Have you ever found your production-dispatch team unwittingly sending out machines to a customer who already owed you a substantial sum of money? This scenario is all too familiar in the manufacturing industry. One of our clients, specializing in refrigerator manufacturing, faced precisely this predicament.
With a client base of over 3000, it became an insurmountable task for them to keep track of which clients had overdue payments at any given time. The situation was exacerbated by the fact that their manufacturing teams operated around the clock, often dispatching products at odd hours when the accounts receivable department was not available to verify eligibility for shipment. Salespeople frequently clashed with the dispatch department because promises of delivery dates were frequently broken due to ‘stops’ by the accounts receivables team.
The consequences of this disarray were significant:
Mounting bad debts.
Surging receivables that did not sit well with the bankers.
A climate of confusion and interdepartmental distrust.
Despite having eight individuals dedicated to managing their accounts receivable department, the problem persisted. Unworthy clients continued to receive machines because the dispatch department lacked control over what should and shouldn’t be shipped.
Recognizing the urgency of the situation, the company turned to EasyCloud for a solution.
EasyCloud Consulting responded by immersing themselves in the operations of the sales, invoicing, dispatch, and accounts receivable departments. What they found was an overwhelmed workforce grappling with a cumbersome process. They recognized the need for change and proposed a straightforward solution:
A credit limit was established for each client based on factors such as client size, reputation, and the duration of their relationship with the company. For example, a long-standing, reliable client might receive a high credit limit, while a newer client would have a lower limit.
These credit limits were incorporated into the system and connected to the financial accounting system. Each invoice or payment update triggered an immediate adjustment in the accounts receivable records. As a result, both the accounts and sales teams could access up-to-date information on each client’s outstanding balances.
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On the production and dispatch side, a crucial control mechanism was implemented. To initiate a dispatch, an invoice had to be generated for the specific client. If the system detected that the customer had exceeded their credit limit, it would prevent further dispatches.
The ability to override the credit block was limited to high-ranking individuals such as the CFO & CEO. These key decision-makers had the authority to override the credit limit when necessary. To ensure accessibility, a mobile app was developed, allowing them to make credit override decisions on their mobile phone app.
The results of these efforts were remarkable. Over a span of 18 months:
The accounts receivable team size was significantly reduced from eight individuals to just two.
Bad debts were substantially reduced, dropping to a mere 1.2% from a whooping 4%.
The company closed their working capital OD account with their bank, since they had become cash positive.
This success story was made possible through a combination of factors: a clear problem that needed resolution, a dedicated team of functional consultants and technical experts who understood the problem and devised a solution, client leadership committed to implementing the solution, and judicious use of the override function to maintain faith in the new system.