Duplicate invoices, delayed payments and other complications usually require tedious — and often inaccurate — manual accounting processes that can cause capital management headaches for businesses’ treasury teams. But incorporating data analytics could help these firms spot and eliminate these inefficiencies, Katie Stein, chief strategy officer for professional services firm Genpact, discusses in this month’s Back-Office Optimization Playbook.
The pandemic has been a game-changer for businesses, with retailers closing their doors, restaurants turning to delivery and pickup, and banks shifting to digital interactions to avoid potential viral transmission.
Even companies that did not directly interact with individual consumers have seen their operations change rapidly as the health crisis-driven economic downturn negatively affects customers’ abilities to pay for goods and services and vendors’ abilities to supply inventory.
Accounts payable (AP), accounts receivable (AR) and other capital management workflows are also not immune to pandemic-related struggles. One study found that 74 percent of accounting staff reported pain points when manually processing invoice data, for example, with 68 percent citing manual invoice routing as their top concern. The major problems the health crisis has heaped on the capital management industry are much more deep-seated, Katie Stein, chief strategy officer and global business leader of enterprise services for professional services firm Genpact, said during an interview with PYMNTS.
“We saw what were traditionally transactional processes, like accounts receivable [and] accounts payable, become strategic imperatives,” she explained. “That’s a shift that’s here to stay, where cash and cash management in the business becomes a core part of every decision we make, whereas before that was sort of relegated to finance.”
This sea change in the capital automation industry brought about a range of headaches for accounting staff, Stein said, but the industry has worked to reduce these issues through data analytics. Partnerships with third parties are a key facet of making these analytical models possible and actionable.
How the Pandemic Changed Capital Management
The pandemic’s effects on the business world cannot be overstated, not just for its deleterious effects on profits but also for its total disruption of the supply chain. Factories in China shut down, leading to inventory shortages and causing ripple effects that have reverberated across industries and affected business at all levels.
“COVID-19 basically shut down entire value chains of activity,” Stein said. “Suppliers, producers, customers — everyone went down the same time, pretty much globally. March 20 will forever be burned into my mind as the day that I woke and was like, ‘Oh my gosh, this is an entirely different paradigm.’”
Capital management has suddenly become as much about leveraging business relationships to secure financing as it has about monitoring cash flows. Stein cited an example of a Genpact client that had to quickly adapt to the new normal.
“We had one of the largest luxury beauty companies in the world, and [its] channels shut down, [its] customers shut down and stores were shut,” she explained. “Suddenly, rather than ‘Hey, I’m going to call and collect [financing] from you,’ [it became] that client using [its] leverage with banks like J.P. Morgan to get financing because the [beauty company was a] huge influence channel for them, and they didn’t have the luxury to strategically shut them off.”
This paradigm is here to stay, she explained, as the businesses that are most likely to stay afloat during the pandemic are those that are most capable of leveraging these relationships to keep their supply chains intact. This means that AP, AR and other capital management departments will need new analytics tools and partnerships to keep pace.
How Analytics Give Businesses a New Edge
This new standard has cast into sharp relief just how inadequate old capital management tools have become. The primary solutions for many companies — even industry titans in the Fortune 20 — were one-size-fits-all programs like Excel, but their limitations were quickly exposed.
“A lot of huge companies are still doing a lot of their cash forecasting in Excel, but suddenly you came into a time like this and went from periodic forecasting to daily or subdaily forecasting,” Stein noted. “A lot of them stepped back and said, ‘Look, we can’t do this with people manually typing in Excel anymore. We need a cash forecasting tool.’”
These predictive analytics tools take into account several factors both inside and outside organizations to determine how much inventory to order as well as how much cash to have on hand at any moment. Business moves fast during the pandemic, and capital management tools need to be equally speedy, said Stein.
“Analytics and segmentation have come to the front,” she noted. “Imagine distribution between restaurants, small businesses and bars. We know that as COVID-19 case rates go up, mobility goes down, unemployment goes up … and receivables are going to be challenged. Taking all of that external data, marrying it with data that we know about customer bases and modeling propensity to pay is allowing us to forecast where we’ll fall short on collections, so we can microtarget the timing and interventions.”
Developing these analytical models and algorithms is a tall order for even the largest businesses, so many are partnering with third parties to aid in this endeavor. Genpact partnered with business spend management developer Coupa to aid in its analytics implementation strategy.
“As a company, you want to negotiate with the right set of strategic suppliers and get the right contracts and terms on those contracts because you have scale in negotiating them across the company as opposed to each individual buyer,” Stein explained. “Partnerships are crucial to implementing platforms that facilitate the implementation of those strategies, and [this can guide] the buyer and the company to the right provider within the right parameters that have been agreed upon.”
The pandemic has been a trying time for the business world, but companies are not alone in the challenges they face. Capital management, as with many other areas facing business struggles, relies on teamwork and partnerships to succeed in this uncharted world.