As a quick recap of Part 1, the hidden secret to reducing DSO starts with optimizing your time-to-invoice.
The measurement of DSO is top of mind because this is the kind of industry accepted financial ratio that measures a company’s ability to collect products or services sold. However, DSO is very inconsistently defined and measured, when you speak with finance leaders within global organizations. This is often the case because time-to-invoice is driven by customer requirements. Organizations are trying to balance the customer experience with efficiency, and those are often in conflict. Because invoicing is seen as the part of the order-to-cash lifecycle where organizations have the least control, they’ll often go after collections efficiency or even cash application first as the low hanging fruit in how they measure effectiveness.
If more companies were to start the clock earlier in the cycle, DSO would actually be all encompassing, from the time that the product or service is sold or delivered, to invoice creation, invoice delivery and collection of payment. What organizations sometimes recognize too late, (pun intended) is that delays in invoicing can have just as much financial impact as collections do, in the value of DSO and positive working capital.
So, we’ve established that starting the clock on DSO once the invoice is delivered, is already too late. So how can you evolve from the status quo to start thinking about time-to-invoice as an important KPI to measure? How do you fix the bottlenecks earlier in the O2C process? We’ve compiled some of the key questions to highlight in the invoicing process to help minimize exposure up front, reduce errors and create more transparency in the invoicing process using workflows and reporting:
- What’s often wrong with the invoice? Is it missing data, missing attachments, incorrect or invalid data?
- Where is the breakdown/bottleneck and which department can help fix the problem?
- Who is responsible to fix it? Which person and their respective manager needs to be notified?
- How long is it taking to fix the problem? (e.g., aged resolution clocks/timers on the issue and escalation to management to help influence the change)
- Do some customers have more complex requirements than others? Is a contract re-negotiation required?
- Are there delays in timesheet/field ticket/delivery tickets being approved?
After isolating some of these bottlenecks in your process, the next area to tackle is automation in this pre-invoice workflow. Integration is key. You want your eInvoicing platform to be able to very easily integrate with the systems that keep track of field ticketing, goods receipts, timesheets, etc. Automation should include these pre-invoice checks and balances and data validation to help reduce your time-to-invoice.
When you get to the invoice delivery part of the lifecycle, you run into even more complexity with third-party AP portals that can hurt a company’s scalability. We often see organizations throw additional finance team members at the problem of keying in invoice data to AP portals instead of leveraging automation technology. The technology should enable the finance team to remain on more strategic activities and remove those manual, transactional tasks that often lead to more inefficiencies.
While AR is still playing catch up to AP, O2C solutions are now incorporating more prescriptive analytics, benchmarking, forecasting and collaborative intelligence to help finance teams work smarter and remove these roadblocks from the beginning of the order-to-cash lifecycle leading to further efficiencies, the acceleration of cash flow, full transparency into time-to-invoice, and a significant improvement in DSO.
To learn more about Sidetrade’s eInvoicing solution and how you can improve time-to-invoice, email us at info@sidetrade.com.