Keeping payment deadlines under control in the current crisis is a challenge for every company. In this context, securing the recovery of cash lying dormant outside organizations is essential for the financial health of companies. DIMO Software publishes the CashOnTime solution, which facilitates the recovery of this cash. Olivier Magnon-Pujo, Finance and Administration Director at Grant Thornton, and Laurent Gottafrey, Sales Administration Director at Ayming France, offer their views on best practices for optimizing cash flow and shortening payment times. Round table moderated by Mathieu Eberhard, DIMO Software Sales Engineer, with Valérie Konarski, DIMO Software Director of Financial Process Digitization.
In this article:
- What impact has the crisis had on corporate payment behavior?
- What are the new habits to adopt to better recover cash?
- How can you prepare and secure your recovery plan?
And find out in next week’s article :
- Triggering the search for an efficient solution
- Criteria for choosing a solution
- The implementation process: organization, duration, etc.
- Results and key success factors
Actions to optimize working capital requirements (WCR) and secure cash inflows
For Olivier Magnon-Pujo, WCR is particularly important for service companies. A large proportion of the costs and charges incurred by an organization are payroll costs. Around 65% of sales are spent on this item on a monthly basis, the other costs being spread over premises – payable quarterly in advance – or IT, which requires regular monthly payment. This means that there is little room for maneuver when it comes to finding levers to improve working capital other than customer receivables. It is therefore essential to keep a close eye on customer receivables and to manage them carefully.
At Grant Thornton, the Credit Management function previously managed in each branch has been reorganized for greater efficiency: “We thought about recentralizing the collection function and completely redesigning what needed to be adjusted in the entire cash process. We deployed an automatic invoicing process whenever invoicing cadences were identified. In addition, we have introduced regular invoicing on account, with invoicing linked to time production. We thought about a strategy upstream of collection, not just downstream. We deployed direct debit and, ultimately, professionalized collection via our Mauritian platform.
Laurent Gottafrey explains that Ayming has worked hard on the timing of invoicing milestones, i.e. invoicing at the right time to collect payment at the right time: “We have also made the invoicing side of the business more accountable, so that the collection side can follow, and made the people who do both invoicing and collection more accountable. To this end, we have set up legal and financial monitoring of our customers to anticipate any potential risks. At Ayming, most of our assignments are paid on a success fee basis. This can take a very long time, up to 1 or 2 years, during which time we have to pay salaries and lawyers’ fees”. Ayming’s WCR is therefore extremely important and substantial. But even if the Group’s 15 subsidiaries face the same WCR challenges, payment behaviour varies from one geographical zone to another, and we have to adapt to local specificities while rationalizing methods and processes.
According to Valérie Konarski, the topic of collections has also been around for many years, but there is still a lack of equipment in companies, unlike cash management, invoicing or dematerialization of supplier invoices. “Collections is a bit like the 5th wheel within the CFO. And yet, cash becomes a priority with every crisis.”
As part of the promise of digitalization, 5 technologies can be used to enhance the efficiency of the collection service
The first technology we talk about when we talk about digitalization is the cloud. CashOnTime offers its customers specific functionalities via the cloud, available 24/7. What’s more, sharing solutions cuts project implementation time. “With digitalization comes automation. We see a lot of manual tasks – in addition to the use of Excel, more up-to-date data, even Post-its – within departments not equipped with a collections solution. Conversely, CashOnTime customers have seen a 40% increase in the number of collection actions,” says Valérie Konarski.
A third technology is the dematerialization of exchanges, which makes it possible to increase the frequency of exchanges with customers, to carry out more precise monitoring and to communicate on disputes or promises of settlement. Big Data and Artificial Intelligence (AI) are related subjects: all the data acquired via a collection tool will make it possible, thanks to statistical laws, to anticipate cash inflows much more accurately. Finally, APIs or web services also help to monitor risks, as technology enables systems to be interconnected. “We can, for example, inject data from a solvency provider into CashOnTime to obtain scores used as a reference for monitoring automatic reminder and alert scenarios. We’re as close as we can get to monitoring customer risk,” says Valérie Konarski.
The impact of the crisis on corporate payment behaviour
Collection projects – which would normally have taken several months or years – have multiplied, with decisions being taken quickly. In Valérie Konarksi’s view, the departments wanted to be able to respond to management’s demand for a status on the organization’s cash. At the same time, she noticed that some well-equipped companies were not necessarily using their tools to their full potential. The crisis brought a new awareness.
Laurent Gottafrey recalls the basic questions that were being asked as early as March 2020: how do you issue invoices, send them out, make sure they are received and then paid? One year on, with the exception of certain hard-hit sectors (tourism, leisure, catering, events), he believes there has been no massive deterioration in payments, nor any increase in insolvencies. “Government measures have had a positive impact. Companies may also have demonstrated collective solidarity. The crisis has accelerated the implementation of collection methods to recover cash quickly and efficiently, while maintaining customer satisfaction.
Olivier Magnon-Pujo admits: “A year ago, we had no certainty about our very short-term financing. We depended on the collection of accounts receivable, and therefore on the attitude of our customers. The government measures – PGE, short-time working, tax deferrals – reassured us, but there was a strong constraint not to pull too hard on inter-company credit“. In spite of this, he notes that the Group did not experience any drift, nor any significant increase in the provision for services on accounts receivable, in the closing of the 2020 financial year.
New habits for better cash recovery
Olivier Magnon-Pujo explains that the Collections team has been strengthened to better ensure pre-releases and reminders. “You have to think organization before tool. The tool must support the organization’s strategy. The impetus must come from general management, and the actions to be implemented must be measurable and traceable. The action plan must therefore be well organized, and tools must be put in place to monitor it. We needed a vision of the degree of maturity of our automatic invoicing, the deployment of direct debit, and the capacity of our Mauritian platform to carry out these collection tasks. The indicators now in place enable us to monitor the development and deployment of our tools on a daily basis, which is essential.
You can only improve what you can measure. The mass of data generated enables us to produce KPIs, to measure DSO (Days Sales Outstanding), in particular that linked to disputes, the rate of payment promises, the level of liquidity, payment times by customer category… and above all to monitor changes and measure the impact of customer receivables management decisions on outstandings and cash flow. “It’s not the tool that makes the progress, but the dynamic set up in the organization, the skills and resources invested in methods and tools. The tool ensures that progress is sustained with lasting benefits, as it is enriched with new functionalities and quality data”, says Valérie Konarski.
Laurent Gottafrey explains: “We have collection budgets, DSO by country, business line, etc. Since the crisis, we’ve strengthened this approach. Since the crisis, we have strengthened this culture of cash in and cash out, which is supported by our management. All employees are incentivized to collect cash, from sales to consultants and support services (IT, HR, finance, general services, etc.). Genuine awareness-raising and education of all Ayming employees have helped to fortify this cash culture”.
The article on the second part is available here!
