BLOGS & CASE STUDIES

Estimation of exposure with subsequent collections to bring down the DSO to significantly lower levels.

Client

Top Industrial Products Company engaged in selling Solutions to customers in India.

Industry

Climate Control

Requirement

Estimation of credit exposure of the organization and subsequent collection to control the DSO.

Solution offered

Dedicated multi-channel approach to ring fence exposure and focus collections from older buckets to bring down the DSO.

Being one of the top Industrial Companies the country, the client had customers predominantly from the infrastructure industry. While it did help to get the volumes up, the AR collection was getting challenging. Further, due to requirement of latest update on older AR, the credit exposure and the resultant provisions was getting challenging too.

TanServ deployed a focused and dedicated team to work on these cases. Each and every customer was contacted and ensuing discussions led to clarity on all pending AR. This coupled with rigorous follow up on collections led to substantial reduction in DSOs. The varied requirement of customers in this industry (multi-document requirement to invoices in a prescribed format) and the industry dynamics made it one of the toughest assignments for us. However, TanServ was able to scale up to the requirement of the clients and delivered as per expectations.

Result was a significant contribution to the customer on meeting the collection targets on volume and DSOs. We continue to be engaged with the customer.

Providing expertise to manage from service delivery to AR collection from a highly fragmented, multi-locational customer base.

Client

Leading engineering company in India engaged in selling banking products.

Industry

Banking products

Requirement

AR Collections which were already delayed from highly fragmented customer base. Also work on the pre-due date invoices where the requirement was to manage the service delivery too.

Solution offered

Telecalling activity to manage the wing to wing process and reach out to higher number of customer in a shorter time frame. Already delayed payments and the lack of information from customers on payment details was leading to reconciliation issues and cash flow issues with the client, a leading banking products company in the country. While the ticket size was smaller, the numbers of collection points were huge and highly fragmented. Further, the requirement of managing service delivery to ensure clear AR case, also was adding to the challenge. As all the customers were banks with a very spread out branch network, reaching out to branches was a challenge also due to lack of contact details.

TanServ was engaged to quickly reach out to the branches and start the process of AR collections and/or get details of already paid cases for reconciliation of books. We set up a dedicated team at out call centre in Gurgaon to work on this. Our earlier experience of dealing with similar kind of customers came in handy as contact details of many were already available. With a clear mandate to close early on call, the team firmly yet politely ensured quick close to the open AR.

TanServ delivered a terrific result resulting in customer increasing the engagement levels with multiple lines of products.

Providing expertise to manage AR collection across locations.

Client

Leading Chemical company in India.

Industry

Research

Requirement

Highly effective AR Collections to bring down the DSOs.

Solution offered

Dedicated team based out of the client site to manage the AR process wing to wing.

The Client is a leading research based products company selling high technology products to various establishments in India including Defense labs. Due to huge pressure on front end sales, the bandwidth requirement to effectively collect AR on time was taking its toll on the DSO. Client was looking for solution to get focus on AR collections.

TanServ was engaged to provide the expertise and focus to work on the Account Receivables, wing to wing. Team was deployed quickly in line with the client’s requirement. One added advantage was the work location for the entire TanServ team was the client’s office. This helped integrate with the client’s teams faster. Effectively utilizing the expertise at TanServ, the team delivered as per expectations.

Client continues to be one of the top customers for TanServ with ever deepening ties.

Capitalise Your Firm

Working Capital Optimisation (WCO) is necessarily at the top of the agenda for CFOs, because a wellcapitalised firm reflects a robust and efficient organisation. Although it sounds simple in theory, the operational details of working capital management can be highly complex, depending on the business environment in which the firm operates. Working capital has a direct bearing on the cost of funds, and any improvement or deterioration in the WC chain has a cascading effect on business metrics. WCO is primarily about optimising trapped cash in all three areas of payables, inventory and receivables. While there have been significant developments in each area, the greatest focus has been on managing inventory, and several renowned companies have developed their own, very effective techniques to manage this. This article therefore delves mainly into the other two areas.

Enabling through technology

There has been a spurt of activity in recent times related to the management of payables. Technology has enabled major process improvements through the use of world-class systems. However, technology is only as good as its implementation, and challenges remain in terms of mismatched timelines, the duplication of vendors, and varying terms being used for the same vendors. Surprisingly, many large organisations, with the ability to raise funds cheaply, opt for longer credit periods, paying higher interest charges in the process. Instead, by availing discounts for faster payments, they might enjoy far bigger benefits. Another issue is that many companies are moving a large part of their payables process to external vendors, which creates complexity for their suppliers. Driving this shift is that many organisations see payables as a non-core activity that can be hived off, after setting clear delivery guidelines, to external parties, yielding large dividends in the process.

The Importance of Managing Receivables

The Managing receivables is one of the most significant yet underrated aspects of working capital optimisation. It is often viewed as a business operation, but in reality, this is often not the case. CFOs usually grapple with optimising receivables on a daily basis, given that they have usually have negligible control on the levers that determine it. However, the management of receivables is a science in itself, and many segments of industry have developed robust processes and systems around it. Consumer goods and financial services companies tend to have particularly strong processes, backed by technologies that allow for better control over account receivables (AR). However, the story is very different for organisations that sell to the enterprise segment.

B2B sales are predominantly about relationships, where customers buy the sales experience and look to the salesperson for the right inputs on the purchasing decision. A good enterprise salesperson would always ensure that post-purchase dissonance is negligible; that, in fact, is the secret to continued and repeat business. Enterprise selling is also a group purchase activity, with many decision-makers among top management at the customer end. The Key Account Manager (KAM) has to ensure a positive relationship with each decision maker. It takes significant investments of time and effort from the KAM to ensure enduring relationships with all stakeholders.

What drives enterprise collections?

Similarly, enterprise collections are an extensive, group activity, with the involvement of multiple stakeholders. Due to the nature of the business, they tend to be driven by clear deliverables of service level agreements (SLAs), and by the terms and conditions of the purchase order. Clear documentary proof at all stages for all deliverables is usually required to stake a claim for payment.

Organisations have varying views on delayed collections. Some see it as a part of the business and take it in their stride, while others view it as an opportunity for value addition and to garner more business. The latter belief, though, is somewhat incongruous. After all, it must be the services and products on offer, and not longer credit periods, that create value addition. Going down this route, then, can end up reflecting poorly on both parties. Encouragingly, though, more organisations are starting to focus on AR collections, but challenges remain owing to the nature of the business.

Simplifying invoices

Better AR processes start at the invoicing stage. Many invoices contain multiple SKUs, with multiple quantities and associated services. The more complex the project is, the more complex the invoice. When multiple types of jobs are involved ? e.g., civil, electrical, services ? the associated tax structures and segregation of invoicing becomes more intricate. (Some organisations, additionally, have begun demanding invoices in the same format as the Purchase Orders.) Managing the task flawlessly requires dedicated, specialist resources.

In the enterprise space, the documentation requirements play a critical role. Compiling various document types, from proof of delivery to multiple compliance documents, can be a long-drawn and tedious process. However, it is absolutely crucial, since the absence of a single document can cause the customer to withhold payment. At the same time, the repeating nature of the enterprise business translates into repeated reconciliation of books. While a salesperson might be able to handle smaller books, rising complexity demands resources from finance teams.

Perhaps the biggest hurdle in the entire receivables space is the delivery ? or rather, the perception of delivery ? of services and products in line with the SLAs. The majority of customers highlight problem areas during the payment process, and significant time and effort are invested in ensuring customer satisfaction. Often, this becomes the most tedious activity of all, requiring coordination across multiple departments. Many organisations rightly hold that a sales process is not complete until payment is realised. Hence, the Key Account Manager or the salesperson is required to collect the AR on time, and variable pay-outs are often linked to timely collections. However, salespeople often skin on collections, which leads to delayed payments. Resultantly, collection calls might get combined with new business calls, leading to a conflict of priorities. Underwriting credit to a customer is also a function of inputs from the sales team, but there are inherent conflict of interest built into it.

Segregating credit and sales?

Having realised the importance of separating credit from sales, organisations have started to implement structures that reflect this separation of functions. Some firms have also set up separate teams to focus on collections. It is usually the CFO's responsibility to ensure that this system works efficiently, but it has an important bearing on the entire organisation's growth. Even as CFOs realise that this is not a core activity that should require in-house expertise, a lack of suitable outside options often compels them to take it on.

However, given the employee time and effort that goes into managing receivables, it is imperative to have the option to outsource the function. On average, close to 22 per cent of human capital in any organisation is involved in the collections process, directly or indirectly. Outsourcing it can create significant productivity gains among Full Time Employees.

Building strong credit-control systems?

Organisations should also invest in efficient credit control systems and processes that capture feedback from field teams, and use these to fine-tune the sales terms and conditions. Credit controllers should focus on developing models that provide accurate inputs to sales/ contract management staff for pricing. This has to be the core area for any organisation, and developing it can yield dividends in the long run. ?and outsourcing collections

However, ground-level collections is an activity that can benefit greatly from outsourcing, and some organisations have forayed into this niche space. They offer solutions that help release significant internal resources, which can then be deployed towards more productive work. Choosing the right partner, though, is crucial, and CFOs must look at firms that can transact the complete collections delivery process and work seamlessly with the organisation. Since the outsourced firm represents the firm, due diligence ? in terms of the quality of people employed, processes followed, and, most importantly, the ethical and compliance framework ? is necessary.

Working Capital Optimisation, The New Imperative For CFOs

Working Capital Optimisation is a top-of-the-agenda consideration for most CFOs. In an effort to derive competitive advantage, finance managers are exploring a range of new options that support their working capital requirements.

Working capital optimisation is today a high priority for CFOs and other finance executives evaluating ways that go beyond traditional forms of finance. This is more so in a global economic environment that appears to be on the mend, though in fits and starts.

In their effort to derive competitive advantage, finance managers are exploring a range of new options that support their working capital requirements—ranging from supply chain finance, trade receivables securitization, factoring, among other ways— to keep their organization well capitalized.

Indeed, Working Capital Optimization (WCO) is a top-of-the-agenda consideration for most CFOs.

A well-capitalized firm is the mark of a robust and efficient organization. While it sounds very simple in theory, the operational details of Working Capital Management (WCM) can become very complex due to immediate business environment of organization. Working capital optimization is all about optimizing trapped cash in all the three areas: Payables, Inventory and Receivables.

Of all three, inventory management is perhaps most well defines having seen a lot of attention and focus. Several renowned corporations have employed and pioneered several approaches and techniques to establish best-in-class and best-in-industry benchmarks.

Let’s consider the two other areas that are beginning to find their moment in the sun – payables and receivables.

Most CFOs use payables as a very effective WCO tool today. Technology has helped improve processes significantly with the availability of world-class payables systems. However, technology is as good as the implementation and issues still remain, including, for example, mismatched timelines, duplication of vendors, and different terms for the same vendors, among others.

Many organizations have taken a view of payables as a non-core activity, engaging external partners to perform the task for them with clear guidelines laid out for delivery.

On the other hand, receivables are one of the most significant and yet most underrated part of WCO, the latter because it is still seen to be a part of business operations, which might not be the case actually.

CFOs routinely grapple with this challenge of WCO with almost no control on the levers to control or manage it. In recent times, there have been some assertions from CFOs on the way forward for this issue.

Management of receivables is a science in itself and many industry segments have developed robust and remarkable processes and systems. Consumer product companies and financial services firms, for example, have highly-developed processes backed by technology to ensure better control on the AR. However, the story is very different with organizations who sell in the enterprise or business-to business segment.

Collecting is a rather tedious activity in the enterprise segment. Multiple stakeholders are involved in the process and that also makes it a very extensive task. Due to its nature of business, enterprise collections often tend to be driven by clear deliverables of SLAs (service level agreements) signed and the terms and conditions of purchase orders. Clear documentary proof at all stages for all deliverables are usually the norm to stake a claim for payments.

It begins with generating an invoice, which could contain multiple SKUs with multiple quantities and associated services. The more complex the project is equally complex is the invoice. Then there is of course the matter of associate tax structures and the need to segregate the invoices depending on the different types of work completed – for example, civil, electrical, services. This can become very complex and requires dedicated and specialized resources to perform flawlessly.

Delivery—or a perception of the kind of delivery—of services and products as per agreed upon SLAs is the biggest hurdle in the entire receivables space. The majority of customers would point towards issues during the payment process and significant time and effort is spent to ensure customer satisfaction, which often becomes the most tedious task given the need for coordination across multiple departments.

Many organization believe, and truly so, that the sales process is not complete until the payment is realized. And, hence, the Key Account Manager, or the sales person, is often tasked with collecting the AR on time. Mostly, the variable payout is linked to timely collections. However, looking at operational efforts needed to ensure collections, many a time, the sales person starts making errors, inadvertently slipping up, and leading to delayed payments. Quite often the collection call is also combined with new business calls leading to a clash of operational and business focus. Underwriting a customer for credit is also a function of inputs from the sales team and this has an inherent conflict of interest built into it.

Organizations have realized the importance of separating credit from sales and have started doing it. They even have started putting together teams to focus on collections. This team, while being a part of the CFO’s overall responsibility, also has a bearing on the entire organization’s growth. While CFOs do understand that this is not a core activity, they would like to develop in-house expertise to negate the impact of the lack of choices to outsource that has hampered the plan otherwise.

If there is one activity which can benefit significantly from outsourcing, it is receivables. As it sucks out the bandwidth of the core employees of the organization, the need to have a partner to deliver on this count is the need of the hour. About 22% of human capital in any organization is involved in the collections process, directly or indirectly. Outsourcing this activity can lead to significant productivity of the full time employees.

Organization should work on developing good credit control systems and processes which would use the feedback from the field teams to fine tune the terms during the process of sales to a customer. These credit controllers should focus on developing models which provide accurate inputs to sales/contract management staff for pricing.

This has to be the core area for any organization and developing it would yield dividends in the long run. However, the process of collections at the ground level is an activity which can benefit greatly from outsourcing.

There are organizations today that have forayed into this niche space offering solutions which can significantly free resources to be deployed to more productive work within the organization.

Choosing the right partner would provide the right benefits for growth. CFOs should look at firms which can own up the complete collections delivery and work seamlessly within the organization adding value. As the outsourced firm represents the organization, due diligence in terms of the quality of people employed, processes being followed and most importantly the ethical and compliance framework should be evaluated thoroughly before finalizing.

Today a CFO’s work does not stop with finance. In fact it begins with it. The need now is to be a complete business manager and not a bean counter. CFOs have realized this and are embracing the new imperative, adding significant value to organizations they represent.

In keeping with the adage that says change is the only constant, in an economic environment of continuous ferment, there is a growing need for “complete managers” who can manage this change well. Our new CFOs are truly answering that call today.

Why CFO's keep Working Capital Optimization on top of the agenda

Co-founders and the small C-Suite team including of course the CFO at startups, as much as key business leaders and entrepreneurs, are a worried lot today. There’s, of course, the on-going volatility in the global stock markets adding to the overall gloom and negative business sentiment, but what’s been troubling them most has possibly been about wary investors increasingly shying away from early stage startups, while even some of the bigger names in the startup entrepreneurial ecosystem are beginning to feel the pressure of raising money.

This changes nothing for the entrepreneur and his CFO, which many a time is the same individual in a startup. The challenge is that when the funding stops, it will affect hiring, talent acquisition, technology upgrades et al.

While there could be multitudes of challenges in the business model, the most crucial for the majority is the perpetual dearth of resources and the constant struggle to balance these to get the maximum at that point of time. To stretch each resource for that one extra day is what epitomizes an entrepreneur’s life!

As expected, the most important of these resources is cash flow, the lifeblood of running an organization. And ensuring that the flow is uninterrupted is the job of the CFO. Every CFO wants to see his organization well capitalized and hence Working Capital Optimization (WCO) is a top item on the agenda for any CFO.

WCO is all about optimizing trapped cash in all the three areas: Payables, Inventory, and Receivables. As most of the startups have been in the services space, payables and receivables are the two big factors for WCO.

Most of the CFOs use payables a very effective WCO tool. Technology has aided the process improvements in a big way with the availability of world class payables systems. However, technology is as good as the implementation and there still exists issues with mismatched timelines, duplication of vendors, and different terms for the same vendors etc. However, with startups now focusing on hiring top talents from the market in all fields and with technology being the game changer in most startups, this would not be a significant issue.

Most CFOs would always look to extend the payables to maximize the free cash, but from a business point of view, that might not be a good strategy always. What is required is a good strategic approach to payables to ensure a great mix of higher payables days yet has a great buyer reputation.

Getting good terms from reliable suppliers is always a challenge, more so for a start-up. Being wary, most of the suppliers to a start-up prefer faster payment terms and/or lower credit. Supplier portals with clear & transparent workflows provide the great strategic tool to build a good reputation with suppliers.

Building a robust procurement process with clearly defined approval matrix is always a good start to building a good payables system. Evaluating and creating a preferred supplier list with clear & standard payment terms, robust invoice capture process, fixed monthly days for payments, clearly drawn timelines for internal approvals etc. are some of the practices which lead to a system which support the WCO efforts.

Receivables are one of the most significant and yet most underrated parts of WCO for a start-up. Due to the constant struggle for growth and to capture market share, most of the time payment beyond due dates is taken as part of the business operations which might not be the case actually.

CFOs usually grapple with this aspect of WCO on a daily basis with almost negligible control on the levers to control or manage it. In recent times, there have been some assertions from the CFOs office on the way forward and planning on this front. Management of receivables is a science in itself and many segments of the industry have developed robust and terrific processes and systems.

For startups, the option to set up a separate AR team is not a feasible option. Hence the key account manager, or the sales person, is required to collect the AR on time. Mostly, the variable payout is linked to timely collections. However, looking at the operational efforts required to ensure collections, many a time, the sales person begins slipping up leading to delayed payments.

And quite often, the collection call is combined with the new business calls leading to ideologue clash. Underwriting a customer for credit also is a function of inputs from the sales team and this has an inherent conflict of interest built into it.

Organizations have realized the importance of separating credit from sales and have started doing it. The key is to have a small team (outsourcing is an option) which focuses on collecting receivables on time. Clearly laid down the process to capture the purchase orders correctly to avoid disputes/corrections at a later stage is important.

Standard templates for invoicing with clear details on the products/services sold help to smoothen processing at the buyer’s side. Ensuring right invoicing and attaching relevant documents the first time is the key to faster realization. Providing incentives for faster payment is a good strategy and should be used often. A robust credit process and the focused team is the key for faster collections leading to cash flows.

Effectively using the banks for faster realization of cash can also be explored. Bill discounting, factoring etc are a few option which if used effectively can lead to faster cash flow but at a cost. Another alternative is to completely outsource the collections process.

There are organizations today who have forayed into this niche space offering solutions which can significantly free up resources to be deployed to more productive work within the organization. CFOs should look at firms which can own up the complete collections delivery and work seamlessly within the organization adding value. As the outsourced firm represents the organization, due diligence in terms of the quality of people employed, processes being followed and most importantly the ethical and compliance framework should be evaluated thoroughly before finalizing.

Today a CFOs work does not stop with finance. In fact, it begins with it. The requirement now is to be a complete business manager and not simply a bean counter. CFOs have realized this and are embracing the new requirement, adding significant value to the organization. They are truly the “complete managers” of today. If there is one setup which provides this opportunity for a CFO to go beyond and look at the business in a holistic way, it is a Startup!