Most people think that getting a signed contract is as good as having money in the bank. Those who have ownership for their company's "Order-to-Cash" process beg to differ. Many of them are discovering the value of BPM software in speeding this process to close.
Order-to-Cash is the high level description for the process steps between obtaining a signed order and having 100% of the cash arrive in your bank account. Those steps include credit check, contract administration, order entry, billing, collection, cash application, and deductions management. Problems in any of these processes show up in the key Order-to-Cash metrics of days of sales outstanding (DSO), write-offs, and cost per order processed.
Most companies operate on relatively small gross margins so even small amounts of write-offs have a big impact on profitability. A large amount of manual processing work hurts productivity and makes costs spike. A lack of visibility into the process makes it hard to identify root causes and stop problems.
A large manufacturing company recently came to Appian because 40% of the invoices they sent out came back with short payments (a.k.a. customer deductions). None of the company's three different ERP systems could help with this kind of exception process. They resorted to printing out records of each exception and physically routing the paper to the person they felt best able to determine if it was appropriate, or gather information to refute. Communication on most items happened through e-mail. A spreadsheet was used to track status, but it was hopelessly out of date. Order-to-Cash metrics were poor and they needed a solution.
This company's problem was not uncommon. In fact, "deductions management" (the discipline of tracking and resolving short payments) is a common issue, especially among companies who sell to retailers. The Credit Research Foundation is a non-profit association of business-to-business credit professionals. In their most recent report titled Customer Deductions: Impact on Receivables, survey respondents rated their ERP system as generally "poor" in their ability to assist with deductions management. Thirty two percent of respondents reported using some additional "bolt-on" software tool to help with deductions management. Only one-third of those people reported using an application specifically designed to assist with customer deductions.
So how are companies getting to the bottom of customer deductions? Turns out the majority of companies are just like the manufacturing company that approached Appian with their deductions problem. Communications about individual deductions usually happens via paper printouts passed around or through unstructured e-mail. Tracking is handled via a spreadsheet or Access database. Many know they could reduce or eliminate deductions before they start if only they could better integrate systems that each contain a small part of the whole information picture.
So what prevents these companies from applying better technology to solve these problems? Most Order-to-Cash process owners see two possible solution paths. The first is to ask their IT department to create a custom application to integrate systems to reduce deductions and manage the workflow to resolve those that remain. Those who go this route get frustrated with the costs, the challenge of writing complete requirements upfront, long cycle times to get a product, and costs and time delays in making incremental changes. An alternative is to license an application specifically designed for deductions management. This can be a helpful solution, especially at first, but users often find products lack features they need. They can request modifications, but software vendors need to please the majority of their customers so unless their needs are common, their requests won't make it to the vendor's roadmap. Another issue for companies that go this route is "application sprawl." That's where an organization ends up with a lot of overlapping software applications, each licensed with good intentions and a specific problem to address. But an organization with too many applications can find itself hopelessly bogged down.
There is a better wayÖ and that's just what the manufacturing company that came to Appian discovered. With some help from our professional services team, they quickly created an application using Appian's BPM software to manage deductions that fit their systems and business processes to a "T." Specifications did not need to be written upfront because Appian's graphical interface made it super easy to make changes. Integrations to multiple systems were made easily, helping to increase auto-matching of records and cut down the number of exceptions. Built-in reporting allowed managers to understand root causes, further cutting down on deductions. Appian also automatically generates documentation so there's no need to do that separately. The application was able to "evolve" rapidly, guided and controlled by the business users who would live with it every day. This eliminated the classic tension between an IT programming group and the business users of the system. It also means that the deductions management process can be agile, with the application changing just as rapidly as the needs of the business change.
Managing customer deductions through an application created in Appian was just the beginning for this company. Once they saw how easy it was to modify their application, they built process extensions to cover issues related to deductions that were unique to their business. No third-party application would ever address those as the potential market wasn't big enough.
BPM use is rapidly expanding at this company as others recognize how much easier it is to get applications tailored to their needs. Plans are underway for applications to address needs in areas such as "Purchase-to-Pay," IT service requests, and HR on-boarding. This company is not alone in their BPM vision. UPS, another Appian customer, recently won an award for their extensive use of BPM to automate processes that previously had all been manual. They have over 100 applications in Appian and counting. Appian's flexibility makes it superior to custom development or a third-party point application for any one particular challenge. But Appian's strongest advantage becomes clear when companies start using Appian as a platform to address a wide range of challenges. So for Order-to-Cash business process owners, Appian represents a new path to getting the application you really want and increasing your organization's agility and improving your process metrics.
Appian will be exhibiting at the Credit Research Foundation's Open Forum & Expo in Chicago on August 15th ñ 17th. Stop by and visit us if you're attending the show. More information about how we can help credit professionals is available on our Order-to-Cash web page, including a link to our white paper on new approaches to deductions management. And, as if having an application that does what you want isn't enough, just wait until you experience Appian's mobile and social capabilities! You can get a taste in another blog post I wrote about those capabilities using a deductions management example.
Hope to see you in Chicago!
Vice President of Solutions
Appian is the unified platform for change. We accelerate customers’ businesses by discovering, designing, and automating their most important processes. The Appian Low-Code Platform combines the key capabilities needed to get work done faster, Process Mining + Workflow + Automation, in a unified low-code platform. Appian is open, enterprise-grade, and trusted by industry leaders.