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7 F&A best practices to achieve ~0 to 30 Days Sales Outstanding (DSO)

Written by Navin Gupta | Jan 23, 2020 6:43:16 AM

Estimated reading time: 3 mins

The role of a CFO is evolving from being the chief of the finance and accounting function towards an able, digital business partner. The role has to enact corporate vigilance to have the Account Payables (APs) and Account Receivables (ARs) flowing seamlessly. However, ironically the mammoth operations and scale of any business venture hinder the very proactive monitoring that is desirous. This state of affairs, in turn, affects the efficiency of the business, thus sometimes generating an average DSO of more than 90 days. The skewed cash-flow balance resulting from the locked-in resources forces you to take bank loans at a higher interest rate, delay supplier payments, and at times defer employee salaries.

For an organization to perform at its peak efficiency, the Order to Cash (O2C) and Procure to Pay (P2P) has to happen in a clock-work manner. As a result, the Record to Report (R2R) and Financial Planning and Analysis (FPNA) works out at peak efficiency. A highly efficient F&A operating model has O2C, P2P, and R2R occurring synchronously. This F&A process excellence is an elusive target for many. However, Business Process Management (BPM) software or process enhancement technologies and services (PETS), such as Robotic Process Automation (RPA), Intelligent Data Capture, Intelligent Automation (IA), workflows, and Artificial Intelligence (AI) / Machine Learning (ML) enable the CFO to build a modern-day back-office, which is capable of making a ~0 DSO organization a business reality.

Top concerns plaguing you as the modern-day CFO

  • Top line: As a digital business partner, you have to ensure that the enterprise is building on its revenue resources and minimizing DSO
  • Bottom line: As a business sustainer, you have to look beyond the immediate business scenario and decipher if you are adding to the net revenue
  • Decision-making: As a business generator, you have to augment the enterprise data with data science & analytics to accelerate growth and innovation

Here, Intelligent Automation (IA) is emerging as the panacea to modern-day CFO back-office woes and showing the way ahead.

Best practices towards building a modern day CFO back-office

7 F&A best practices towards ~0 to 30 Days Sales Outstanding (DSO):

  1. Design loosely-coupled workflow architecture
  2. Build automation first enterprises
  3. Auto-monitor
  4. Auto-communicate
  5. Automate, automate, and automate
  6. Build a knowledge base
  7. Analyze
  1. Design loosely-coupled workflow architecture: Use PETS, including RPA, IA, workflows, and AI/ML, to weave together the old with the new IT architecture and deliver value to the enterprise top and bottom line.
  2. Build automation first enterprises: Automate P2P and O2C processes such that R2R and FPNA fall into place.
  3. Auto-monitor: Leverage analytics to continuously monitor and highlight DSO as well as track performance in real-time.
  4. Auto-communicate: Use IA to receive and process data, including structured, unstructured, and multi-structured data, with human intervention only during handling exceptions.
  5. Automate, automate, and automate: Deploy RPA and workflows to process Requisitions, Purchase Orders, and Invoices. Use AI to extend the utility of these tools and appendages.
  6. Build a knowledge base: Build a mammoth database to harness enterprise knowledge over the years and tap into trends of both vendors and clients.
  7. Analyze: Identify opportunities and threats through careful analysis of patterns and trends to decide the further course of action.

Business impact

Smart automation significantly reduces the cost of processing a PO and helps you achieve key business KPIs :

  • Achieve the elusive target of ~0 to 30 days DSO
  • Realize a healthy operating cash flow ratio of >1
  • Adhere to commitments towards supplier payment on time

In summary

A modern-day progressive enterprise has its inherent capability, which has to be augmented with new technologies and solutions to build an Intelligent Automation setup and its capability mix. Transformation towards a ~0 DSO organization does not happen overnight. However, it is not an elusive target. As a CFO, it needs careful planning and coupling of the old with the new PETS technologies, including RPA, IA, workflows, and AI/ML, to balance the operating cash flow ratio and at the same time evolve the enterprise setup into a future-ready organization.

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