By Moving to World-Class in Days Sales Outstanding, a Typical $10 Billion Company Can Generate $35.8 Million/Year in Savings; W
March 23 2006 - 4:51PM
Business Wire
World-class finance executives get customers to pay their bills
nearly 30 percent faster than typical companies, according to Book
of Numbers(TM) research from The Hackett Group, a strategic
advisory firm (NASDAQ:ANSR). Hackett's analysis found that a
typical $10 billion company can generate more than $35.8
million/year in bottom-line savings if they achieve world-class
performance in this area by reducing Days Sales Outstanding (DSO),
a standard measure of how quickly companies get paid by their
customers. Hackett's research also showed that companies with
world-class finance organizations have significantly reduced their
DSO over the past three years while typical companies have made
only slight improvements. One key strategy of world-class companies
in this area has been to dramatically lower billing error rates in
order to eliminate any reason for delayed payment. In addition,
these world-class finance organizations have made significant
improvements in their Invoice-to-Cash procedures, driving higher
levels of efficiency and effectiveness through the use of
Hackett-Certified(TM) practices such as better cost and pricing
analysis, and faster cash application. The savings garnered by
world-class finance organizations through the use of these
techniques can improve profitability, or they can be used to fund
virtually any high-priority corporate activity, such as strategic
initiatives, competitive differentiation, or efforts to penetrate
new markets. "Today, the best CFOs are doing an exceptional job of
balancing efficiency and effectiveness, and their companies are
reaping the benefits. They're proving it's possible to maintain a
focus on business value, and generate real bottom-line benefits by
doing things like reducing DSO, while at the same time keeping a
sharp focus on cost reduction opportunities," said Hackett Finance
Practice Managing Director Mark Krueger. "The message for typical
CFOs is both clear and disturbing. To survive, they cannot wait any
longer to close efficiency gaps and implement
effectiveness-increasing strategies. Because every day they wait
they're leaving opportunities on the table which can have a
material impact on their company's profitability." According to
Hackett-REL Customer-to-Cash Practice Leader Robert Smid, "Other
than insolvency, there are two major reasons why customers pay
their vendors late -- because they have a dispute, or because
they've been conditioned to do so by the vendor. Both of these are
areas that companies can address and reap impressive rewards. By
reducing how often a bill goes out with the inaccurate pricing,
wrong terms, or any other mistake, companies can significantly
streamline collections. The conditioning process is more
complicated. But with the right people and tools in place,
companies can develop a better understanding of their customer base
and the impact individual customers and customer segments have on
their profitability. Then they can take a more proactive, targeted,
and strategic approach to collections and significantly reduce
DSO." According to Hackett, world-class finance organizations now
spend 42 percent less in the finance function than typical
companies (0.73 percent of revenue versus 1.26 percent), and have
44 percent fewer finance staff (63 employees/ billion of revenue
versus 112). The cost gap between world-class and typical companies
is also growing. Typical companies saw an increase in the cost of
finance of 18 percent over the past two years, in part due to
increased compliance-related costs, while world-class companies
continued to reduce overall finance costs over the same period. To
see the full version of this research, please click on the
following link for the Hackett Research Insight Center:
http://www.thehackettgroup.com/insights/fin0306 More information on
The Hackett Group is available: by phone at (770) 225-7300; by
e-mail at info@thehackettgroup.com; or on the Web at
http://www.thehackettgroup.com. The Hackett Group The Hackett Group
(http://www.TheHackettGroup.com), a strategic advisory firm and an
Answerthink company, is a world leader in best practice research,
benchmarking and business transformation services that empirically
define and enable world-class enterprise performance. Through the
acquisition of REL Consultancy Group, a global leader in generating
cash improvement from working capital, we offer Hackett-REL Total
Working Capital services to liberate cash flow from operations
through improved working capital, reduced costs and increased
service quality. Hackett-REL has helped clients in more than 60
countries free up over $25 billion through working capital
improvements in the last 10 years alone. Only The Hackett Group
empirically defines world-class performance in sales, general and
administrative (SG&A) and supply chain activities with analysis
gained through 3,500 benchmark studies over 14 years at 2,000 of
the world's leading companies. Our clients comprise 96 percent of
the Dow Jones Industrials, 77 percent of the Fortune 100 and 92
percent of the Dow Jones Global Titans Index. Hackett-Certified,
Book of Numbers, and Hackett World-Class Passport are trademarks of
The Hackett Group. Book of Numbers is a trademark of The Hackett
Group.
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