The Order To Cash Cycle Seeks Its Automated Reinvention

In B2B, suppliers and getting them paid is a friction-filled process.

The friction is especially acute in manufacturing. The relationships between manufacturers and their suppliers often cross borders, and payments can involve several different currencies.

Part of that is due to the fact that, as PYMNTS research shows, 43.8 percent of invoices are still delivered via fax machine and 72.4 percent arrive via postal mail. And the inefficiencies have ripple effects.

In an interview with Karen Webster, Brandon Spear, president at MSTS, took note of the fact that manufacturing makes up a significant portion of the U.S. economy, and that a continued embrace of technology and outsourced receivables management is underway.

“There’s a fair amount of reinvention occurring,” he told Webster, “in the way distribution channels work and the way sales channels work.”

Spear said buyers have put a “tremendous amount of investment” into ERP and procurement software. There is an expectation among those buyers that manufacturers will, in turn, adhere to their customers’ procurement processes and preferences. Manufacturers have to scramble to work with those far-flung ERP systems and integrations to keep business and payment flows open.

Extending Credit

The conversation turned to Credit as a Service®, offered as part of outsourced receivables management.

O2C solutions can help manufacturers and buyers navigate credit challenges, as firms can set payment terms, apply for credit and track rebates through Credit as a Service.

Outsourcing programs with acting effectively as a lender, eliminate payment risk to the supplier, Spear noted.

And where payments may be late, he said, it’s usually because companies are missing details, incorrect information has been provided or recipients don’t know what to do with the invoices.

Automating at least some of those processes and integrations (through solutions such as those provided by MSTS) can eliminate the pain points across the O2C spectrum. Getting the integration or procurement processes wrong – or keeping them confined to manual settings – will trigger a negative downstream impact on the ability to collect on invoices and get paid in a timely manner, warned Spear.

By way of illustration, he offered the example of a distributor selling to an end customer.

“The dilemma for a distributor is that usually, they are operating on pretty thin margins, and so have as much automation as possible,” Spear said. The automation comes as MSTS enables that distributor to link point of sale devices, eCommerce platforms and even CRM platforms directly with the end customer. Invoice data flows seamlessly across physical, eCommerce or sales channels.

“For example, if every customer requires a purchase order on the invoice, you can make sure it is captured and placed in the right place on the invoice, and then you pass that invoice back electronically to that customer, and it goes back into their procurement software or the ERP software,” Spear told Webster.

The continuous and seamless data flow, he added (along with lines of credit that pay and reimburse buyers and sellers based on the terms to which they’ve agreed), enables firms to get paid quicker, which in turn helps lift working capital constraints.

Against this backdrop, Spear said, visibility and data are paramount.

The drivers toward automation are a bit different for manufacturers and distributors. Manufacturers may be focused on market share, while distributors are concerned with optimizing their cost structures.

Along the supply chain, said Spear, manufacturers tend to be starved of end-customer data. If there’s a distributor between the manufacturer and the customer, the former won’t know much about the latter’s buying habits.

Digitizing the information flow, he added, provides what he terms “feedback loops” to manufacturers about what end customers are buying – and what they might want to buy next. For the distributors who optimize their invoicing processes, there is the chance to participate in national programs offered by large manufacturers.

“In general, when you’re able to free up some of that working capital, you give the suppliers choices around how they can grow and expand their business,” Spear told Webster.