The Freak inside your Accounting SSC

Or, understanding the “Order” in Order To Cash

At the heart of the Shared Service Centre methodology is the desire for automation, harmonisation, and efficiency. All things that are most often achieved by narrowing the complexity of work coming in. This is most commonly seen to have been achieved in the Procure to Pay (P2P) space by a rigorous adoption of systems such as Coupa & Ariba; but in reality, may have more to do with the long-entrenched belief that the spending of company money should be carefully monitored.

The Order to Cash (O2C) tower however, faces entirely different challenges, and ones that Shared Service Centre Leads experienced in the other accounting towers may not have come across. Particularly in the service or intellectual property industries, deals can be agreed in advance of a contract being signed. (Note use of the word “deals”, which we'll talk about later.) And as a result, senior management and finance will expect revenue to be recognised without the same rigor taken for P2P.

We pause to acknowledge the fascinating divergence between P2P and O2C, though they are effectively two sides of?the same coin. But for whatever reason, companies treat them differently, which may explain why frauds like Enron and Wirecard continue (see my article (1) A Little Bit of History of Huge Accounting Fraud | LinkedIn , if those names don’t immediately chill your heart).

Regardless; at some point, the terms of the 'deal' will need to be converted into both an accounting transaction; and an invoice that the customer is willing to pay. It’s often presumed by Accounting Shared Service Leadership that any complexity should be handled upstream (or it’s common they be informed that it has, even if it hasn't).?And therefore, it can come as an awkward surprise to discover that the magical turning of said deal, into a financial tool that ticks your revenue recognition, your GL accounting, and ensures that your Collections to Cash team (the rest of your OTC arm) can operate with the structural efficiency that they are best at, is in the hands of a team you know very little about.

Understanding your Order/Revenue Team

Excellent Order/Revenue people bear a closer genetic similarity to lawyers, tax principals, and sales people, than they often do to other members of accounting. They are obsessed about legal entities (both yours and the customers), decimal points, and how much text they can get on an invoice. And they live by three principles:

1.??? Your company has agreements, not contracts.

We’d all love to live in a world in which contracts were signed in advance. Alas, we don’t. As a German counsel enjoyed telling me, "Kevin, there are only two things in Germany you need a written contract for. Buying a house, and getting married." But there are “agreements.”

What’s an "agreement"? If it's documented that you will do something for someone else, for said amount, and you both "agree" to it... you have an agreement. If you sign a contract, it'll supersede this. But then…

"Implied Contracts": let's keep it simple. You have a contract. It expires. Both parties continue as if the contract is still alive. All the terms of the contract are therefore still valid until a new agreement is in place. Please don’t be that Controller who asked me if this concept of "implied contract" I talked about had ever been tested in a court of law.

2.??? It’s the intention, stupid.

Your Front of House/Billing system is not there to be a legal contract database. It's there to store the financial and contractual terms in a way that will align with the mathematics employed by said system, in order to generate financial transactions in line with the intention if the agreement. That is why excellent Order/Revenue people usually come from a finance/mathematical background that has grown into legal, rather than the other way around. ?

Some of us might be lucky enough to work for a business that sells just one product... or work in an industry so well established that all customers follow the same processes. Perhaps your Order Management and Order Fulfilment systems are so integrated into your company’s way of life that everyone pays the same level of interest into the accuracy of the data.?If so, don't read on. You’re cool. I hear businesses like this do exist... after all, every business software company I’ve ever spoken to seems convinced they do. I've just never worked in one. ?

The rest of us will likely have faced contracts with ambiguous language, and you may as a result have to ask both parties, "What is the intention of the contract?" As long as they agree, regardless of how the contract is written, their interpretation will stand. And your business team and legal counsel will be loathed, loathed I tell you, to amend a contract for something they consider immaterial.?

There is only one exception where you can really throw your toys out of the pram. If the clauses impact revenue recognition. Because not doing so will then mean you face the wrath of a more terrible, if easily confused beast. External audit.

3.??? Just words, it’s just words

The format of invoices are generally set by local governments (the country in which your legal entity is based. Points of the Belgian customer who once requested text referring to Belgium law on an invoice from a Dutch entity), and with a few exceptions, (hello Poland), these are all fairly standard in what they require. But the text in which a customer may request to appear on their invoice to enable it to be paid is not specified, and customers can, and will, request all sorts of detail to appear on their invoices. These range from the obvious (PO numbers), to clauses of relevant contracts or even references to local laws. None of these are statutory obligations, and unless specified in the contract (rarely, if ever), you are under no obligation to do so. However...

You may think that e-invoicing and customer AP portals would have eliminated these requests. You may even think that it will happen in the near future, so why the bother? If so, I advise you to sit back and focus on the cash-flow crisis you're about to experience.

For in?the battle betwixt your O2C and their P2P, there is only one winner. It's the one holding the cash. And unless, senior SSC leadership, you're prepared to terminate a revenue-bearing contract rather than have your Order/Revenue team adding text to an invoice, (I'll spare you the hand-wringing anxiety. You're not going to and neither is the business),? then you'll need to accept that you're Order/Revenue team will need the flexibility to give the customers what they want.

All of this might paint a dark picture for your SSC KPIs,?or make you question how you can achieve harmonisation or automation. But the key takeaway should be that if you ensure you have the right people in your Order/Revenue team, these challenges will be handled.

The author has worked in Order to Cash and Finance Transformation for more than twenty years, with experience in the licensing, media, music and advertising worlds. With a past academic background in Consumer Behaviour he loves to hear from all sorts of people, their stories, challenges, and interesting insight they have, that can help others and make us think.