PodChats with FutureCFO: The smarter way of collecting and allocating cash

The current pandemic has turned every aspect of the business on its head. With the disruption of the global supply chain and the economic slowdown, companies’ finance departments are under more pressure to optimise their cash conversion cycle.

In a time when liquidity is paramount, collection – also known as accounts receivables (AR) – is a major part of the cash conversion cycle that companies specifically keep a keen eye on. According to Ross Mackay, group head of global shared services and finance optimisation at International SOS, achieving total visibility and clarity of payables and receivables is a big challenge particularly for big organisations with global reach.

“It’s really a case of how to get the receivable situation as accurate as we can so that we can then control and manage what we spend on the payable side,” said Mackay. “If you only have one eye open, you know what your payables are, but you don’t know what your receivables are going to be. Then typically, you have to go back to the corporate treasury for more liquidity. That obviously comes with a certain cost. So, having that full view, of your payables on one side and the receivables on the other side gives you that visibility.”

In the past 18 months with the onset of the COVID 19 pandemic, International SOS, which delivers health and security services has been automating its cash collection process. Working closely with technology partner Esker International, the company moved from 85% paper-based invoices to handling 95% electronic invoices today.

Furthermore, with its new cash management tool from Esker, International SOS achieves its goal of total visibility of having everything in one portal where invoices, emails, client queries down to dispute cases are accessed.

“If you can’t see your disputes, you assume that 100% of your AR is collectable. Everything that’s overdue is collectable. If there’s a dispute on certain invoices, clearly, they are not collectable. So, the system gives you that extra level of detail to be able to ignore what is currently under dispute.

Customise collection strategy for individual customers

According to Albert Leong, managing director of Esker Asia, digitising the collection process involves more than technology, it is about having a flexible collection strategy that adjusts to the needs of individual customers.

“For example, for International SOS, different markets have differences in culture, language and practices. So, we need to tailor-make the strategy of the collection even though you may have an official one. Then, you can actually work with each customer to be effective in collecting payments based on the situation and the needs,” Leong said.

With an automated system, International SOS is able to track the performance of outputs and inputs, allowing the company to formulate different collection strategies – deciding which clients need more touch and hand-holding.

“Some, you can make completely digital. So, that might just be sending a reminder, send in a statement once a month and, you know, they will happily pay month after month. Others, you need to be much more proactive. So, that could be sending an automated email a few days after you’ve issued the invoice. Just to prompt them to come back to you if you get any issues. And then the other portion is obviously the ones that you’re in regular contact with, whether that’s, a video conference, a telephone call, or just a regular email,” Mackay said.

He added: “So, having all that in one place and seeing what strategies you’ve got for each, and seeing how the collectors are managing the portfolio just gives management a bit more clarity. There is a certain art to collections, it’s not an exact science and having that visibility to see how collectors are performing Just gives the management a little bit more clarity and surety on that element of the working capital cycle.”

Adapting the 80-20 rule

Meanwhile, Leong noted that the days of looking for the “perfect” solution that has all the bells and whistles required at the best price are no longer valid today.

“That is no longer valid because things are moving very fast in technology in this era. We need to do is actually look at the 80-20 rule. What can we invest 20% of our time and resources to get 80% of the benefits out of it? After that, then you do the incremental improvements like what Ross is doing after successful transformation of International SOS’ invoicing process.”

Leong added that the critical success factor of the automation project is not just by looking at the past in terms of requirements but by having a forward-looking attitude.

“The reason why we have such great success with international SOS is also partly because Ross and his team are actually open to actually adopting new ideas. A new way of doing things rather than, saying that okay, this is how we do it and you must automate the way we do it.

“Rather, they change a process entirely, change a mindset and even change a little bit of culture how to actually want to move forward. And that’s a very important factor before you start the project,” he said.

Listen to the entire podchat to learn more about the importance of hands-on collaboration between partners in a technology project, how to evaluate potential technology partners and current trends in finance digitisation.

-Written by, Gigi Onag