Episode 11: Digitization for AR processes: Do’s and Don’ts

Madhurima Gupta:
Welcome to the Mid-Market CFO Circle podcast powered by RadiusOne. I’m your host, Madhurima Gupta. We hear you mid-market CFOs, and we’ve got your back. Every Thursday, we bring you CFO circle podcast with your peers and we discuss the challenges that you face and how you can leverage emerging technology to solve it. Today we have with us, Wayne Spivak. Hi, Wayne, how are you doing?
Wayne Spivak:
Hi, how are you? Good Morning.
Madhurima Gupta:
Well, thank you. Good morning to you. So, Wayne, I’ll start with a few words about you. So you know, Wayne is an experienced CFO, CIO, COO, and has spent last the 30 years in small-medium sized business market space. He’s been the president at the SBA Consulting since 1995, and he’s currently the CFO, speaker, and writer for the same consulting company. He is also an instructor in Illemeo academy, and he has been doing a wealth of webinars for the busy finance executors. So on that note, we want to get started with this interview with Wayne, who has consistently forged a path to success and has led others in solving problems and delivering value. And that’s exactly what we wanna do today. We want to offer all our listeners value from his insights. So to get started, Wayne, my first question is to understand, uh, that with digitization becoming a mandate for CFOs in 2022, there is a dilemma whether to accelerate growth through digital initiatives or preserve and restore an organization’s financial health, right, by cutting costs. So how would you recommend finding the right balance?
Wayne Spivak:
The mandate ends up being a business requirement to succeed as opposed to a legal requirement that you must have to do it. So you had a lot of wiggle room, as we’d like to say. Um, it’s taking a look at your budget and making intelligent cuts and reallocations. So when I talk to people about cashflow problems, you know, sometimes you can increase revenues, but a lot of times you have to cut your costs, but cutting a cost is just not cutting costs. It’s reallocating some of those, uh, savings to go back into productivity, to help raise revenues. So for a business, you have to look at what technologies you need to adopt. I mean, you may not have a choice. You wanna go sell to department stores or big box stores, and they use EDI. You don’t have a choice. You must use EDI, but there are different EDI vendors out there at different price points. And if you are able to have some, uh, variance in who you could choose, sometimes you can’t. Then what you do is you try to find the most cost-effective solution. On the flip side, is you can turn around and say, not everybody needs access to our accounting ERP system so that we’re not gonna have to give you user access. And if there’s a per-user access fee, well, you’ve just saved some money. And not everybody needs it, even though they think they need it. So, it’s an intelligent use of your dollars to maximize the effort to digitalize or become more computer-centric. Also by doing it the right way, you’re able to decrease errors and then you’re gonna save money on manpower. Most costs are payroll, salary, manpower. So if you’re able to save money in configuring your systems to be more automatic, with less user intervention, and you set it up correctly the first time, you don’t have to worry about auditing everything that you have.
Madhurima Gupta:
So you mentioned about, uh, you know, maybe restricting the number of per-user licenses that you buy, right? Or you figure out, uh, the best way to cost-effectively, get the solution that’s gonna help streamline why you do not exponentially increase your costs. Right? But if you talk about creating value in the long term, these different kinds of inhibitions that a company or a CFO might implement may have detrimental effects. Do you agree with that? Or is that something that you’ve not seen happen?
Wayne Spivak:
Every decision has unintended consequences.
Madhurima Gupta:
Right?
Wayne Spivak:
You know, that’s why you, forecast your budget on a monthly basis because you get better information and someone, or some decision made last month may no longer be valid with new information. I once taught a lecture at Columbia University in New York. And I came in with a plan on how I was gonna teach it. And I sort of did a poll with the students and found out that none of them knew accounting. It was for programmers who had to do with project management. So, you know, I had to change my whole lecture on the fly, which came back to an important concept that plans are dynamic, not static. So you have to be nimble. Companies that are no longer nimble have the greatest difficulty in sustaining themselves.
Madhurima Gupta:
Absolutely. So in that case, when companies are, let’s say today, planning for what their finance functions should look like in 2025, uh, what would you say would help them ensure or minimize the risks associated with maybe cutting costs today?
Wayne Spivak:
My feeling is that systems shouldn’t be siloed. They should be interconnected. Today, more than ever before, especially when you use cloud-based systems, which used to be called client servers back in the day when I had a beard that was not gray. Everything now can be connected through APIs. So you don’t want somebody to enter data three times. You want them to enter once and through the magic of APIs, it appears in all the systems. So all the systems should be interconnected, so that data flows. Somebody just asked a question on a slack system having to do with, uh, they’re doing consolidation. And they found that in their Excel spreadsheets, they’re double counting and triple counting revenue. And my question back was why isn’t your systems doing in the consolidation, which theoretically should allow you not to double and triple count. Assuming of course you configured it properly, but that’s always the case. So, you know, you want systems that are interconnected, not siloed. Great examples, Salesforce seems to be one of the biggest and most complicated of the CRM systems. They had been talking to a senior retail salesperson at this event, I went to the other day. And once you get an order and it’s confirmed, they move into most systems and that order into the accounting system and the entry system. That eliminates a lot of errors because the order itself, the items, the prices, everything has been agreed upon. It’s sort of, uh, which is the same concept. EDI, uh, the order moves in. It should be seamless. And you really shouldn’t have to change the order once it’s been accepted.
Madhurima Gupta:
Right. So we did, you know, talk about what there is a need to consolidate, uh, you know, disparate system into an integrated system. What I also wanted to understand is that, um, often, you know, having disparate systems becomes a blocker for CFOs to implement new technology because they don’t have their data in the right place. Now, in scenarios like that, a company’s progress in terms of, you know, having a state of the art or a world-class finance function takes a backseat. Now in scenarios like that for, um, you know, CFOs, struggling to get things right, because of certain constraints, for example, unavailable of probably let’s say, master data, being set up in the right way. What would you say should be the right approach to, uh, you know, set things right as quickly as possible?
Wayne Spivak:
Well, the interim approach is Excel and I call that Excel hell because you have 4,000 Excel spreadsheets. And if anybody has ever said, Excel spreadsheets don’t break, they haven’t used Excel. That being said, everything begins with a plan. And from the plan you process, what you are gonna do. So that’s business process mapping, you do it in gap analysis, and then you execute the plan. So the plan then becomes the new plan, which is how are we gonna go from A to B, which is gap analysis. And you start moving the data over, which entails, you know, dumping data from disparate system one and inputting it into we’ll say, consolidated system two. And that, you know, that takes time because of not only programming, but you need to verify. If you remember for, uh, Ronald Reagan, when, he was talking about the Russians, you know, years ago, it was trust in verify, you know, you have to trust the programmers did right. But you have to verify your data. That’s the number one thing when you put in a new system, is to verify that the outcome is what you intended, not something else.
Madhurima Gupta:
If we, you know, dial back to the processes, what I want to understand from you is which process is the most crucial process in order to cash cycle, as per you, that should be automated and why?
Wayne Spivak:
Well as I’ve already said, the receipt of the order into the order entry system, uh, needs to be automated if at all possible, because then the, uh, A, there’s error checking if the, uh, customer put in the wrong item or wrong price. Then, uh, if you have the employee do it, you have another chance for an error manually. So there’s two errors, cause now they sent you a piece of paper, whether electronic or not, and you’re manually entering it in. So they may not know the agreed-upon pricing. It may not be the matrix that’s built into the system. So that’s number one. That also frees up a tremendous amount of time, you know, from order to the warehouse management system back into invoicing, should all be automated, obviously, you know, as you ship, it’s a manual process, but you know, the flow of the information, once something is shipped should be automated. Cash receipts are semiautomated when the money comes in. Collections is semi-automated and, let’s go back to cash receipts. Why is it semi-automated? Because if you send out an invoice for a hundred dollars and they send a hundred, you have to match it up, but the systems nowadays will do a pretty good job of saying, does this look like this? Say yes, and you’re done. But what if they, in $99 now you have to decide what you’re gonna do. If you do e-com systems which all take credit cards, every day, the credit card company sends you back a check that’s net of discounts. And now you have, you have, 500 different orders that now you have to match up. So again, a little bit more work, but it’s manual to some extent. So that’s the cash receipt side.
Madhurima Gupta:
So, you know, if we talk about cash posting and collections, uh, you know, we did kind of touch it in terms of which processes require maximum touchpoint, right. But then within cash posting, I think the process is the most manual is collecting the checks, right? And, um, when you have these checks, you have to map them with your remittances and then record the payments. So, in your experience, based on your, your peer interactions, which part of this particular cycle is most, um, automated or..
Wayne Spivak:
It’s getting more automated as we go along. In the US, we have checks and that’s basically the only country that still has checks. Uh, I mean, Europe and, and in Asia, everybody’s using wires. So while you might get a payment advance notice, you’re waiting for it to come in their bank. And again if the data in from the bank is accurate enough, the AI in a lot of the accounting systems today from the low-end systems like QuickBooks and Xero to, you know, the high-end systems be they Microsoft Dynamics, Sage Intact, NetSuite or SAP, JD Edwards will match up your checks in the course the system says, is this, you know, it doesn’t automatically do it. And immense saving is in time. So a lot of that’s already being done. And with the advent of all these systems, being able to read your bank account and download the data, I mean, you don’t have to enter the checks manually anymore. I remember when you had to add, literally take the checks that came in the mail and one by one apply them. Nowadays you can just add them up. I mean, you don’t even have deposit slips anymore in the US. You just can scan them or bring them in and they’ll scan the individual checks and put a credit on your account in the bank. And then you just match it up afterward and you can look at which checks came in. So, um, it’s been automated tremendously with positive pay so you’ll go from bookkeepers or, or, or accounting clerks to accountants that are more trained that will be able to do some more analysis.
Madhurima Gupta:
Moving on to the next question, uh, I wanted to understand from you, if there are CFOs who are looking to manage cash flow seamlessly, what steps would you recommend them to take so that their finance function can be on the path to success?
Wayne Spivak:
Well, there are three aspects to cashflow. There is your accounting, which comes from your accounting system. If that’s not clean, you know, there’s an old data , uh, cache garbage in and garbage out. Well, you’re already gonna get garbage in. So your cash, uh, management will be off. Your runway will be off. So you need clean data. You need a good accounting system. Second is your budget and your forecast, you really need, in my opinion, to forecast on a monthly basis and the re-forecast or the forecast, whichever way you wanna look at it is not as term-intensive as the budget. It’s looking at, what information have you garnered and what has changed. In sales that can move your different sales lines up and down. You may have had a price increase in what you sell and or you might have a new estimation of how many units you’re gonna sell. So you need to do a monthly re-forecast out for 18 months. So you are over rolling 18 months, and you have to understand that three months out is pretty accurate. Four to six months is not so accurate. 12 months to 18 months is really wild. After 18 months, you’re kidding yourself unless you have contracts out that long, that’s a joke. On the expense side, you know what your rent’s gonna be. And if you have a three-year contract, you know exactly what it’s gonna be for three years. It’s not gonna change with the exception of maybe your share of taxes. All right. So you would, uh, find out what the taxes are and re-forecast that of your rent. The biggest area and the biggest expense that you have sans, uh, salaries, which needs to be re-forecast every month, because you constantly have different headcounts and raises and whatnot is, if you sell a product to your buyers. And your buyers need to be adjusted and maintained based on your sales. If you buy a lot of goods based on a 60-day turnaround time, and you’re selling at 120 you’re gonna have cash flow problems. Because you’re not recouping your investment plus your profit and very topic, or not a cliche, but line, you can’t spend profits, you can only spend cash. So now you have the two biggest inputs into your cash flow system, which is good accounting and your budgets forecast. And then you need a system. And the best way of doing it is having automated system, uh, like a product like Dry run, or, and there are others out there there’s called Sentinel a few others that will allow you to take these inputs in, and it will quickly calculate what your runway is. So it’s always better to know ahead of time that you can run outta cash, because unless you have built-in lines of credit, it takes time to factor in or get an asset-based lender or loan from the, uh, or investors the case may be. So, you wanna computerize it, doing it in Excel is mind-numbing going slow. Cause you have to enter all the data. I mean, some of the data you might have your budget, you’re gonna enter in through, uh, an import from Excel, but budget is much easier than literally going down. What if you need to model and change certain assumptions, right? If you have a system that does it, and it all takes is saying, okay, increase everything by 5%. And it does it, that’s a lot easier than building it into Excel and changing a number than going back and going back and going back with somebody’s software, you just create a new, um, forecast. It reads the same basic data in, you can put in the same, um, budget. And then you can say, add 5% to sales. You can make the, you know, all sorts of things. So that’s what I would suggest people do for cash flow. That’s one of the things that my company does for customers.
Madhurima Gupta:
So, you know, with the world moving to digital-first environment, um, if I asked you, what were your tips to your peers to ensure zero-touch cash flow management? What would you recommend?
Wayne Spivak:
You want a system that reached the bank accounts. You want a system that’s improving AI. You want people handling the cash receipt side to understand the collections and the policies so that they just don’t write off money that might hurt you in the end. Those are the tips from the cash side. I mean, if you are maintaining, uh, and to use a system, that’s gonna match your business. People buy systems for the wrong reasons. And we could have a whole episode on that. They also don’t know when they need to actually start looking for a new system. I was working at a startup, I set up systems. The startup’s mission changed the way they positioned themselves. We’re still using the same setup cause they stretched it all of a sudden. When COVID hit, we went from doing a thousand invoices a month to 800 to a thousand invoices a day.
Madhurima Gupta:
Oh wow.
Wayne Spivak:
Yes. Now they were small invoices. Nevertheless, they’re an invoice. Well you, you know, you said, wow. Well if I wanted a P&L statement, well that was, it took like a couple of fractional seconds more. But if I needed to find out any detailed information, literally at some point I had to do partial month, uh, reports, cause there was just too much data, right? The accounting system was not built to handle that transactional volume. So you, you know, you have to be ready to understand where your business should be going and plan for when you need to do the next upgrade.
Madhurima Gupta:
So what did you do at that startup? I mean, you know, from…
Wayne Spivak:
We didn’t have the money to do the upgrade and I did 10 days reports and pieced them together in Excel, which was really not copy and past in the last line and, you know, come up with a P&L. But something that would’ve taken 5 minutes took me an hour and a half.
Madhurima Gupta:
Right. Absolutely.
Wayne Spivak:
All right. Also, uh, it would’ve been the same number of line items in Excel spreadsheet, but you know, what was initially maybe, uh, again, um, you know, 800 lines, you know, invoices for the month was 20,000. So you you’re now dealing with 20,000 lines of code, and I literally had to go out and buy a new computer because my computer would take 15 minutes if I added the line, it just was so slow. So that was another expense.
Madhurima Gupta:
Great. So I mean, happy to hear that the start actually benefited from the period of COVID very few companies actually did, um,
Wayne Spivak:
I had other problems, but yes, uh, from that standpoint, it did very well. Actually the company was able to deal with the influx of orders from both shipping it and, you know, purchasing. So, uh, and the internal systems so that, you know, also a lot of it came from e-commerce which we really used cloud based. So that wasn’t the problem and EDI.
Madhurima Gupta:
Perfect. I think that was a very interesting, uh, discussion Wayne. Any parting thoughts that you’d like to give our listeners to build a world-class finance function.
Wayne Spivak:
Plan, plan, plan,
Madhurima Gupta:
Right.
Wayne Spivak:
Update your business process maps, and do gap analysis. And then go back and plan again because if you don’t constantly reexamine where you are and reassess, um, you’re not gonna be able to keep up. And when I say plan, I also mean look at your business plan, look at your mission statement. And this the CFO can do with the other C-suite members. See if things have changed. Nothing’s worse than starting off as a pure one brand eCommerce company, all of a sudden going up to eight different brands, which means a lot more inventory, to selling to distributors, and then selling to big box and then selling white label and opening up an office halfway around the world, which wasn’t part of the initial plan. So all the decisions based on the initial plan would no longer, uh, I won’t say valid, but, uh, would’ve been different. So you always need to reassess and the best time is to reassess every month when you do your forecast. It gives you time to see incremental changes and see what the CEO is thinking about and what marketing is thinking about and where you think you’re gonna go and the CFO is right in with all those discussions. Cause your job is to say no.
Madhurima Gupta:
Absolutely fair words. Perfect. So thank you so much for taking time to have this conversation with me. I hope to host you again sometime soon. And for our listeners out there, thanks for listening. Stay tuned for more.