Unlocking greater profitability from receivables management: executing well on three basic processes can do a lot to clear disputes, reduce outstanding invoices and ensure a better revenue stream.

• Author: Salek, John G.
• Position: Cash management

Companies work very hard to increase revenue. Investments in sales training, resources, advertising, marketing, new product development and acquisitions are common actions to increase the top line. When revenue growth is achieved, management expects greater profitability and cash flow to follow, yet these expectations are often unmet because: a) uncontrolled costs negate the incremental profit and/or b) working capital increases absorb the expected cash flow.

[ILLUSTRATION OMITTED]

Achieving excellence in managing accounts receivable is critical to realizing and optimizing the profit and cash benefits from increased revenue. In working with over 100 companies to generate over $500 million of cash from implementing best practices in receivables management, it's been discovered that these three keys for unlocking greater profitability need to be present:

* a properly conceived and executed portfolio strategy;

* a fast and effective dispute resolution process; and

* accurate order fulfillment and invoicing.

1 Executive Portfolio Strategy. A portfolio strategy is a definition of how to manage a receivables asset. Just as different customer segments require customized marketing approaches, various collection approaches are needed for distinct categories of customers. For instance, you wouldn't collect from an occasional, small-volume account the same way you would from a top-10 customer.

Examples of categories to be managed differently are government vs. private sector, export vs. domestic and national accounts vs. small accounts. A properly formulated portfolio strategy, executed with the right processes, resources and organizational structure, will keep cash flowing and minimize bad debt exposure.

The portfolio strategy must also support a company's overall strategy for the receivables asset. For example, receivables can be: a) a financing tool for customers to be used as a competitive advantage in the marketplace; b) a source of cash flow to fund the business; or c) a way to generate high-margin, incremental revenue by selling to high-risk customers.

Experience shows that most companies have not specifically articulated how receivables management fits into their corporate strategies, but instead, view it as a necessary cost of doing business. This approach, by default, seeks to minimize the investment and cost of the asset, while not constricting sales too much.

Another way to look at the strategic impact of receivables is to view them as a...