Nostalgia can often be a form of inspiration, which was the case when sifting through my 1990s hip-hop collection. ‘Cash rules everything around me’ abbreviated under the initialism ‘C.R.E.A.M’ by Wu-Tang Clan may be a more relevant statement today than it was in the prior millennium, given the volatile status of the economy and markets.
The continuous evolution of business models to become more resilient and drive growth has not altered the position that cash flow remains the lifeblood of any successful business venture. If anything, it has strengthened the need for more certainty in business cash flow, particularly in the current environment.
With unstable inflation rates, currency volatility, and consumer and supply chain uncertainty, the longer it takes to get paid could mean the money that organizations attain is worth less than when the deal was made. Sustained high-interest rates leading to an increased cost of capital also means more demand for a healthy cash position to manage funding requirements.
Understanding the time it takes to convert an order into cash and how long it takes to pay bills is critical to effectively managing any cash positions. Furthermore, the lack of transparency of current cash positions and market uncertainty makes it extremely challenging to accurately forecast future cash positions and set provisions effectively. With improved cash flow predictability, organizations can better manage their positions when times are tough and improve operational resiliency.
Order to Cash KPIs
Let’s focus first on the management of Accounts Receivable. Getting a handle on potential opportunities to optimize cash flow means analyzing and understanding different drivers of cash requirements, such as time to create and deliver invoices to customers, terms negotiated with customers, or customer credit risks. Identifying and monitoring the right KPIs will be critical if organizations strive to improve the certainty of customer and account payments. These KPIs could include:
- Days Sales Outstanding (DSO): The average amount of time it takes to collect payment. Organizations should aim to keep this below 30 days.
- Average Days Delinquent (ADD): The days on average client payments are overdue. This number should be kept as low as possible.
- Turnover Ratio: How quickly revenue is collected from clients (turning accounts into cash). This also should be kept as low as possible. A high ratio means many open accounts with uncollected revenue.
- Collection Effectiveness Index (CEI): The percentage of accounts from which revenue is collected. Organizations want this to be 100%, indicating payment collections from all clients.
- Number of Revised Invoices: Revisions to customer invoices can adversely impact DSO, so organizations should avoid the need to revise customer invoices unless critical.
A weakening position on each of these metrics should raise concerns that there may be shortfalls in the billing and collection processes, policies, and organization. Organizations should ensure thresholds and alerts have been established to maintain transparency and address credit risks in a preventive capacity.
What impacts cash flow management
In most cases, the inability to efficiently bring information together and drive timely insights adversely impacts the management of cash flows, creating a lack of transparency with continued reliance on decisions based on judgments.
The knock-on impacts are significant – not just in the short term, such as sustained high operating costs throughout the month-end cycle, but also in the long term, including the inability to quickly seize new opportunities when certainty on cash position is paramount. It’s not surprising that cash flow management and optimization have been positioned higher on the CFO agenda as companies look to secure and accelerate cash flow generation and establish a 360° vision on the Order-to-Cash cycle.
How Alteryx can help
Enter Alteryx, the data and analytics platform that enables users to automate data preparation, blending, reconciliations, and calculations – and perform a wide array of analytics processes to drive retrospective and forward-looking insights. But this isn’t all about the technology; it comes down to the leadership’s and individual workers’ willingness to transition to a data-driven mindset.
Unsurprisingly, 92% of survey respondents from the NewVantage Partners 2022 survey cited cultural barriers as the greatest challenge to becoming data-driven. Fortunately, the low-code solutions offered by Alteryx, in conjunction with a structured enablement program and active online community, means the appetite to advance data-led transformation is stronger, and timelines to realize business benefits are shortened.
The acceleration in analytics automation via Alteryx can serve as the catalyst for a more fundamental transformation of the business operating model, with the reconsideration of roles, responsibilities, organizational set-up, and customer engagement.
An Order-to-Cash Example
Let’s bring this to life by expanding the Order-to-Cash example.
A good place to start may be to have a single aggregated view of all customer invoices that reconciles to the general ledger and identify and correct any data inconsistencies from the exceptions raised. The foundational capabilities of Alteryx Designer remove the burden of data aggregation, validation, and cleansing, for example, the use of fuzzy matching logic for data auto-corrections and the ability to run or schedule data workflows via Alteryx Server.
A more comprehensive view of customer profiles by combining payment history is key to better understanding customer payment cycles with trend analysis and highlighting customers defaulting on their contractual terms.
Alteryx Auto-Insights automates root-cause analysis and improves customer segmentation, which will help pivot the organization to a customer-centric perspective and advance understanding of primary drivers around expected vs. actual payments. And with generative AI capabilities embedded in the Alteryx platform, the conversion of quantifiable results into PowerPoint presentations or email communications can also be automated, removing the pain of manual performance reporting.
A better understanding of the retrospective insights will improve forecasting accuracy and future receipts based on customers’ payment cycles and seasonal trends. Alteryx Intelligent Suite simplifies time-series modeling and scenario analysis, removing the need for extensive coding experience and empowering business users to drive predictive and cognitive analytics. Close and accurate monitoring of key metrics outlined earlier (DSO, ADD, turnover ratio, etc.) with thresholds in place provides ongoing transparency on status and helps identify and mitigate customer credit risk. This can cover both Account Receivable risk management and Collections risk assessment.
The interoperability of Alteryx with multiple systems and applications and integration with visual platforms promotes the transition from periodic management reporting to continuous monitoring and active course corrections when required. Organizations may decide to standardize their approach to customer payment analysis with the use of Alteryx App Gallery, further freeing up the capacity of users to focus on business insights and drive decision-making.
Connected Use Cases
The diagram below provides examples of connected use cases that Alteryx offers to optimize the Order-to-Cash cycle:
Joe Paget, Alteryx Partner and Founder of 4th Revolution, has first-hand experience with customers’ pains and needs to improve cash flow management.
Advances in the Order-to-Cash Cycle
But why stop at Accounts Receivable automation? The advances in the Order-to-Cash cycle can strengthen partnerships with business leads and improve customer analysis beyond cash collections, including enhancing sales forecasting and product-level analytics. To advance working capital management, a natural extension would be identifying opportunities to improve the Procure-to-Pay cycle and improve engagement with the Purchasing team, leveraging the Alteryx best practice adopted in the Order-to-Cash process. With better management of cash flows, attention can be directed to improving understanding of customer demands and the supplier base, optimizing capacity planning and inventory management.
This is the real power of the Alteryx platform often overlooked – a means to build connections across an enterprise spanning Finance, Business, Procurement, Sales, Marketing, and beyond. The integrated nature of data and analytics workflows can collectively deliver outcomes that are aligned with strategic goals, which in this example include strengthening cash positions, improving cash forecast accuracy, and reducing credit risk. And Alteryx creates an environment that removes the chores of data manipulation and, instead, becoming insight-driven can foster an innovation culture that drives enterprise transformation.
For more information regarding Alteryx’s proposition across Finance, please contact Alteryx Finance Transformation Lead.
See a demo of cash flow forecasting in Alteryx.
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Credits to: Joe Paget (4th Revolution), Chris Clark (Alteryx Lead Solution Engineer), and Kojo Akuffo (Alteryx Lead Solution Engineer)