Gaining Control of the Cash-Conversion Cycle Through Automation and Data-Driven Solutions

Making acquisitions, paying suppliers, and growing revenue are all top-of-mind objectives for CFOs. Yet none of these goals can be met without one critical ingredient: ready cash. The more working capital a business has, the more opportunities it has to scale, invest back into business improvements, and improve profitability. 

That’s why business leaders are focused on the Cash Conversion Cycle (CCC), a metric that uses Days Inventory Outstanding (DIO), Days Sales Outstanding (DSO), and Days Payable Outstanding (DPO) to measure the number of days a business takes to convert investments in inventory and resources into cashflow (DIO + DSO – DPO).

The lower the number of CCC days, the quicker a business converts inventory or services to cash and, therefore, the more opportunities the business has to carry out key strategies, such as paying creditors, investing in new technologies, and planning mergers and acquisitions. The higher the number of CCC days—often due to process delays—the more cash is tied up in unpaid invoices, leaving companies less able to meet critical KPIs and leverage business opportunities.

Consider these statistics from just last year:

• More than 50% of all invoiced sales in North America were affected by payment delays.

• 93% of companies experienced late payments, while more than half asked for extended payment terms.

• 98% of CEOs said they lack the visibility they need to accurately assess cash flow.

Finance leaders are always looking to reduce the cash-conversion cycle to minimize delays and increase customers’ on-time payments. How to do that? The answer lies in ramping up efficiencies of AR processes, based on this logic:

Sale of inventory/service + Increased efficiency of AR processes = More cash on hand, available sooner  

The need for increased efficiencies in AR processes — particularly in applying customer payments, invoicing, and collections — calls for a fully automated invoice-to-cash process. This allows a business to:

• Ensure that invoices are submitted correctly, compliantly, and in any form required by AP to dramatically reduce delays and disputes.

• Enjoy end-to-end visibility that reveals customer payment behaviors in real-time.

• Leverage data-driven insights that guide sales teams on scheduling touchpoints.

• Automate monthly credit checks and set appropriate credit terms so risk is continually monitored and flagged.

Consider this comparison: Let’s say there’s a business we’ll call Company A. A’s invoicing and collections processes rely on manual methods, such as hand-typed emails and phone calls. Without the benefits of automation, AR team members struggle to process the volume of customer accounts they have to chase for collection and apply payment from. Delays are so problematic that payments cannot be applied in a timely manner.

Ultimately, customers hit their credit limit and then, unable to do business with Company A, start buying from A’s biggest competitor, Company B. At the same time, the customers’ debt at Company A continues to age while uncollected. It’s at this point that Company A realizes it’s been operating like an interest-free bank for the customer!

Now take a look at a third company, Company C, that made the decision to partner with BlackLine to automate its Invoice-to-Cash processes. Now, when a customer’s payment is due or overdue, the system automatically sends team members an alert so they can determine if and how they’ll follow up, whether that be with reminders, statements, or dunning letters.

Because customer communications are automated, BlackLine can send the appropriate message based on the customer’s payment behaviors. For example, customers who don’t have a serious payment issue could receive a gentle reminder. By using BlackLine’s Invoice-to-Cash solution, Company C can maximize payments, see a reduction in DSO, and maintain the best possible relationships with its customers.

With BlackLine’s solutions, businesses can automate all their critical Invoice-to-Cash processes from day one. Here’s how that works:

Streamlined Invoicing

Invoicing needs to happen as quickly and efficiently as possible so the business gains visibility and remains compliant. With BlackLine, automated invoice processing allows a company to:

• Reduce manual invoicing costs.

• Ensure compliance in an ever-changing regulatory landscape by ensuring invoices get paid.

• Enable customers to make payments through a self-service portal.

• Get visibility of customers receiving, opening, and querying invoices.

• Feed invoice status updates back to collections and drive smarter decisions about who to chase.

Pain-Free Collections

Releasing cash from debtors is the quickest and least costly way to gain more working capital.

Automated escalating recovery sequences enable teams to understand which collection strategies work across the customer base so they can focus on building customer relationships, as well as:

• Access dynamic collection strategies with risk data and team/task management.

• Define customer segmentation based on any data element, including risk information.

• Automate contact with customers based on defined policy using relevant contact methods.

• Leverage operational reporting to measure collection strategy success to align work to results.

Speedy Cash Application

Automating the application of payments to customer accounts minimizes delays. It allows companies to gain control over AR processes, enabling teams to focus on managing risk and collecting cash, not chasing remittances and keying data. With BlackLine’s Cash Application solution, companies can:

• Automate applying payments to an invoice level in real-time and reduce unapplied cash by 99%.

• Reduce manual cash application effort by 85%.

• Process 80% of payments without the need for Remit and use Intelligent OCR for the remaining 20%.

• Work with any payment type, ERP, bank, currency, or country.

Business leaders need to be assured that all processes in the Cash Conversion Cycle are being performed as efficiently as possible. This can only happen by partnering with automation experts such as BlackLine.

Our automated Invoice-to-Cash solution enables businesses to perform speedy payment application, invoicing, and collection processes, saving time, mitigating the impact of borrowing costs, and enhancing the customer experience. Most importantly, organizations have the cash they need—when they need it — to achieve positive business outcomes.