BlackLine Blog

June 08, 2022

O2C in Times of Permanent Crisis & Relevance of Cash in a Volatile World

Modern Accounting
5 Minute Read

Tom Bangemann

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“The world has gone mad!”

Many think this, or some slightly less dramatic version of this. One crisis followed by the next. Insecurity and instability everywhere. Were all the apocalyptic film makers right, can it really be?

However, stepping back and turning on cognitive thinking powers produces a still depressing but more factual overview: we are experiencing war and pandemic again. The wars and illnesses were there before, but now they are closer, so we see them. In addition, we see high inflation, supply chain issues, scarcity of resources and goods, more inequality (according to the Gini factor), more natural disasters and negative environmental developments, and so on.

At the same time, we are experiencing record numbers of break-through developments in many areas, technological advances that really make life better, more opportunities in global education and job markets, signs of values and consciousness in (business) areas previously untouched by soft facts, even investments are often “sustainable.”

On balance, it is a world with enormous opportunities, paired with increasing risk levels—the perfect storm for the adventurer. Unfortunately, it is also a world that has changed from rule-based to power-based. This one fact makes the difference. And it’s why we need to ask a few key questions, in general, but also in terms of order-to-cash (O2C) and working capital:

  • What is the relevance and role of cash?

  • How do we optimize an O2C process in this environment?

  • Is it about technology or talent?

  • What changes to the GBS and business model are needed for it to survive?

Let’s cover these topics in a series of articles over the next months, and see if we can contribute to transparency, insight generation, and successful improvement efforts on your side.

The Customer is Right + Cash is King = Know Your Customer!

Why is it that we are still optimizing O2C processes? Have we not been doing this for 20+ years now? Yes, we have, but remember also that the requirements keep changing:

  • Legal and regulatory requirements change constantly

  • Customers now want to be treated as individual customers (customer centricity)

  • Technology advances offer new solutions to old problems

  • There are forces wanting to avoid complete transparency and efficiency in play—not everyone is a process-oriented thinker

It is more like a race between changing needs and available solutions. Looking at select benchmarks, there is improvement in some areas. Productivity, effectiveness, and value (also to customers) tend to increase. Actual losses are reduced (e.g., bad debt write-offs).

Conversely, cycle times and speed do not improve significantly and processes take similar amounts of hours/days/weeks to complete. Potential they cover more content, participants, loops, but still. Maybe this is the maximum level we can reach.

Integration was a trend for a while; now we have more and more best-of-breed thinking again, in technology and in models. We can combine them through interfaces and connectors to something like an ecosystem, which looks marvelous on slides. Sometimes it even works!

Undoubtedly the technology component is of utmost relevance, and the capabilities are far beyond what was available ten years ago, and ten years before that also, and in ten years from now probably. But still, we see a lot of poor outcome metrics.

Projects Often Run Longer Than Anticipated

Timelines are often not taken seriously. If you wanted to finish a project at the end of the planned timeline, you would count backwards to define resources and tools needed. Apart from the odd consultant, nobody does that. Instead, companies send ten people with 10% each to a project. They update each other on fixes on a weekly basis, and then take off to their main job. No wonder progress is limited.

Effectiveness is Low

While projects often generate some sort of saving, qualitative improvements, value (to someone), end-to-end transparency and support, cross-selling opportunities are rare. During the pandemic, everyone implemented communications tools “over a weekend” and these examples were celebrated. And they should be. However mostly only in that area. Even though some companies were in desperate need of cash, implementing a new order-to-cash process was (on average) not faster than before the pandemic. Several companies ran out of cash and died. Even outsourcing only helped in select cases.

Knowledge Is Often Lost

Even as external project teams bring in the best practice knowledge (and they often really do bring the experts and share the insights), there are too few internal resources to absorb this and re-use it successfully. There used to be a trend to hire consultants from the market for internal roles to have a better know-how base internally, be less dependent on suppliers, and have some leverage in contracting discussions. Many companies nowadays have offloaded so much internal resource that even the project manager, the proposal generation and discussion, initiative oversight, and internal auditing are outsourced. Nothing wrong with outsourcing, in general a good idea, but you should be in a position to understand what you buy and how to use it. Sometimes this has gone too far.

Cash—The Elixir of Life

We saw in the beginning of the pandemic that some companies really struggled, as cash was the elixir of life for them. In war times (with the constant fear of an economic downturn), the situation is similar. Cash is always king, but in crisis even more so. In crisis times, Days Sales Outstanding (DSO) seems to be the only CCC metric relevant. Overdues and write-offs are of high interest, but nobody cares about DPO, on-time-payments etc. The balance has shifted to one side only. It would still be recommended to review whether ADD or Best Possible DSO are more informative metrics.

Considering O2C was always riskier and had more improvement potential in total, it is surprising that for the past 20 years you would see more PTP technology offerings at conferences than O2C, until recently. Now the focus has shifted. O2C optimization and cash seem to have arrived at the relevance they deserve!

Customer Centricity Is Here to Stay

At the same time, customers have gotten used to being the customers, getting what they want and when they want it, and being treated well and as individually as possible. They know standardization is needed, and it is ok, as long as they are VIPs and get the customized treatment. There is no way out of this expectation dilemma. Customer centricity is here to stay. But is there a solution?

The most successful route looks to be the return to the age-old truth, that in O2C you must know your customer. In case we are actually successful in doing this, we could run optimized, standardized, efficient operations, with built-in and automated variations creating the impression (and reality!) of individual service. And the best news of the day is that this CAN be done, with—surprise, surprise—the right technology.

In detail, this solution is not simple, but best practice examples show us it is possible. That is enough to generate hope, which we need in volatile times. And we need to find trust in technology to utilize it to its fullest extent, obviously guarded by rules and restrictions and security measures, but not by fear.

Using Technology to Predict Customer Behavior

So, can we estimate or predict the future with the help of AR technology? Maybe not. But we can use technology to generate probabilities and fairly accurate forecasts of customer behavior. Customers will still, sometimes, deviate. Hence the system needs to be intelligent to understand when a human interaction and decision is needed. At the end, technology is never perfect, but if it can solve the majority of work and predict with reasonable accuracy, it is helpful. We should combine predictive technologies with best practices, e.g., segmentation strategies, to further finetune the process and result reliability.

Don’t get distracted because of the crisis mode. Maybe the permanent crisis is sort of normal. Maybe the years after 1945 we had an enjoyable quiet period and we got used to the peace dividends. Technology advancements, after all, have occurred over any time period—and often at higher speed during crises. Many basic inventions we know today (e.g., tea bags, zippers, wristwatches, sanitary towels, even vegetarian sausages and daylight savings time) are outcomes of WWI military use cases.

The Importance of Knowing Your Customer

Ultimately, to know your customer, you must talk to them, based on a well-defined strategy telling you why you talk to whom and when. And the people participating in customer communications need to be skilled for exactly that task. It is wise to align skills with role requirements, in O2C as elsewhere. A collections person might need to be a good communicator, trained in O2C including technology supported assessments of exactly when to say what, using what wording. On the other hand, the person analyzing the results of dispute management might be an Excel and data guru, but not suited for customer contact. Give them the roles they can shine bright in, everybody wins.

Stay tuned for part two of this series.

In the meantime, register for this session as our expert panel discusses the future of order-to-cash processes in a changing world, and hear first-hand what companies are doing about it.

About the Author


Tom Bangemann