smart automation in receivables and working capital management

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EXECUTIVE SUMMARYImproving processes related to working capital used to be a labor-intensive task, but smart automation has made it easier and quickly achievable. Beyond labor cost savings, smart automation offers a host of further advantages such as a minimum critical mass required, reduction of human error, process acceleration, and improved accuracy. In these pages, we show how smart automation, especially robotic process automation, can help improve working capital from an accounts receivable management or customer-to-cash process point of view.

THE SMART AUTOMATION EDGESmart automation improves efficiency, effectiveness, and experience – the 3Es of digital value – by minimizing cost and maximizing business value as well as the relationship value (one of the impacts of relationship value being revenue improvement by enhancing customer experience and service) (Fig. 1).

Furthermore, compared to major systems, best-of-breed or bolt-on tool implementations, smart automation requires low investment, low internal information technology resources involvement, low organizational disruption for design and implementation, and a low critical mass of transactions. When done right, smart automation is quick to implement, highly

Smart Automation in Receivables and Working Capital ManagementBy Gerhard Urbasch and István Bodó

HACKETT PERENNIALS SERIES POINT OF VIEW

FIG. 1 Smart automation can drive the three E’s of digital value

Efficiency

Minimization of cost byoptimizing resource productivity

and eliminating waste

Effectiveness

Maximization of businessvalue by aligning services with

defined business needs

Experience

Optimization of relationshipvalue for employees, customers

and suppliers

A

Source: The Hackett Group


Smart automation defined

Smart automation is a category of cost-effective, cross-functional automation technologies focused on optimizing structured, knowledge and interaction work. The primary types of smart automation are RPA, smart data capture, conversational interfaces, cognitive automation and agile orchestration technologies.

scalable, applicable to single-use cases, implementable incrementally rather than for multiple use cases at once, and complementary (rather than competitive).

APPLYING SMART AUTOMATION TO RECEIVABLES AND WORKING CAPITAL MANAGEMENTManagement of accounts receivable as part of working capital is driven by the customer-to-cash process with its various subprocesses – from order management to cash application. We believe that most of the customer-to-cash process, with the exception of establish credit policy and research disputes, is suitable for smart automation (Fig. 2).

High-potential automation opportunities might be different across organizations. The Hackett Group can

FIG. 2 Customer-to-cash automation opportunities – Level 1

Customer-to-cash

Order management (process sales

order)

Receive customer request

Review orderrequest

Establish creditpolicy

Generate invoice detail

Initiate collection activities

Receive payment

Identify and route dispute

Quote orderCreate customer

contact dataEstablish new

customer creditConsolidate billing

informationRespond collection

communicationMatch payment to

receivable Research dispute

Validate/verify order

Update customer master data

Review existing customer credit

Format and transmit invoice

Process collection responses Apply payment Resolve dispute

Commit orderSet up electronic

payment informationPlace customer on

credit holdPost A/R

transactionsPast due collection

activitiesPost to general

ledgerEscalate dispute

Communicate promise date

Assign commercial classification

Credit management reporting

Record promisedate

Apply credit memo

Closedispute

Create customer pricing profile

Update customer notes

Contact customerto confirm

Set up/maintain customer

Creditmanagement

Customer billing Collection

Cash application/ accounts

receivable

Dispute management

HIGH MEDIUMExpectations for automation opportunity Source: The Hackett Group

help to challenge the status quo, explore new ways of working, and confirm existing opportunities based on client parameters and The Hackett Group’s knowledge and best practices.

We will show in more detail – focused on individual use cases – how smart automation can be used to automate customer-to-cash activities. Use cases include automating entry of email orders with and without attachment, order validation, capturing data from external credit reports, dispute identification, routing and resolution follow-up or reviewing postdated checks for payments. Fig. 3 on the next page provides an overview of the benefit impact of automating the 32 sample use cases using smart automation and some detailed use cases for more detail.

SMART AUTOMATION BENEFITS IN CUSTOMER-TO-CASHBenefits of smart automation go far beyond the obvious labor cost or full-time equivalent (FTE) savings associated with automation. It also drives substantial working capital improvement and frees up capacity for value-added activities. Benefits may be categorized as follows:• Reduction of overdues and accounts receivable

balances.• Reduction of the level of unbilled • Improvement in data quality and accuracy and a

resulting reduction of disputes.

ddulberger

Highlight


• Reduction in credit risk exposure and/or write-offs of bad debt.

• FTE savings, i.e., savings from substituting automation for human labor.

• Process acceleration, executing formerly slow manual tasks faster through automation.

• Improvement of customer service and experience. • Enhanced insight for decision-making for managers. • Freed-up capacity to focus on value-added work

instead of recurrent manual activities.

Of the 32 sample use cases in Fig. 3, 29 have a positive FTE savings impact; 26 accelerate process execution; and 25 reduce the level of accounts receivable and overdues within accounts receivable. Fourteen of the 32

applications listed include improvement in data quality and accuracy and a resulting reduction of disputes, as well as a reduction in credit risk exposure and/or write-offs of bad debt.

SMART AUTOMATION TECHNOLOGIES TO UNLOCK BENEFITS IN CUSTOMER-TO-CASHThere is an ever-growing list of smart automation tools on the market, which can be grouped by five main smart automation technologies: data capture, RPA, cognitive automation, chat/ natural language processing (NLP)/virtual assistance and orchestration (Fig. 4). Before discussing which technology to leverage, let's quickly review the technologies for an understanding of their applicability.

ProcessAppli-cation

#

Application (short)

Application (long)

Benefit Technology solution options for smart automation

Less (overdue)

A/R

Less un-billed

Better data/fewer

disputes

Less credit risk /

fewer write-offs

FTE savings

Process accelera-

tion

Better service/ experi-ence

Better insight

Data capture

RPACognitive

automation

Chat / NLP/

virtual assis-tants

Orches-tration

Order entry

1Email order entry

Open emails, transfer/key in email attachment content into ERP

1 1 100% 100%

Credit manage-ment

6

External credit report data capture

Extract risk indicator and suggested credit limit from credit report (e.g., D&B), populate information into templated file

1 1 1 1 1 100% 100%

Cus-tomer billing

18Consol-idated billing

Run monthly consolidated billing on predefined rules, send bills to customers

1 1 1 1 1 50% 100%

Collec-tions

19

Dunning target identifica-tion

Identify accounts to be dunned based on rules, generate dunning letters

1 1 1 1 100% 100%

FIG. 3 An overview of 32 use cases

29 use casesFTE

savings

26 use casesProcess

acceleration

7 order-to-cashprocesses

25 use casesAccounts receivable

reduction

14 use casesData quality improvement


FIG. 4 Smart automation technologies

Data capture RPA Cognitiveautomation

Chat/NLP/virtual assist.

Orchestration



Data captureSmart data capture is primarily focused on optical character recognition (OCR) and text extraction and analysis. Data capture reads text or other characters and helps translate PDFs or emails into editable text files or codified information.

Robotic process automation RPA is the automation of transactional, digital, rules-based computer work. RPA work can be scheduled and run without the need for human input. It is typically used in back office and shared service functions at a subprocess level. RPA includes desktop process automation or attended robots, providing real-time support to human workers, typically in a contact center environment.

Cognitive automationCognitive automation includes a broad range of automation technologies that imitate human thought processes, in particular, regarding unstructured information, pattern recognition, and expert judgment. Cognitive automation includes tools that use machine learning, i.e., algorithms and human input to learn and improve over time.

Chat/virtual assistanceThese are technologies that interact with a user or customer via spoken or written language, in particular through NLP – such as chatbots and voice queries through virtual agents. These technologies are often used in conjunction with RPA or cognitive automation to automate an end-to-end activity.

OrchestrationOrchestration is workflows that can coordinate, simplify, and optimize process flows, enabling seamless handoffs between humans, legacy systems, and virtual workers. Orchestration includes workflow, case management, and ticketing functionality, and may be combined with new artificial technology techniques. Orchestration can provide insight, statistics and reporting to maximize automation.

SELECTING THE RIGHT TECHNOLOGY The Hackett Group focuses on the business drivers and processes first, and then helps clients select and implement the right tools and technologies to support the requirements. That is, before the right technology can be chosen, primary drivers of working capital improvement need to be identified and process

requirements must be captured in detail, usually in the form of a process blueprint describing each process step. Based on the prioritized working capital drivers and detailed process or use case requirements, the technology and then the vendor will be chosen.

It can be helpful to use scoring models to objectively compare and assess the various options. That said, RPA is a technology that can be applied to many use cases, given its versatility, low critical mass of transactions and scalability.

The order-to-cash process represents a unique blend of automation opportunities for each company. OCR in some cases might be only partially applicable, while RPA and other technologies might be more fit for purpose. Technologies are often combined, for example data capture or OCR to read data, and RPA to process or transfer the data captured to maximize the benefit.(Although RPA and other smart automation technologies are versatile and have a high degree of applicability to many processes, they are not the only option and typically are best used in conjunction with enterprise resource planning and function-specific best-of-breed solutions.)

CUSTOMER-TO-CASH PROCESS AND TECHNOLOGY IMPLEMENTATION APPROACHSmart automation can be applied to single or multiple use cases. Even for a single use case, it is critical to follow a rigorous sequence of defining detailed process requirements, performing a structured approach to selecting the best technology option and vendor, and realizing a proof of concept or pilot, followed by the rollout. Ideally use cases are not seen in an isolated fashion, but the entire function or process service delivery model is considered. Fig. 5 provides an overview of the steps and elements for organizations to consider in full or at least in part on their smart automation journey.

While most smart automation implementations are focused around the information, technology and process dimensions of The Hackett Group’s Service Delivery model (vertical axis on the left of the illustration), broader questions are frequently raised: • What happens to job descriptions for the remaining

work scopes and resources involved?


• What is the right way to structure an automation center of excellence?

• How do we develop a long-term pipeline of automation opportunities?

• Should the free time of collectors be better deployed to focus more intensely on large, complex accounts?

• What does that mean to the content of their work? • Do they need to be specially trained? • Where should the remaining work scopes be

performed? • Is it better to outsource or keep in-house?

We recommend reviewing the level of ambition to decide on a narrower or broader approach. An initial conversation with a specialist can help define the right approach to be followed. Independent from the scope of service delivery, the steps to smart automation implementation remain the same and comprise an assessment, future state design/definition of requirements, blueprinting, technology and vendor selection, proof of concept/pilot/go live, rollout/value realization, and sustainability.

THE PITFALLS OF "MUDDLING THROUGH"Organizations often lack the experience and rigor, and end up wasting time and resources while simply muddling through an implementation

FIG. 5 Process and technology implementation – overview

Information

Technology

Process

Governance, organization

Skills & talent

Serviceplacement

Process sourcing

• Best practice gaps• Rough-cut future state • Roadmap• Business case

• As-is data mapping• Future state design

• Detailed blueprint • E2E integration• Data migration

• Hypercare• Adoption and performance management

• Sustainability plan realization• DMAIC cycle institutionalization

• Future state design

• Detailed blueprint • Use cases • Test scripts

• Future state design

• KPI blueprint, targets• To-be organization• Governance

• To-be organization• SLA’s, incentives• Sustainability plan

• Job descriptions• Sustainability roles

• Placement selection (short, medium term)

• Align stakeholders• Due diligence• Negotiation & award

• Bus. Requirements• RFI • RFP

Technology selection

• Bus. Requirements• RFI • RFP

• Align stakeholders• Due diligence• Negotiation & award

• Configuration• Testing• Go-live readiness

• Tax, legal structure, if applicable• Training materials• Nominations• Training• Onboarding• Go-live plan and readiness check

AssessmentFuture-state

designBlueprinting

Implementation &go-live

Value realization &sustainability


without external specialized expertise, not defining requirements or vendor selection criteria properly, or jumping onto a technology without fully understanding the implications.

We have seen cases where organizations signed contracts with vendors for a use case they felt the vendor was right for, only to find out later (and after having paid the vendor in full) that the solution was not fit for purpose. In many cases, the working capital improvement potential is not fully understood, either.

NAVIGATING THROUGH THE SMART AUTOMATION VENDOR JUNGLEWith the space relatively new, there is a plethora of vendors in the smart automation space. Fig. 6 provides a sample overview of some of the vendors for RPA, data capture and cognitive automation.

Organizations are challenged with assessing the maturity and fit for purpose for the solutions offered, which may be a daunting task without specialist expertise. Also, organizations do not want to overpay for the solution, which is to provide a positive return on investment precisely for the smaller scale applications that smart automation promises compared to bigger system solutions.


Voice/conversational

Mobility/Infra

RPA/OrchestrationAnalytics

Smart Data capture

AI tools and techniques

Data

Infrastructure

Voice/conversational

Analytics

Smartdata capture

AI toolsand techniques

DataRPA/

automation platform

FIG. 6 Smart automation vendors

Clients we work with typically achieve savings of 35% to 50% in their vendor selections, as illustrated in Fig. 7. In this case, our support in the technology selection saved the client nearly $6 million over three years, or 52%, compared to the request for proposal baseline offer.

CONCLUSIONSmart automation offers a significant opportunity to quickly automate and accelerate customer-to-cash processes and accounts receivable management, all while reducing costs and errors while releasing cash.

Although RPA is a versatile smart automation technology among multiple options, it is necessary to

follow a structured approach based on use cases and business requirements before selecting and deploying the best-fit technology solution.

It is also important to set and review the level of ambition in terms of focusing on automating single-use cases only, versus redesigning the entire service delivery model to address dimensions such as service design, organization and governance, and service partnering beyond technology. At that point, it makes sense to leverage the experience of experts to avoid the problems that can befall organizations and prevent them from getting the best value from their technology vendors.

FIG. 7 The Hackett Group’s achieved technology vendor savings

Licenses

Implementation

Transactions

BaselineRFP:

Most expensivesolution

BaselineRFP: Selected

solution

1st round 2nd round Closing

-25%

-52%

-36%

$5.7M in client savings over 3 years

Levers

• Redefinition/renegotiation of transaction volume thresholds

• Implementation cost, risk reduction through precise requirements definition, process and technology blueprinting

• Optimized number of icenses

• Price reduction, leveraging existing vendor relationships

• Additional payment-term enhancement (from 100% upfront at beginning of implementation to successful go-live)


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GERHARD URBASCH Senior Director, Finance Transformation

Gerhard Urbasch hads over 20 years of experience in optimizing supply chains and working capital for large global companies throught the U.S., Europe, Latin America and Asia. He has supported clients in industries such as automotive OEM and suppliers; rail technology; engineering and construction; telecommunications equipment; chemicals; life sciences; and aerospace and aviation. Project experience includes customer-to-cash, forecast-to-fulfill and source-to-settle process optimization; optimization of inventory; aftermarket supply chains; network redesign and setup of inbound hub-based supply networks; delivery performance improvement programs; and global trade compliance and supply chain risk management.

About the Advisors

ISTVÁN BODÓManager, Finance Transformation USA

István Bodó is a manager within the Strategy & Business Transformation practice of The Hackett Group, with consulting experience in different industries and multiple geographies. His main consulting focus covers working capital optimization, compliance and internal audit, global business services and shared services, sales and marketing process optimization, and integrated business planning.

smart automation in receivables and working capital management

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