Improving Your O2C Process by Breaking Down Silos and Implementing Best Practices

Podcast Series – The IOFM Ask the Expert Team

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In this podcast, Benjamin Defays discusses the problem of siloing in the O2C process and how that can impact the business’s bottom line. He also offers suggestions for improving O2C operations by using training resources, benchmarking and best practices as tools for broadening perspective and getting out of “we’ve always done it that way” mode.

Benjamin Defays, Senior Manager of Treasury and Order-to-Cash, Koch Engineered Solutions

Benjamin Defays is Senior Manager of Treasury and Order-to-Cash with Koch Engineered Solutions in Luxembourg. He has 10 years working in treasury and is currently in charge of treasury and OTC operations across the globe. He also teaches Treasury management at the Chamber of Commerce and is a board Member of the Treasurers' association in Luxembourg. He also is a co-creator of and trainer for an online treasury master class.

Transcription

Royce Morse: Welcome to Meet the Experts, an IOFM podcast series designed to introduce you to many of the more than 200 panelists that answer your Ask the Expert questions. Ask the Expert is a popular feature, allowing our members to ask fellow A/P and A/R practitioners any work-related questions and get answers back within five business days. I'm Royce Morse, Institute of Finance and Management's managing editor.

Today, I'm talking with Benjamin Defays, senior manager of treasury and ordered cash with Koch Engineered Solutions in Luxembourg. He has ten years working in treasury and is currently in charge of Koch's treasury and OTC operations across the globe. He also teaches treasury management at the Chamber of Commerce and is a board member of the Treasurers' Association in Luxembourg. Hello, Benjamin.

Benjamin Defays: Hello.

Royce Morse: So today, we're gonna talk about removing silos in order to create a more efficient ordered cash process.

00:01:01.3

Before we get started with that conversation, give me a little bit of background on how you got into OTC and what your path there was.

Benjamin Defays: Sure. It's a very interesting question, even for me. Because I still wonder how I landed into OTC and the OTC world. I really landed there, I don't like the word by mistake but by chance, basically. It started, I would say, ten years ago. I started to discover the treasury world and the finance functions. I quickly built a passion for treasury at first. Risk management, including cash liquidity, foreign exchange management things.

00:01:53.2

And then, I onboarded more responsibilities on top of treasury. I had joint finance, which deals with bank guarantees and letters of credit. And then, a year ago, I got a bit more, again, with credit management, and collection, and invoicing, even the cash application and business partner maintenance activities. Yeah, that's quite new for me. I would say 12 months ago, I started to have a foot into OTC.

Royce Morse: Okay. So, is it what you expected?

Benjamin Defays: No.

Royce Morse: Any surprises? No? Well, tell us about that.

Benjamin Defays: Gosh, I thought it would be, I would not say [fingers in your nose], but I thought it would be much easier than what I found out. I think it's a comparative advantage I have to have this background. Because when I talk to my sales team, or to the project team, or whoever is not connected with OTC, I know what they think because I used to think this way too. I know that they think collection is just chasing customers.

00:02:59.1

Credit is just releasing [blocks and] orders, and that kind of things. I know now that it's totally not the case, and it's much more complex and much more strategic than what most people think, so.

Royce Morse: Very true. Very true. Of course, our members know that. But that misconception is something they have to fight against all the time. A lot of it has to do with, especially when you're doing collections, you're trying to collect the money while maintaining a good relationship with your customers and building that relationship so that it's collaborative, rather than adversarial.

Benjamin Defays: Yeah.

Royce Morse: That's an interesting observation. In the last 18 months, what's the biggest lesson you've learned?

Benjamin Defays: Not only one, but I would say the most would be expect the unexpected. Especially with OTC because more and more customers struggle to pay on time.

00:04:01.5

And it doesn't mean you need to be shouting at them. As you said, we also need to apply that empathy and think long-term. That's, I think, something I learned also is to think long-term. Are you there for the short-term gains or for the long-term rewards, right? Understand your customers' issues and find a common solution to be the best and the preferred business partner. Because yes, you can collect that invoice, if you are very aggressive. But that might be the last invoice you raise to that customer, right?

Royce Morse: Right.

Benjamin Defays: So, I think it's important to—yeah, in the last 18 months, it was also clear that we have to expect the unexpected, and be ready for almost immediate adaptation and get out of our comfort zone. Also, make sure you keep time for strategic thinking.

00:04:58.8

If you manage a team, think about their development. Do not let firefighting deviate from your future state and your wellness. I think 18 months ago—and still today—it's kind of the new normal is being an unstable environment all the time. That's the new normal. It's not, okay, one day it's gonna normalize back to before.

No, I think we're in unprecedented changes and unstable environment, but I think it's here to stay. What I learned is to be mentally prepared and agile to add those adaptation skills and ensure you regularly connect with your team members, so that nobody loses track of a vision and the road map, and your objectives you set together. With the remote working, it was, I think, a risk, right? You can quickly lose focus on where you want to go.

00:05:53.3

Yeah, when we talked about the collection strategies before, it's also remembering that a customer is not like the other one. You need also to adapt to your different customers. The type of customers you have, the history you have, and don't think that standardizing everything is gonna be the answer. It's really to adapt to the situation, but also adapt to your customer.

Royce Morse: Yeah, I think that's a really important point. It's not one size fits all. You have to work with your customers, if you want them to remain as customers. Being too adversarial and too aggressive in trying to collect and not develop a workable solution for both parties can really hurt your business in the long run.

Benjamin Defays: Yeah.

Royce Morse: You talk about the new normal, if you want to call it normal. There's no such thing anymore, I don't think. The world is kind of a crazy place right now. Let me ask you this.

00:06:53.4

We know that COVID has really affected the supply chain and has really done a lot to both accounts payable and accounts receivable organizations in terms of being able to pay on time, in terms of getting the products that you need, all of that. Has Brexit affected you? Have you seen anything from that? 'Cause I've been reading about that lately, too, and it seems like the supply chain in Europe is kind of messed up because of that.

Benjamin Defays: No. Well, Brexit was not such a big issue for the OTC. For treasury, it was, for liquidity structures. But for OTC, not so much. But when I look at today, yes, I mean, the situation today on the supply chain and inflation, I don't know about those were already affected by Brexit. But I have a feeling that it is much bigger now, the impact, than Brexit was on the supply chain, at least on the OTC.

00:07:57.9

Because when we look at prices going up, it's affecting us at the end of the chain. We need to think about okay, do we need to be proactively reviewing the credit limits we have set for those customers? Because we're probably gonna increase our prices as well. The supply chain had a big impact with COVID because of suppliers going bankrupt. With this, we had suppliers delaying their deliveries to us. In the end, having a huge portfolio or a huge backlog of items that could not be invoiced.

And then, I think it's a bit difficult because you cannot really measure that on your OTC because you have not invoiced, so you don't know. But actually, you have all those that are behind you and they are just delaying your invoicing process, collection process. You don't see it, but it has a real impact on your working capital, right? So.

00:09:05.0                  

Royce Morse: Yeah, absolutely. So, look into your crystal ball for the rest of the year. What are your predictions? What do you see?

Benjamin Defays: It'd be a bit much to suggest any prediction. Two years ago, we entered into—two and a half years now—we entered into quite an unstable environment, where any plan beyond the one week is almost considered as long-term, and even nowadays. So, as I said, I strongly believe we'll need higher patience skills and be mentally prepared for significant changes, both in terms of organization and technology.

We talk a lot about technology and I am a strong believer that technology is one of the elements. But I don't like when we talk about technology like it's the solution because to me, with OTC and treasury, we are working with scarce resources.

00:10:02.5

We need to be more strategic to add more value to the business. But you can only do that if you have technology. So, that's true, that's one step. Without technology, there is no way you free up time and spend time on strategic thinking. But technology without brains, without what you have between your ears, is really difficult. For that, you need also to reorganize your teams and make sure you put the right profiles in the right roles. That's not something you do once a year. You need to do that all day long.

So, for me, the prediction for the years to come and the months to come is we're gonna have to leverage highly on technology and making sure we have the right people in the right roles, and make sure we have them grow and connect to a vision. I think it's important that your company has that vision and a road map that is understood by everybody.

00:11:04.2

And make sure you repeat that. Once in a while, make sure people get connected and focused on it. I think also, a key element to a steadier life professionally is to have this connection with associations or also organization, like the ADIOFM, where you can benchmark and network, and stay up to speed with transformation and what's being done by other companies. And remain employable on the mid long-term basis. I think it's really fundamental to steady life professionally, especially now. That's, I would say, a prediction. You must network, you must benchmark. It's a question of survival.

00:11:53.6                  

Royce Morse: Yeah, absolutely. I agree. I think it's important to recognize that automation and benchmarking, and even membership in organizations like IOFM, those are tools. But you need the people to actually do the work and pull it all together, and make it happen. It's not gonna do it by itself, for sure.

So, thinking about what you've been through in the last year and a half or so, what have you been doing to optimize your OTC team and your organization as a whole? What suggestions would you have for somebody who's trying to figure that out themselves?

Benjamin Defays: So, we were—and we still are—very siloed. We have many different companies inside of our company, and a few acquisitions. We had capabilities fragmented all across those entities.

00:12:56.4

So, we had talents that were, for example, very good at collection, but they were not being leveraged. So, they would do maybe collections. They're a superstar at collecting, or superstar at credit management. They would do that maybe ten percent of their time and the rest, they would do something else, where they had less value.

So, we thought it was a great potential to get the roadmap for collection, for credit, for invoicing, for cash application, and built the current and the future state, and do that roadmap. So, we've decentralized collection and credit procedures, multiple processes, different ERPs, very manual processes, multiple decision rights and no standard process or documentation. All of this was leading to a high A/R delinquency rate because of wrong invoicing.

00:13:50.5

So, what we did was first of all, building a vision. Our future state, okay, we want to have one ERP. We want to have a single group of dedicated resources. They don't need to be physically located in the same place, but just a single group of dedicated resources that you can leverage expertise on. Then, you can also start to build some standard processes.

Standard doesn't mean all the same, right? You have different regulations, you don't do invoicing mutually, like you would do in India or in Germany. But to streamline the processes, to take the good off each process that was built across the years by individuals and build that team that will gain knowledge and expertise. We think it's really a big value add and a big opportunity of improvement. That's collection, credit, invoicing, cash out. That's regardless of which capability in the OTC you think of.

00:14:53.4

So that's, I would say, in terms of organization. So, we identified those individuals who had passion around OTC—and yes, there are people that are passionate about collection. I didn't know that, but they are. People love it. So, we found people that were really good at that and liked that, and gave them a bigger role, not only with that single entity but for the whole company. Having a much wider scope. That's also important to retain people. They had much more fulfillment. We're still going on that journey now. So, that was one thing.

Then, the second would be the technology, as we discussed earlier. We thought technology would be really difficult. We have a lot of manual processes, as I said. So, we have done short-term and more long-term projects. Short-term, we leveraged [poor apps], for example, to centralize all the queries we have from our business groups to make it easy for them to reach out to us. So, that was, I would say, a quick win.

00:16:02.8

The longer-term one is, we're building a platform for credit and collection and cash application where we can automate the cash application. So, freeing up resources to spend time on more added value activities. Only working on those unmatched items. Work closer with the business team and the project team to understand why a customer is paying more or less.

Also, the collection part is automated in that we can automate the decision or, let's say, helping the collector to make a better decision. Like based on the customer type, you have a different strategy in place than you coming in the morning and you have that software that tells you okay, that's what you have to do today for those collection matters. That's what I propose you to do. You can still use your brain and change the strategy, if you want.

00:16:59.6

But it's helping you to take that decision, send a reminder to a customer or call them, or go ahead with a more aggressive way of doing, with the type of customer and you knowing the customer. So, you have that team that knows customers and technology that helps you automate and help you with the decision-making. Credit is having more visibility. I mean, technology is a great help for gaining visibility in the credit lines you have, the payment terms, and the history with customers, and doing your credit reviews more proactively. So, those are things that we do.

I think it also helps build KPIs, key performance indicators, and build some measurement where you can do better, where is improvement needed? So, those are items that we start to implement and we do a bit better. It will help us big-time on the OTC activity.

00:18:03.9                  

Royce Morse: Yeah, I think you made a couple of really important points. One of which that stuck out for me is the fact that you have to kind of customize your approach for each customer. So, even though you get a list of stuff that you need to do in a day, it's not boilerplate. Every customer is a little different. You have a different approach, you have a different relationship with them. You have to leverage that in order to maximize your collections efforts.

Benjamin Defays: Yeah, when I was talking about the silos we have, it's really crazy how you can be so much fragmented in the same company. I have a very easy example. We have two entities part of our company. So, two entities that are actually in the same office. So, physically sitting in the same office. They were sharing the same customer.

00:18:58.3

Well, that customer would be paying on time this entity, but would be almost falling under bad debt for us with that other one. They are just sitting next to each other. So, that was just a clear illustration, like, okay, we have a big problem. We are completely siloed and that's not helping. The customer is seeing us differently, depending on which entity is talking to them. That's not right.

So, I think it's an important move to have one voice when you talk to a customer and align your strategies. It's really important. It's not so easy, but it's really important.

Royce Morse: Absolutely. Tell us a little bit about your business, and the kinds of things that you sell, and the kind of customers that you work with just to put some framework around this.

00:19:55.4                  

Benjamin Defays: Yeah. So, we are an engineer to order company. Every product we sell is different. We have a customer that will come with a need and we're gonna design it, we're gonna do the engineering, we're gonna produce it, and then sell it. For customers, it's kind of risky because they know our business and they know we're maybe the best at it.

But they know that each product is different. We never made that product. I mean, it's a technology company. It's very diverse. It goes from burners that we're gonna build and install on oil platforms and refineries. We also have heat exchange technology. We also work with fertilizers and that's involving the food and the beverage industry.

00:20:55.9

So, we are quite diverse in the products we have. But it's really a B2B and an engineer to order. So, it's, I would say, kind of a tough environment, especially when you had COVID and the oil crisis that was coming after that. Because, I mean, people stopped traveling, so the oil prices going down and your customers are refineries, oil refineries. That can be a big challenge for them. I mean, they stop investing, they ask for parts and things like that. So, business has to be adapted as well. So, yeah. We are an engineer to order and B2B business.

Royce Morse: So, those are customized big-ticket items, I assume?

Benjamin Defays: Yeah.

Royce Morse: So, you're talking about large sums of money on these invoices?

Benjamin Defays: Yeah, those are big amounts, yeah.

00:21:52.9                  

Royce Morse: Okay. What do you perceive to be the most challenging...? I'm trying to think of it from a practitioner's standpoint. Let's say I'm coming into your organization. You're my boss. I'm just learning the ropes here. What do you think the biggest challenge is when you're trying to train somebody to work in your department? What's the hardest thing that you have to do to get them to understand how to work with your organization?

Benjamin Defays: Very good question. I struggled personally a lot on my first days because I was coming from a public company. This company is private. The mentality in terms of risk. I mean, the risk mentality, first of all, is completely different because you are in a public company, where you have to provide quarterly reports to shareholders—

Royce Morse: Yeah, you have to have complete transparency in a public company, which you don't in a private company.

00:22:57.3                  

Benjamin Defays: Yeah. Also, I think you tend to be a bit more risk-adverse because okay, I cannot afford a hit on the foreign exchange, for example, or on my collection because it will show up in three months. So, you cannot have that short-term vision. Or at least, that's how I perceived it.

When I came into this company, it was very hard for me to have this new mentality to adapt to that risk mentality, where okay, we think long-term. We're here for the long-term rewards. It's okay to absorb short-term losses. Long-term, it's profitable. That difference of vision and take more risk, absorb profitable risk, and stop to just apply this externalizing the risk and being so much risk-adverse that if you have no risk, you have no reward, right? So, there is a connection there.

00:23:53.8

I think for a newcomer, it might be difficult to adapt because personally, I'm a father. I have two girls. I would not take the risks that we take in this company. I mean, it's really an adaptation skill you need to have. Okay, that's not your money. It's the money of your CEO and that's how he sees things. This company has been so much a success over the years. You have to believe in it because it just works. It works. That's the first thing.

Then, the second, I would say, is the values. We are hiring based on values, not necessarily based on the technical skills first. It's really first, our values. We strongly believe in the entrepreneurship mindset. Being an entrepreneur and be self-driven, and not having that management where we're gonna hold your hand and tell you what to do. That's totally not what it is. It's an adaptation. I mean, it depends on your personality and stuff.

00:24:59.2

I think that could be a hard part to understand, the risk mentality and the values that we feel really make us a preferred partner with our customers.

Royce Morse: So, in closing, what's one thing that if you were going to tell somebody who is in a similar situation as you are but didn't have much experience, what's one piece of advice that you would give them?

Benjamin Defays: Well, what I did is, and what I think helped me a lot, it's to look at an association, like for treasury, you have a lot of associations. For OTC you don't have that many, I didn't find so much. But get trained. Get trained externally and internally. But I think externally, the added value that you're not being blinded and you see things outside of the box. So, get trained.

00:25:59.5

And don't do it just once and that's it. I put a lot of importance for me and my team to get trained regularly, like at least once a year. And make sure you get up to speed with what's going out there. And benchmarking. As I said, to me, it's a key. It's a foundation and fundamental to remain employable. That's a piece of advice is get trained and be part of an association or something where you are able to network and benchmark. That's, I think, really a key.

Royce Morse: That's great advice. I think you made an important point there, which was when you are using an external training resource, like IOFM, for example, you're not just learning the way that you do it where you work. You're learning the preferred way to do it in whatever industry.

00:26:56.2

Sometimes, people lose sight of the bigger picture and well, that's just the way we do it. Well, is that the right way to do it, though? So, I think it does kind of open your eyes toward other ways of doing things and the best practices of your industry, and it gives you greater insight and greater breadth. If you end up getting into another line of business, changing jobs or whatever, you can take that information with you wherever you go.

Benjamin Defays: Challenge the status quo and don't let those answers, like oh, we have done this—

Royce Morse: We've always done it this way. Not a good answer.

Benjamin Defays: That's the worst. Challenge. I think also, any decision benefit from challenge. So, don't be afraid to, if you have an idea, put the people you know who will challenge you the most and embrace challenge. I think that's a good way also to improve and transform your business.

00:27:55.7                  

Royce Morse: Absolutely. Well, thank you for your time. I've enjoyed talking with you. I think that our members will enjoy this conversation and get a perspective from an offshore company, a non-U.S. company. I think they're gonna recognize that the challenges are the same globally and that a lot of the things that you've talked about are things that they have to deal with every single day as well. Thank you so much for your participation.

Benjamin Defays: It was a pleasure. Thank you for inviting me.

Royce Morse: Thank you for listening to Meet the Experts, an IOFM podcast series. Remember, if you have a question for our guest or any of our experts, be sure to log into IOFM.com/ask-the-experts.