It’s well documented that any companies facing the current downturn in the oil and gas industry resort to headcount and operational reduction, neither of which solves the long-term financial challenges of your company; however, these decisions are avoidable.
Instead of using layoffs as a temporary financial solution, companies like yours can improve their outlook by focusing on the relationships with their chosen partners and automating collaborative processes.
When paying for services or direct materials, reconciling the work of your suppliers with invoices and service agreements can be a long, yet essential, process; you must ensure to get what you paid for.
If you’re supplying these services or materials, slow-pay due to a drawn out reconciliation process is a threat to your business; the longer it takes to get paid for a job, the longer it takes to pay your employees. These delays can increase the DSO (Days Sales Outstanding) of a job and compromise the financial health of the company and the job security of employees.
Dealing with cash flow
For example, in 2000 we worked with a major oil field services provider that was experiencing a significant cash flow issue. The company serviced about 15 different oil and gas companies. It took those companies months to reconcile payments, dramatically increasing their DSO on multimillion dollar invoices.
After investigating the root of the problem, the issue was clear: their invoice system was incapable of scaling at the rate needed to take on the number of contracts they had. If you send thousands of invoices every month as a service provider in the oil field, reconciling who paid you and when they paid you—and making sure your books are squared away—can be very manually intensive. If you don’t have digital data on hand, it becomes nearly impossible to keep up.
On the other hand, the ability to manage your invoice process digitally can directly benefit your company’s cash flow. According to a study of the retail industry conducted by the University of Tennessee’s Global Supply Chain Institute, in collaboration with DiCentral:
- Suppliers using a third party business-to-business integration (B2Bi) provider processed invoices five days faster;
- Suppliers captured a 25 percent savings increase by processing orders electronically and 20 percent savings by processing invoices electronically rather than non-electronically;
- 94 percent saw significant improvement in their electronic connectivity capabilities when using B2Bi Managed Services;
- 68 percent reported that their clients said they were easier to do business with after implementing B2Bi Managed Services; and
- 69 percent said they could respond more quickly to changes in their clients’ environments after implementing B2Bi Managed Services.
While digitizing your B2B process can seem overwhelming, companies like yours can take immediate steps toward improving your cash flow through an automated process with your business partners.
- Examine the volume of transactions that are manually processed by your company.
- Prioritize those transactions based on volume and revenue impact. This will allow you to identify the types of transactions that produce the quickest return on investment (ROI).
- Automate the prioritized transactions by selecting a B2Bi technology platform (also known as electronic data interchange, EDI). The automation will help reduce errors, and decrease DSO. To make the most of these efforts, it may make sense to investigate third parties to audit these processes.
You can learn more about B2Bi and how your company can thrive during the downturn by downloading the University of Tennessee’s Global Supply Chain Institute’s full study: http://edi3.dicentral.com/b2bi-study
Peter Edlund is the senior vice president of global marketing for DiCentral. Founded in 2000, DiCentral is a leading global provider of B2Bi Managed Services headquartered in Houston, Texas with 10 offices worldwide supporting customers in over 27 countries.