One silver lining to the last several years of market volatility and anxiety-inspiring economic ups and downs has been an increased focus by many accounting teams on a more data-led approach to cash management. This article provides one example of a multinational manufacturer that the author’s company has been working with for the last three years to build the quintessential playbook for data-driven cash management.

Aligning Payables Data

In this case study, the client’s accounts payables situation will sound familiar to most CPAs. This multinational manufacturer had hundreds of different agreements in place with different suppliers, some of which were on a net 30-day payment cycle whereas others were on a 45-day cycle. Some were eligible for 1% discounts in exchange for earlier payment; for others, it was a 0.5% discount, and still others had no such arrangement in place. To top it all off, the agreements governing these payment schemes were managed across a ragtag assortment of PDFs living in a procurement team member’s email inbox, DocuSign files saved on a company server, and hand-signed paper contracts in an office that was largely vacant during the pandemic.

Before anyone in the accounting and finance team could even begin to make sense of how they might optimize payables or free up cash flow, they first needed to be able to get some consistency around who was owed what, and when. And that meant systematically reviewing, consolidating, and streamlining core processes to standardize payables data, storing them on the cloud, and making them accessible in real time across geographies. Only once this disparate, unstructured information could be stored and managed as concrete data would the client be able to begin to really optimize the cash management process.

Optimizing Payables with Analytics

Armed with a clean data set on its global payables requirements, the author could then start the process of analyzing that data to determine a more optimal payment cycle timeline for this client. That involved not only calculating maximum cashflow optimization and renegotiating payment terms to create incentives for suppliers to adhere to the client’s ideal payment terms, but also redesigning operational workflows.

One of the most significant examples of the type of seemingly simple work-flow tweak that generated outsized efficiency improvements was centralizing payment runs. Because the company had a disjoined, disconnected payables management process, it was making payment runs on a completely ad hoc basis, wasting valuable time and resources getting payments issued and processed for one-off supplier demands. By standardizing the underlying terms, however, the payment runs could be centralized so that the process of physically issuing payment to suppliers could be done across all suppliers simultaneously. This created a discipline around payables that drove best practices throughout the organization.

Reimagining Receivables

Payables, of course, represented only half of the equation—a similar process needed to be implemented on the receivables side. It is important to acknowledge that the client’s business had grown rapidly through mergers-and-acquisitions (M&A) activity and had numerous nonstandard contracts on the receivables side, with some customers being extended credit, others paying across different agreed upon timelines, and others starting to bump up against their credit limits. The first step was to get a handle on that unstructured data before it could be analyzed.

Once that happened, the author found that the client had some 500 mid-range accounts that had already utilized more than 70% of the agreed-upon credit limit. Not surprisingly, this realization raised some red flags, with a finance and accounting team scrambling to shore up cash ahead of a potential economic downturn.

With a data-led approach to receivables, however, it was possible to quickly assess the relative credit risk of those accounts and—in cases where payment concerns were justified—implement a proactive, digital collections strategy to nudge accounts that were delaying payment or pushing against the boundaries of their contracts to pay their bills. What’s more, by digitizing a layer of its collections requirements, the company’s receivables function was able to focus its top collectors on strategic accounts that required a more nuanced touch while automating the lion’s share of routine follow-ups and prompts.

Putting All the Pieces Together

This multinational manufacturer’s finance function is now well on the way to becoming the digitally enabled, data-driven organization of the future. Automated intelligent workflows and real-time insights have enabled this client to identify initial results that include:

  • ▪ 280 manual hours per month saved by using AI-driven automation
  • ▪ 37% reduction in weekly paper invoices
  • ▪ 30% productivity gains in email management alone.

As the multiyear transformation journey enters its next phase, the focus continues to be on systematizing workflows to take the guesswork and one-off variables out of the accounting equation.

Narasimha Kini is executive vice president and business head, emerging business at EXL, a multinational data analytics and digital operations and solutions company.