous Improvement: Establishing KPIs and regular reporting allows for ongoing evaluation and adjustment of collections strategies, fostering continuous improvement.
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Chad Mello
Managing Partner
(603) 661-7390
cmello@cfgi.com
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Managing Director
(240) 601-8076
mtaranto@cfgi.com