Magazine article Business Credit

What's Behind the Numbers?

Magazine article Business Credit

What's Behind the Numbers?

Article excerpt

On August 10, 1999, Cisco Systems, Inc. announced the fourth quarter and annual earnings for FY99. With a 43 percent increase from last year's revenue, an astonishing $12.15 billion in sales was triumphantly announced to the media. However, with the increase of Cisco sales comes a tremendous responsibility to collect on customer contracts within the standard net-30 terms--the key to "reducing the DSO" (Daily Sales Outstanding) average. How does a company reduce its DSO by 17 days? From 49 to 32 in one year? In Q4 FY99, Cisco Systems, Inc. also reported a global DSO number of 32 days--that amounts to approximately $33 - $35 million dollars per day. This accomplishment was gained without incremental headcount or additional expense regarding tools and training. Rather than soak up additional expenses, Cisco's Customer Financial Services (CFS) knuckled down to reengineer our collection process through a connected Business Process Reengineering (BPR) effort.

The primary key to this success was the result of the Business Process Reengineering team and the redefinition of goals and objectives. The CFS management team made BPR a priority. During the last few years, Business Process Reengineering has become the "buzzword in many companies. Because a prime concern of a company is to keep expenses at a low, many have found that the process of reengineering will bring new life to old tools and collection practices. Our management took pride of ownership in BPR and made the process a priority. The BPR effort took two years of hard work and dedication from the management team and staff. The BPR effort enhanced the quality of tools and productivity, and has had a major impact on the success of our FY'99 DSO results. Meanwhile, the goal is, and continues to be, a recurring renewal of collection tools and the policies and procedures that drive the collection efforts. The BPR process is the foundation of this story.

While BPR is the summary of our success, what are the details? How did the CFS team achieve such an astounding DSO? For every team, whether it is construction, medical, sport or racing, you must have your tools. CFS is no different. With the constant growth rate of revenue, the team looked at the existing collection processes and chose to enhance their most valuable existing tool called ARCO (Accounts Receivable Collection Organization). One of the most critical enhancements of ARCO was the ability to allow for constant forecasting of receivables, like a football coach's diagram of a well-known executable pass. The Forecast Module enables account representatives to record all incoming cash to management, at any time of the month, while allowing the collection representative to forecast (up to three months in advance), providing further visibility of a potential upset in accounts receivable. As the CFS Management team focuses to drive down the corporate DSO, the ability to identify upcoming cash issues is cri tical. This allows the credit representatives to manage their base more efficiently through the use of their quick notes, forecast module and customers' history.

Communication is key, and ARCO enabled managers to easily communicate under one uniform and secure platform. ARCO notes and forecast information can be likened to official bank notes. In addition, the accounts payable contact field is capable of storing the interactions with accounts payable, sales, management and customer service. It also has comprehensive reporting capabilities and web connectivity that allows for any report to be retrieved throughout the 225+ users worldwide, including subsidiary offices in Canada, Amsterdam, Japan and Australia and the outsource credit teams.

In association with the ARCO tool, the CFS team benefits from Cisco's practice of using its own technology. The CFS team has partnered with the Customer Service team (CS) to provide customers with the flexibility and ease of entering their own orders on the web and also pulling associated invoices for payment. …

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