Preserving Cash Flow and Preventing Cash Leakage During COVID-19

As the COVID-19 pandemic continues to affect every part of our daily lives, businesses are struggling to keep their finance operations running as smoothly as possible. Governments around the world are continuing to impose severe and necessary restrictions to limit the virus’ spread. In turn, there is a rapidly falling demand across many sectors from consumers and businesses alike. 

The crisis, which could last for months, has required many organizations to adjust yearly plans and re-prioritize strategic objectives. Facing such uncertainty, preserving cash has become the guiding objective.

The main goal is to achieve a neutral to negative cash conversion cycle: that means reducing the number of Days Sales Outstanding, decreasing Inventory on Hold and increasing the number of Days Payable Outstanding.

Therefore, companies need to take actions in their Accounts Payable and Accounts Receivable processes to extend payments as far as possible and minimize any type of unnecessary spend as well as accelerating and ensuring Receivables. 

Accounts Payable – preventing unnecessary cash leakage

One of the most common areas where companies unknowingly lose cash is in duplicate invoices. As an example, doubly conducted payments may occur when invoices are received in different channels and deviate in their reference number. Celonis puts a spotlight on your outgoing payments by tracking and monitoring invoices in real-time. The technology flags duplicate invoices and can prevent the double payments automatically. Otherwise, the payment is made twice and may not be noticed until several weeks or months later or even at all.

Celonis can also help companies to identify the right time for payments by comparing all feasible payment terms and choosing the more favorable one, taking the current situation into account. As an example, some invoices may allow for a 2 % discount if the payment is made before the discount due date rather than the regular due date. By tracking each invoice within a company in real-time, Process Mining technology can help decide which is the best option: Either realizing the cash discount or postponing the payment to the due date. 

Based on our experience, many businesses aren’t aware of the cash savings that are available due to the high complexity and lack of transparency in their data. Among our customers, a global pharmaceutical company realized $10 million yearly savings in cash discounts thanks to Process Mining. 

Accounts Receivable – mitigating payment risk

It’s also important that businesses work closely with their customers to ensure that payments are made as soon as possible. Two aspects are decisive: First, how can we improve our billing and cash collection? Second, how can we minimize our risk and capture as many overdue and high-risk receivables as possible? Celonis provides full transparency into payment risks – for example, highlighting customers who are in industries or regions not as heavily affected by COVID-19. This, in turn, means the likelihood of being paid on time is higher. The Celonis Action Engine can even incentivize customers with the offer of a better payment term in exchange for an earlier payment. With the economic situation so uncertain, reducing the time it takes to receive payments helps mitigate risk and manage cash flow efficiently. 

Celonis has made two Cash Preservation apps available in its Intelligent Business Cloud and free version, available for all. To learn more about these apps and Celonis’ other offerings developed in the wake of the COVID-19 crisis, join our webinar, “How to Preserve Your Cash Flow” on April 9th. Register today!

Celonis is here to help – get in touch for more details.

Timo Ahrndt

Data Scientist, Solution Engineering