Ineffective management of debtors delivers a weak cash flow and can cripple a business. Without revenue, a company is unable to sustain itself. While all organisations are revenue focused and place importance on managing debtors, approaches to drive sales and manage cash flow are still not integrated.
This is particularly important when it comes to sales accounts receivable analysis and is paramount to successfully drive new business and ensure a healthy debtors book.
Says Christo Nel, pre-sales product manager at Cognos: "It is approximately four times harder to obtain a new customer than retain an existing one. Customer relationship management (CRM) solutions provide two types of information: a collection of information about the client or customers that can be grouped according to criteria, such as per area; and information about who is responsible for these customers. Performing `customer analytics, however, delivers much more valuable information, ensuring a better customer experience and enhancing customer retention."
In order to increase customer satisfaction and drive sales, companies need to know who the highest revenue-generating clients are and adopt an approach that ensures they are treated accordingly. A cross-functional process that shares client and sales data with the office of finance is also necessary to establish which orders are outstanding. Imagine the repercussions of contacting a client for payment if the order is outstanding.
Understanding a client`s buying trends, profile and the agreed payments terms is key to meeting that client`s needs. Trying to sell a product or service to a client that has no need or requirement for it wastes the time of both the seller and client. In essence, customer analysis allows businesses to identify quality clients, optimise their product offering to these clients and improve the quality of their sales processes within the organisation.
A sales analytics solution acts as a business lens, magnifying the performance of the sales team through key performance indicators (KPI). It also allows management to drill down into specific areas, so providing transparency across the entire sales cycle, including outstanding invoices.
Says David McWilliam, Managing Director at Cognos SA: "From a debtor perspective, managing cash flow is a key criterion in the mix of areas that result in a profitable business. Accounts receivable drives cash flow and liquidity in an organisation and financial directors need to have their finger on the pulse of this financial function. There are a few goals that every debtors office strives towards. These include a speedy cash conversion cycle where outstanding invoices are settled as soon as possible; monitoring debtors` age analysis and ensuring the daily sales outstanding (DSO) - a consolidation of total debtors` outstanding amounts - is reduced."
In order to achieve this, information needs to be delivered to three levels: the executive level, or upper management, need to understand what is happening; the tactical level, or middle management, need to understand why it is happening; and the operational level needs accurate information that will allow them to execute their tasks efficiently.
This information allows businesses to prioritise their collection strategy on a month-to-month basis, allowing them to focus on larger outstanding amounts, thus reducing the DSO. In addition to this, it is important to have metrics built into a solution that allows top management to measure this performance with a scorecard system. This allows the financial director to identify the risk posed and transparently report this to shareholders - a major consideration defined in corporate governance requirements.
McWilliam concludes: "The real value of information lies in the ability to understand it and have the tools to analyse and monitor performance. Being able to tap into this information and improve customer relations while reducing outstanding amounts owed, provides companies with a distinct advantage that leads to financial stability."
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