subject: Working Capital Optimization:Not Just Board-room Conversation [print this page] Reality Check Reality Check
Most invoice settlement processes are paper-intensiveand manual
Invoice-to-pay cycle: 60-120 days (approximately)
2 percent 10 net 30: Remains a dream, as most invoicesget stuck in internal approvals by the time they get toaccounts payable
20 40 percent of invoices involve exception processing:Double or sometimes triple the transaction's timelineand cost
As credit markets tighten and earnings are squeezed, financefunctions are applying ever greater scrutiny to the efficiencyof their back-office processes. The smart application oftechnology is helping build agility into the hitherto tardymanual processes, increase cash flow visibility, improve therelationship between the buyer and supplier organization, andmost importantly, enable working capital optimization.
The financial supply chain, if not managed efficiently, can bea major pain point in optimizing your working capital.Accounts payable constitutes the biggest drain in the workingcapital management of most organizations. In other words, ifan organization can manage its cash, its accounts receivablesand accounts payables well, it can rein in the invincibleoperating costs. If it can improve its processes and free cashfrom the balance sheets, it can put the working capital tomore productive use.
Problems with Legacy
Traditionally, buyers have not been able to effectively managetheir working capital for various reasons. Manual, error-proneprocesses have been perennial road blocks in allowing buyersany flexibility with payment terms. Buyers could hardly takeadvantage of any discount offers that the supplier made onthe invoice against early settlement of dues. Instead, buyersconsumed valuable accounts payable resources to deal withsupplier inquiries and dispute resolution. The traditionalprocesses involved costs of printing and mailing paper checksand stop payments as well as re-issue costs for lost checksand frauds. Buyers were unable to help the supplier removeprocess inefficiencies that translated into incremental cost ofgoods and services for the buyer. And thus, it was neverunusual to find suppliers that refused to do business withcustomers who were 'too expensive to do business with'.
From the supplier's point of view, the lack of visibility anduncertainty around payments hindered cash flow forecastingefforts. The supplier had to maintain excess cashunproductively as 'hedge' against uncertainty, thereby tyingup working capital in the order-to-cash cycle. Suppliersneeded to rely on expensive financing options like factoringand asset-based lending to deal with limited access tocapital.
Technology: The Enabler
Technology is today playing a significant role in helping bothbuyer and supplier organizations streamlining the cash flowand bringing about cost reductions. Tightly integratedworkflow tools are known to reap visible results.
WNS offers its customers various financial transformation andprocess optimization solutions and services. The solutions weprovide enable organizations to leverage their enterprisesolutions to establish automated financial processes. Throughstreamlined processes, the solutions enable cost-savingefficiencies and working capital optimization.
The WNS Solution
The WNS Working Capital Optimization solution comprisesfour core offerings: Accounts Payable Workbench (APW),Purchasing Cards (P-cards), Dynamic Discount Manager(DDM) and Supplier Self Service Portal (SSP).Accounts Payable Workbench: It automates the processing ofpurchase invoices by providing clear visibility of all exceptioninvoices; Web-based workflows for resolving invoice issues;automated processing of electronic invoices andcomprehensive reporting. Clients have typically achieved7080 percent automatic posting of e-invoices, and havemoved to a position where early payment discounts can berealized.
Purchasing Cards: They have been in the market for over30 years now. WNS enables organizations to maximizerebates, increase the purchasing card program, and improvecontrols and visibility of spend by integrating these innovativepayment methods into their enterprise solutions. The WNSP-Card solution supports lodged cards, embedded cards,single-use cards and cards-in-hand. When purchase cards areused to procure from a level 2 or 3 merchant, they effectivelydeliver low-cost, standardized electronic invoicing. Theperiodic transaction file produced by the card providercontains expense lines with associated purchase ordernumbers. The WNS solution can then automatically matchand post these expense lines as invoices in the client'senterprise-wide solutions.Dynamic Discount Management: Traditionally, suppliers hadbeen offering discounts on the invoice as an incentive forearly settlement of dues. But most organizations were unableto utilize the discount offers because of paper-intensive,manual invoice receipt and payment processes. Exhibit 1below shows how the importance of capturing early paymentdiscounts for an organization...........
