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Leveraging Order to Cash to Enhance Cash Flow Webinar
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Leveraging Order to Cash to Enhance Cash Flow Webinar

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The webinar is on the topic leveraging order to cash to enhance cash flow into the current system. How Order to Cash automated services can increase liquidity in your system.

The webinar is on the topic leveraging order to cash to enhance cash flow into the current system. How Order to Cash automated services can increase liquidity in your system.

Published in Economy & Finance
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  • good one,......it would be nice if you can compare the process between O2C & P2P side by side in tabular format with point wise comparision.......wht do u thnk
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  • 1. Leveraging Order 2 Cash to Enhance Cash Flow
    By:
    Ashwani Chandra
  • 2. About the Presenter
    Summary
    • Ashwani is an Accounting , Finance, Business Process and ERP specialist Consultant based in Lucknow, Uttar Pradesh with a holistic experience of 4.6+ years. Ashwani has focused on anticipating, creating and managing change in the areas of business process management, accounting and ERP systems, including quality framework like lean six sigma. He has advised companies on addressing their agility challenges around accounting and finance.
    Ashwani holds a MBA degree from IBS, Hyderabad, Andhra Pradesh, India with specialization in Finance and Marketing
    Ashwani Chandra
    ERP-end user Consulting
    ashwani.chandra@hotmail.com
    Areas of expertise
    • ERP Finance- SAP r/3, Oracle 11i and MS Dynamics
    • 3. Finance and Accounting Management
    • 4. Business Process Management
    Leveraging Order to Cash to Enhance Cash Flow
  • 5. Coverage
    • About Order 2 Cash
    • 6. Industries using O2C
    • 7. O2C Process Example
    • 8. O2C Metrics
    • 9. Leveraging O2C to enhance Cash Flow
    • 10. O2C Outsourcing Advantages
    • 11. Q&A Session
  • About Order 2 Cash
    • Order to Cash is use to receive and process customer sales
    • 12. Covers Sales type like B2B and B2C
    • 13. Customer sends Purchase order through various channels such as Fax, EDI, Email, portal etc
    • 14. The input of the Purchase order is made into a system such as ERP
    • 15. Purchase order is converted into Sales Order after credit check
    • 16. The order is dispatched and the invoicing and A/R activity follows thereafter.
  • Industries Served
    Manufacturing
    Logistics
    Service
    Telecom
    Retail
    Transportation
  • 17. O2C Process
    2
    1
  • 18. Order to Cash: SAP Business View
  • 19. Order to Cash: SAP Business View
  • 20. O2C Metrics
    The most significant metric from a liquidity and working capital perspective is Days Sales Outstanding or DSO. 
    DSO is the average number of days between point of sale and collection. Therefore, the lower the number of DSO, the fewer days it takes a company to collect revenue.
    DSO is calculated as:
    Accounts Receivable x No. Of Days/Total Credit Sales
    Accounts Receivable = Amount of Cash Owing to Company (i.e. invoiced and not received)
    Total Credit Sales = Annual sales where amounts are payable after order/order fulfillment
    Number of Days = Number of Days in the year - i.e. 365
  • 21. O2C Metrics
    Calculation for lost cash flow:
    Cash Flow Lost = (Number of Incomplete Orders Backordered x Back Order Cost per Order) + (Number of Incomplete Orders Cancelled x Lost Pretax Profit per Order) + (Number of Incomplete Backordered x Invoice Deduction per Order)
    O2C ERP System allows following flexibility
    Check the Backordered goods or items by means of automated message
    Check incomplete Invoices
    Check number of cancelled orders
    Financial Impact
    The calculation used to measure the result on cash flow for decreasing the order-to-cash cycle is as follows:
    Cast Flow Increase = Invoice Value x (Cost of Capital/365) x Difference in Days in the Order-to-Cash Cycle
  • 22. The Financial Aspect
  • 23. Enhancing Cash Flow
    • Accounts Receivable represent your money sitting in someone else’s bank account. It earns you nothing!
    • 24. So, if the firm does grant credit, how do we minimize the impact on cash flow
    • 25. Firm’s managers must review the firm’s credit policies and evaluate the impact of any proposed changes in policies based on the NPV of incremental cash flows due to the proposed changes
    Old Policy; 2/10, n30
    35% of customers pay in 10 days
    62% of customers pay in 30 days
    3% of customers pay in 100 days
    Average Collection Period=(.35x10)+(.62x30)+(.03x100)=25.1 days
    New Policy; 2/10, n40
    35%of customers pay in 10 days
    60% of customers pay in 40 days
    5% of customers pay in 100 days
    ACP=(.35x10)+(.60x40)+(.05x100)=32.5 days
    (If sales are $1M per day, this will cost $7.4M!)
  • 26. Enhancing Cash Flow
    • Develop pro forma financial statements for each policy under consideration.
    • 27. Use the proformas to estimate incremental cash flows by comparing forecasts to current policy cash flows.
    • 28. Use the incremental cash flows to estimate the NPV of each policy change.
    • 29. Choose the policy change that maximizes the value of the firm (highest NPV).
  • Enhancing Cash Flow
    Example:S Corporation is considering a credit policy change from offering no credit to offering 30 days credit with no discount
    Why might they do this?
    -Increase sales
    -Increase market share
    What costs will the firm incur as a result?
    -Cost of carrying accounts receivable
    -Potential increase in bad debts
    -Credit analysis and collection costs
  • 30. Enhancing Cash Flow
    • Assume the Net Incremental Cash Flows associated with S Corp new credit policy are as follows: (They lose one month of cash flow which they will have to borrow)
    • 31. External financing (Init. Investment) = $75,000 t=0
    • 32. Increase in sales = $50,000
    • 33. Increase in COGS = $20,000
    • 34. Increase in Bad Debts = $5,000
    • 35. increase in Other Expenses = $5,000
    • 36. Increase in Interest Expense = $500
    • 37. Increase in Taxes = $2,800
    • 38. Total Incr. Operating Cash Flow = $16,700/yr.
  • Enhancing Cash Flow
    • Calculate the NPV of the change (k = 12%):
    • 39. PV of the expected inflows of $16,700 per year from t = 0 to infinity (perpetuity) = $16,700/.12 = $139,167
    • 40. NPV = PV of inflows - initial investment = $139,167 - $75,000 = $64,167
    • 41. Since NPV > 0, ABC should undertake the credit policy change
    • 42. Note: If they keep the $75,000, cash flow at 12% = $9,000
  • Enhancing Cash Flow
    • Reduces receivables and DSO rates, optimizes cash flow which leads to more effective management of working capital
    • 43. Improves company debt-to-equity ratio
    • 44. Reducing external financing needs and improves credit rating
    • 45. Reduce Order entry errors
    • 46. Strengthening business relationships through higher customer satisfaction resulting in increased sales
    • 47. Lowering order-to-cash processing time and costs
  • Outsourcing Advantages
    • Creates Low cost Extension of Finance Unit offshore
    • 48. Freeing resources to focus on core business-building activities
    • 49. Reduce average order processing time
    • 50. Improves accuracy rate
    • 51. Increase customer orders
    • 52. Risk Mitigation and Risk Sharing
    • 53. Best Practices is applied
    • 54. Eliminates unnecessary hardware resources such as fax etc.
  • References
    help.sap.com
    Oracle Financials
    Wikipedia
  • 55. Questions?
    Please feel free to ask any questions that you have about this presentation.
    For more details or queries Please feel free to write me at:
    ashwani.chandra@hotmail.com or call at +1- 323-375-2191 ext:442
  • 56. Thank You