Moving from Blame Culture to Something More Bloody Useful

Or, Effective KPI’s for “Order” in Order to Cash

Everyone loves a good Key Performance Indicator (KPI), don’t we? Except that these days we’ve all seen them used for bad, rather than good. We’ve seen teams terrified that the numbers – quite often out of their control – will be used to punish them. And this will continue to happen, unless we – the leaders (or as I like to say, the “Adults in the Room”) – create KPI’s that will not only tell us how our teams are performing, but give us valuable insight as to where the challenges are coming from.

You will perhaps have scoured the internet looking to learn from others which KPIs you should be using in O2C, and you will see ones such as “Days Outstanding”, but that’s clearly for Collections. Or “Revenue Contribution” which is somehow supposed to tell you how much value O2C brings to the company. (Would you like to know what your company leadership really thinks? They don’t think O2C brings any revenue contribution to the company. But if things go wrong… oh well then there’s a lot of painful questions coming your way, because you’ve just cost the company money.)

Would you like to know what your company leadership really thinks? They don’t think O2C brings any revenue contribution to the company. But if things go wrong… oh well then there’s a lot of painful questions coming your way, because you’ve just cost the company money

Sidebar: There is some degree of safety in a job in O2C. But the flipside is that the only real attention you’ll get is when things go wrong.

Any-hoo. Back to the point of this article. Somewhere, you might come across the two most commonly KPI’s for the “Order” or the “Invoice” element of the process. NB: these can be the same thing, or separate processes. Demonstrated by the fact they have the same two KPIs’:

Accuracy

Processing Time

Now these controls seem to make a lot of sense, right? Because we always want to know how accurate we are, and how long it takes to do something. But maybe we explore them in depth, first.

Accuracy: Of course. This is a must, right? But let’s take a step back and ask ourselves, why do errors occur? Three reasons generally.

1.?????? The data (i.e. contract terms) provided by The Business to generate the Orders is incorrect (or out of date)

2.?????? The data received from that generates the transaction (i.e. sales reports) was incorrect

3.?????? The Billing/Invoicing team made a mistake

Any idea which is the most infrequent? Yes, it’s number three. This is often because once an error is detected, it causes so much trauma that the team learns from that mistake. (That's a polite euphemism there...)

Regardless, there are process solutions to reduce all these three error types, but the real challenge is to get your data to tell you what the error type is.

...but the real challenge is to get your data to tell you what the error type is.

A common measure to access accuracy is to compare credit notes versus invoices. This gives some idea, but is flawed because (a) not all corrections are credit notes, (b) usually the correction does not get processed in the same period as the original invoice and (c) it still doesn’t tell you why it happened.

So, how to get the data you truly need?

1.??? Pull larger swathes of data from across multiple billing periods to capture both the original transaction and the corrections. Embrace the data inside your Front of House systems to connect these transactions (I can’t tell you how to do that right now, you need a data IT team and an expert such as myself. Oh, and some logic).

2.??? Correction/Error Coding. This can either be a manual process where your Order/Billing/Invoice team select options, or data generated by intelligent automation. Both have risks, humans being not great at consistency, and IA requiring clever programming built on guidance from those pesky humans.

Only once you have this data can you find out which one of the three reasons is causing your billing team to have accuracy issues, and how long it took for the error to be resolved. But then, you can actually report a KPI that tells you what issues are causing delays, and the path to resolve them.

Only once you have this data can you find out which one of the three reasons is causing your billing team to have accuracy issues, and how long it took for the error to be resolved. But then, you can actually report a KPI that tells you what issues are causing delays, and the path to resolve them.

Processing Time: This KPI also sounds very sensible. How long does it take to process a transaction. Shouldn't we all want to know this? But the mere simplicity of this KPI means the data ignores the reality of downstream processes, and the synergies gained from system processing.

Quite often, the most productive way of processing orders is to group them together and process them all at one time. In fact, most systems are set up to generate all transactions/invoices in a bulk end-of-month run. So, measuring processing time (i.e. counting from the time that the order is received, to when it is completed) ignores this efficiency or worse, encourages the team to process each transaction individually. Just as bad, it fails to take into account the complexity of one order over another, or even the value.

So, measuring processing time ignores this efficiency or worse, encourages the team to process each transaction individually. Just as bad, it fails to take into account the complexity of one order over another, or even the value.

In addition to these failings, once the invoice is generated and sent to the customer, many companies make one payment run a month. So regardless of when they receive the invoice, they will make the payment run at the same time. Thus, rushing to improve your processing will have little to no difference in cash received within the same month.

Unless you know your customers payment runs and can split processing accordingly without wasting time... it may be better to stay with your monthly cycle.

Perhaps we can all agree that Processing Time is a KPI that can be sent to the rubbish tip.

Replaced with: Billed versus Expected.

This KPI is so sensible, and so fundamental, that Shared Service Centres often allow it to be a report generated by finance, rather than one they control. Allowing finance to oversee the data generates the inevitable question: “Why doesn’t your billing match my forecast?” or the even more inexcusable one, “Can you change your billing to match my forecast?”

Yes, you know who you are. All those financial directors who’ve asked me that question. Which – don’t worry – always came with my following response of, “I’ll pretend I didn’t hear that.”

But the heart of the matter is, that the Order/Billing/Invoicing team in your Shared Service Centre should not only be focused on what’s put in front of them. They should be focused on what isn’t in front of them.

But the heart of the matter is, that the Order/Billing/Invoicing team in your Shared Service Centre should not only be focused on what’s put in front of them. They should be focused on what isn’t in front of them.

Creating the methodology for this KPI, will depend on your business structure. For example, you may know the monthly fees for all your deals in advance (in which case, no excuse for not getting 100% done), or you may be reliant on customer reports that may be delayed or delivered in bundles, or your team might be under-resourced and therefore may have made the decision to focus on the most material customers.

Whatever, this KPI now should be a consistent report that highlights what billing hasn’t been done. This again will enable you to focus on either:

a)??? The Business has not provided the Order team with new deals, or amendments to existing deals

b)?? Customers have not provided the Order team with required reports, or they have provided reports with incorrect/missing data

c)???? The Order/Billing/Invoice Team have not been able to complete their scheduled tasks

d)?? Finally, if you do have variances between forecast and actuals, then this can either highlight deal terms the Billing/Invoice team is not aware of (though in my experience Customers are very good at pointing this out), or provide you with the chance to guide Finance

The end result of this is creating two KPIs that not only give you, “The Adult in the Room”, oversight of the challenges of the entire process, but make it clear to your Order/Billing/Invoicing team that these KPI’s aren’t a witch-hunt, but rather something that they can embrace. And isn’t having a team that sees the value in a KPI really the miracle that we’d all want?

?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.