BACKGROUND & ANALYSIS
Our client provides drilling rigs, equipment, personnel, and camps on a contract basis to explore and develop oil and gas from onshore areas, fixed platforms, tension-leg platforms, and spars in offshore areas. Operating globally, the client is headquartered in North America and owns the largest land fleet of AC drilling rigs in the world.
As part of a marketing and financial analysis, our consultants uncovered many outstanding receivables. It was subsequently agreed that a comprehensive process for tracking and managing receivables would be required.
The initial amount outstanding, although significant, was still within the acceptable parameters at the time. However, the client decided to investigate the process further, based in part on our analysis. The decision proved to be the right one when the true exposure turned out to be well outside the client’s expected parameters.
Our analysis unearthed the fact that there was an average of 45 Days Sale Outstanding (DSO) while its customers enjoyed a DSO of 23 days. In effect, the client was providing provided several million dollars worth of funds to its customers interest-free.
Following the analysis, we launched and supervised a DMAIC (Define, Measure, Analyse, Improve, Control) team to address overdue receivables. Our role was to support the client’s team and provide knowledge transfer during the implementation stage.
The major workstream focused on the processes for handling invoices aged more than 30 days, specifically targeting those over 90 days. Additionally, the project touched on workflows associated with billing by auditing issues and errors that could affect collection.
The team found that the average age of receivables overdue by 90 days or more was 326 days, were in dispute, and not being worked on.
There was also no clear process for dispute resolution or ownership of the process. Indeed, the current approach had several billing analysts calling the same customer in different geographical regions to resolve invoicing issues.
The project gave focus to the Accounts Receivable function and generated a very efficient process that achieved all of the goals we set for it. The team built a very sustainable and repeatable process.
Vice President & Controller
Recommendations by the DMAIC team resulted in the formation of an Accounts Receivable group as part of the Domestic Revenue department. This would allow closer coordination between the Billing and Receivables activities. Whilst initially staffed by the team, dedicated personnel were assigned whose main responsibilities were to monitor and resolve receivables issues.
Key to the success of the programme was the implementation of a management control system (MCS) to better manage receivables. Part of the system included monthly status reviews between Accounts Receivable, Sales, and Finance, as well as clear definitions of responsibilities for timely collection of payments.
Feedback from auditing of issues and errors became the basis for training and documentation of key Billing processes.
The overall result was the significant reduction in overdue as shown below:
In addition to the financial results, relationships with customers have grown stronger as a result of improved customer service and a single point of contact for all issues relating to billed invoices. Cross-training has now been established with the Billing group to allow clarity of process, roles and responsibilities associated with Accounts Receivable.
Processes are now well-documented and training materials have been developed. The initiatives introduced in this programme reinforced the DMAIC in delivering significant and sustainable business performance improvement.