Controllers Council recently held a roundtable panel discussion entitled, How to Fix AR: A Controller’s Briefing, presented by Paystand.
Panelists included Genevieve Hancock, CFO at Germfree, and Gregg D’eon, VP Controller at LTK commerce.
Following are key takeaways to this discussion. If you are interested in learning more, view the full roundtable panel video archive video here.
How would you describe your current AR processes—manual, automated or a combination of both?
Gregg: As far as like where we sit right now, I would say we’re about 50-50. There are really three key processes. One is the invoicing process, which we rely on HelpSWAT to help us with all our deals and once stuff moves to close one, we have an individual who’s responsible for checking that and making sure that we’re invoicing timely and getting things out the door. But then we have a subset of systems that track our milestones associated with each contract. However, we’re going to be completing our obligations on a much different timeline. So, we have these two competing priorities around AR that we ultimately are just looking to automate to say, okay, how do we track revenue and recognize milestones independently of sending out those invoices?
For an automation standpoint, I think a lot of companies I’m sure use dunning processes. We were no different. We have lot of automated emails that push out statements, reminders for collections and things like that. But we also have someone who sits on top of that to look at things that fall in the 120 days plus category and are following up with brands and other affiliates to make sure that we’re getting payments timely.
Genevieve: I would say that we’re more on the manual side. So whether you’re talking about invoicing, cash application, or any sort of one-offs as it relates to touch points on following up with customers. So, the fourth section that I would put in there for managing the AR processes is going to be kind of the credit worthiness on the front end and making sure that the payment terms before they ever even go out to the customer are correct. I guess my controller and my credit and collection specialist as well as our staff count and work together to have all those processes covered, but we are more on the manual side than anything else. We pull everything manually. We do have recurring invoices that is completed out of the system. We do request remittances, which frankly is becoming when you receive cash, I’m finding that you have to kind of pull it out of the customer more than anything lately.
What systems or tools are used for invoices? Collections? Reporting?
Genevieve: We are currently on an ERP known as Global Shop. I’ve also been on an ERP for manufacturing known as QAD in the past. Now, manufacturing is a little bit of a weird duck on ERPs, just my personal opinion, similar for software because we function in a very similar way on the technology side where you can have longer term projects, implementations, milestones. But on the systems, we mostly still track everything in Excel, making sure everything lines up with the ERP. We rely on project management tools that are utilized in either a project management or engineering department to be able to notify us of when a milestone should be billed out to the customer, making sure that all the documentation is in there, whether that’s a certification, whether that is proof and photographs of sign-off from the customer, or if you’re looking at the actual invoicing going out, we do also look at the cash application. So, we do not have our bank account and our ERP linked. We have too much diversification in our bank account portfolio to be able to do so right now.
Gregg: Interestingly enough, our structure is much more integrated into NetSuite. From an invoicing standpoint, we’ve kind of were able to set up an integration between our proprietary system and NetSuite to create a series of billing object, bills in NetSuite to recognize revenue. And what we do is we just actively manage the underlying data to make sure that things roll through correctly to NetSuite. While we have a whole set of milestone activity that will create what we call revenue invoices, which are essentially invoices that we don’t send out, they’re just used specifically for purposes of reconciling revenue. It does create a little bit of a complicated structure to be completely honest with you.
What are typical AR workflows in your organization (from invoice to payment)?
Gregg: From invoice to payment or order to cash, our organization starts with HubSpot. That’s where we document all our contracts, where we work with the legal team to make sure all the correct objects are in there in order to capture the billing terms. That then rolls through to a manual invoice creation process in some cases, or an automated, depending on how complicated the contract is. And then ultimately, when we’re collecting. As far as the payment collection side of things, we have an individual who sits on top of the age receivables to make sure that receivables are getting paid timely. I should say all brands pay net 30 because I want them all to pay net 30. And it’s more to just make sure that we are putting people or putting companies in the correct bucket, making sure that we’re collecting timely. And then ultimately, once we receive that cash, we’re going through the right processes to take cash received into, we have like a specific AR collections account that we use. So, whenever we receive cash into that account, we’ll then make sure that we’re applying it to the appropriate open receivable. And we found it’s a little bit easier to separate, you know, our normal operating accounts from our collections count just to make life a little bit easier on the reconciliation side on a month-over-month basis.
Genevieve: The treasury is, I mean, dependent on how complex your cash flows are when you’re separating out your bank accounts, especially if you’re using it to essentially catch fraud. There’s so much of prevalence of fraud in the environment right now. I don’t know if you’ve seen the increase on phishing or hacking into systems, trying to get through firewalls, social engineering, I mean, manufactured chains trying to get you to pay. And we’ve had customers call us and just confirm that we’ve changed our banking information. And we’ve made that a requirement within our contracts as well, that you must speak to our accounting department if there’s a request for a bank account, which I urge all companies to do so, frankly. But it is one of the easiest ways to make sure that your main operating funds are protected from any issues of those social engineering and fraudulent claims on your bank.
What are the biggest challenges you face in managing receivables?
Gregg: To be honest, as a controller, the things that I’m mostly focused on are more visibility and reconciliation. The volume of activity that we’re dealing with on a day-to-day basis requires someone who’s pretty savvy with SQL at this point, because you’re talking about hundreds of thousands of commission-based transactions. So, the question is, is how do we really focus on being able to report on this information and how do we extract information that we need to make sure that we’re collecting on things timely? I think that kind of those two dominoes from a controllership standpoint will kind of take care of the late payment piece of it.
I would say as far as like the challenges that we face there, one is kind of just explaining that to the everyday non-accountant, like, look, we’re trying to collect this and here’s all the processes that we have in place to do that. And then the other side of it is just leveraging technology as much as we can to be able to produce these reports that may have a lot of volume behind them in a simplified manner.
Genevieve: One of the easiest things to automate though, as it comes to escalation, because one of the things that I always ask when I come into a company or when I was in consulting, going in and discussing on financial operations or any sort of process documentation is whether there’s a sales escalation process in place. And so whether you have either weekly or monthly a meeting with your sales team, the people, the customer service team, the people who are actually working with the customer daily to make sure that they that sale is completed, that the quality is there, that the customer is happy, making sure that they’re the ones that are also leveraging their relationship to get that payment in on time, figure out what is going on, see if you can have those connections to when it gets to the point that they’re very late.
Targeting the larger balances and making sure the smaller ones don’t get completely out of control or the key area there. Now, any private equity that I’ve worked with has always been concerned the most about how quickly you bring in cash, making sure you have the most free cash flow and actually leverage the investment that they’ve made to be able to ultimately pay themselves back, create more value for the organization so that they can go and sell you to a larger company
What are the key metrics or KPIs used in accounts receivable?
Please share 1-2 important pieces of advice regarding AR tips or best practices for this controller’s briefing.
To view this question and learn more about corporate growth, view the complete webcast here.
ABOUT OUR SPONSOR:
Paystand is revolutionizing B2B payments with a modern infrastructure built as a SaaS on the blockchain, enabling faster, cheaper, and more secure business transactions. Paystand’smission is to reboot commercial finance by creating an open financial system. Learn more at www.paystand.com.
