Navigating the Crossroads: Off-the-Shelf vs. Custom Solutions for Working Capital Analytics

In today’s world of finance, the effective management of working capital is key for organizational success. As companies strive to optimize their liquidity, streamline operations, and fortify financial health, the role of comprehensive working capital analytics is critical in enabling businesses to gain nuanced insights into their cash flow, receivables, payables, and inventory management, fostering informed decision-making and strategic planning.

In the pursuit of deeply understanding their working capital state, organizations often find themselves at a crucial crossroad – to adopt an off-the-shelf solution readily available in the market or embark on the journey of crafting a bespoke, in-house working capital analytics system. Both paths present distinct advantages and challenges, making the choice between them a pivotal decision that can significantly impact an organization’s financial landscape.

In this article we will dive into this decision-making process, dissecting the pros and cons of off-the-shelf solutions and custom-built analytics software. The aim is to equip finance professionals, decision-makers, and IT leaders with the insights needed to make an informed choice tailored to their unique organizational requirements.

Building your own working capital analytics: Pros

Organizations seeking unparalleled control and tailored precision tend to turn to the prospect of building their own working capital analytics solutions. Crafted with a meticulous focus on specific needs, this approach offers a suite of compelling advantages that can revolutionize how businesses comprehend and manage their working capital. Some of the advantages this approach offers include:

1. Tailored to specific organizational needs

One of the primary advantages of developing an in-house working capital analytics solution is the ability to tailor the software precisely to an organization’s unique requirements. Unlike off-the-shelf alternatives that adopt a one-size-fits-all approach, custom solutions can be designed to align seamlessly with an organization’s existing workflows, business model, and strategic objectives.

Imagine for a minute a global finance firm with a complex network of subsidiaries operating in diverse markets. By building a bespoke working capital analytics solution, the organization can integrate specific currency conversion algorithms and regional economic indicators, ensuring a nuanced analysis that caters to the unique characteristics of each market it serves.

2. Control and flexibility

The autonomy afforded by custom-built solutions grants organizations unparalleled control over their analytics infrastructure. This level of control extends to the adaptability of the system, enabling organizations to seamlessly integrate new data sources, scale functionalities, and pivot their analytics strategy as business needs evolve.

3. Enhanced data security

For many companies that are handling sensitive financial information, data security is non-negotiable. Custom-built working capital analytics solutions empower organizations to implement robust security measures, ensuring that critical financial data is safeguarded against potential breaches or unauthorized access. 

For example, a large investment bank dealing with confidential client portfolios and sensitive market data can build a bespoke analytics solution with state-of-the-art encryption protocols, multi-factor authentication, and role-based access controls. This customized approach fortifies the organization’s data security posture, mitigating the risks associated with off-the-shelf solutions.

Building custom working capital analytics software: Cons

While the allure of tailor-made solutions for working capital analytics is undeniably appealing, organizations must tread carefully through the nuanced landscape of custom development. This bespoke approach, though offering significant advantages, is not without its set of challenges and drawbacks.

1. Higher upfront costs

Building a custom working capital analytics solution often entails a substantial initial investment. The costs associated with hiring skilled developers, acquiring necessary technology infrastructure, and dedicating resources for project management can be considerably higher compared to the relatively modest upfront costs associated with off-the-shelf solutions. It may also divert some of the IT and dev team’s attention from focusing on their core responsibilities.

2. Longer development timelines

Custom-built solutions demand time for meticulous planning, development, and testing phases. The longer development timelines can be a critical factor. In fast-paced market environments, where financial trends evolve swiftly, a company opting to build its working capital analytics may find that the time required for custom development puts them at a disadvantage compared to competitors who opt for off-the-shelf solutions with quicker implementation timelines.

3. Ongoing maintenance and support

Once a custom solution is deployed, ongoing maintenance and support become imperative. Regular updates, bug fixes, and adaptations to changing business requirements demand continuous attention and resources.This means that a company investing in a custom analytics platform must establish a dedicated support team capable of addressing issues promptly, ensuring system ongoing integrity.

4. Need for skilled developers, QA, and financial expertise

Building a robust working capital analytics solution requires a team with not only skilled developers, QA professionals, and dedicated resources, but also deep financial expertise and a comprehensive understanding of financial processes. This combined skillset is crucial for developing accurate insights, ensuring data integrity, and aligning the solution with business objectives. Acquiring and retaining such talent can be challenging, particularly in a competitive job market. Companies looking to independently develop their own working capital analytics solution may face difficulties in attracting and retaining top-tier developers and QA professionals, potentially impacting the overall quality and reliability of the analytics solution. 

5. More difficult access to external databases and third party software

Custom-built solutions may encounter challenges when integrating with external databases and third-party software. Ensuring seamless and secure connectivity and data synchronization can be a complex task, potentially leading to delays in data access and analysis.

Unlocking efficiency: Off-the-shelf working capital analytics in Finance

Off-the-shelf (OTS) working capital analytics solutions have emerged as pragmatic choices for finance organizations seeking efficiency without the complexities of bespoke development. These pre-packaged solutions are designed to address the diverse needs of finance departments, offering a range of advantages that cater to finance groups in both established enterprises and emerging startups.

Cost-effectiveness

One of the most compelling reasons to opt for off-the-shelf working capital analytics is the cost-effectiveness associated with ready-made solutions. These products often present a more budget-friendly alternative, eliminating the need for substantial upfront investments in development teams, technology infrastructure, and extended project timelines.

Faster implementation

Off-the-shelf solutions provide a rapid route to deployment, minimizing the time between adoption and operational use. For finance teams seeking swift access to analytics capabilities, this accelerated implementation can be a decisive factor in maintaining a competitive edge.

Pre-built features and integrations

OTS working capital analytics solutions come equipped with pre-built features and integrations that streamline the analytical process. These features often include standard financial metrics, reporting templates, and compatibility with widely used financial software, reducing the need for extensive customization.

Ready-made access to external customer data

Many off-the-shelf solutions offer seamless ready-made integration with external databases and software, facilitating quick access to essential customer data. This interoperability enhances the breadth and depth of analytics, enabling organizations to derive insights from a comprehensive data landscape, and reduce their financial risk levels.

Rich and innovative feature set inspired by the crowd

OTS solutions benefit from continuous improvements driven by a large, diverse user base and multiple needs. The large community of users provides valuable insights, spurring innovation and the introduction of new features that cater to evolving industry trends and best practices. This, many times can take finance operations to the next level, helping finance teams introduce new ways to look at data, offering a fresh perspective to customer credit risks and the overall financial stability of the organization.

Some popular Off-the-shelf working capital analytics solutions

OPYO

https://www.opyomind.com/

OPYO is a working capital management solution leveraging both technology and professional services to help finance teams better understand cash opportunities and produce accurate cash flow forecasting. The solution was designed by finance teams, and leverages a deep understanding of challenges and pains around accurate forecasting, collection, reporting and visibility. OPYO offers automatic organizational visibility around credit risk exposure and cash performance from the AR, AP and inventory aspects, driving real-time understanding of risk exposure, credit issues and cash performance. 

Taulia (A SAP company)

https://taulia.com/

Taulia provides working capital management solutions, helping businesses optimize their cash flow by offering tools for electronic invoicing, supply chain finance, and dynamic discounting. Taulia’s services aim to improve the efficiency of the financial supply chain, allowing businesses to better manage their working capital and strengthen relationships with suppliers.

Kyriba

https://www.kyriba.com/

A cloud-based treasury and financial management software provider, offering solutions for cash and risk management, payments and working capital optimization. Key features include cash forecasting, liquidity management, bank connectivity, financial risk management, and payments automation. The software is designed to streamline treasury operations, reduce manual tasks, and improve overall financial visibility.

HighRadius

https://www.highradius.com/

Provides software solutions for automating various financial processes – accounts receivable (AR) automation, order-to-cash, treasury management, and artificial intelligence-driven analytics. HighRadius’ platform includes modules like Cash Application, Credit Management, Electronic Invoice Presentment and Payment (EIPP), and more. 

These off-the-shelf solutions exemplify the diversity and capabilities available to finance organizations, offering a balance between convenience, cost-effectiveness, and customization options tailored to specific operational needs.

Tailoring off-the-shelf solutions: Personalized adjustments for working capital analytics

While off-the-shelf (OTS) working capital analytics solutions are designed to cater to a broad spectrum of users, they recognize the diverse and unique needs of individual organizations. Providers of OTS solutions have embraced the imperative for customization, offering tools and services that empower finance teams to make personalized adjustments without the need for extensive development efforts.

Leading OTS providers equip their solutions with configuration and customization tools, allowing users to tailor the analytics platform to their specific requirements. Through user-friendly interfaces, finance professionals can adjust parameters, modify reporting templates, and fine-tune key performance indicators to align with their organization’s goals.

OTS solutions are also designed with scalability in mind, accommodating the evolving needs of finance organizations as they grow and diversify. Users can scale their analytics capabilities seamlessly by integrating additional data sources, or expanding user access. This adaptability ensures that the solution remains aligned with the organization’s changing dynamics.

To further facilitate personalized adjustments, many OTS providers offer professional services that extend beyond the out-of-the-box functionalities. These services often include consultation, training, and support from experts who can guide organizations in maximizing the potential of the analytics solution.

Conclusion

In the realm of working capital analytics for finance, there is no universal solution. The decision between off-the-shelf (OTS) and custom-built solutions should be a deliberate and well-informed process. Finance teams must strike a balance between cost-effectiveness, customization needs, and adaptability to changing market dynamics. Ultimately, the selected solution should serve as an enabler for data-driven decision-making, strategic planning, and sustained financial excellence. While OTS solutions may relatively offer convenience and rapid implementation, they may lack customization capabilities. Conversely, custom-built solutions cater to specific needs but require significant upfront investment and lead time. Optimally, a hybrid approach combining technology and professional services can offer a tailored solution with expert guidance, ensuring successful implementation and ongoing support. The decision-making process itself is an integral part of the journey toward optimizing working capital management. Whether leveraging the efficiency of OTS solutions or the precision of custom-built analytics, organizations should approach this decision as a strategic investment, fostering a future-ready financial landscape that propels them towards sustained business success.

SaaS startups finance people – are you managing a tight enough ship?

In the fast-paced tech world, things have changed. Not so long ago, everyone thought that growth was the single most important KPI, and making profit often took a back seat. But recently, with the change of winds in the global economy, startups have had to rethink this approach. They’re now learning to rebalance growth and profitability right from the start.

Whether you feel cash constrained or not, finding this delicate growth-profitability balance is important, throughout the startup life cycle. Early, middle or late stage startups, none of them want to be losing money on every transaction. This is especially important in SaaS businesses, where there is high cost of user acquisition 

In this article, we’ll take a look at the significance of accounts receivables and how finance teams at SaaS startups manage them as well as the critical implications the finance team’s practices can have on the startup’s resilience and even survival.  

The growth-profitability balance – by startup phase

Early stage startups: Starting small but dreaming big

Early stage startups need to be aggressive about growth.  They’ve got big dreams, and their primary focus is growing their customer base as quickly as possible. Profit isn’t their top priority right now. While profitability remains secondary, having a clear understanding of per-customer unit economics is important – both for raising more funds, and for making smart business decisions in the future.  

Mid stage startups – Starting to scale

Things get tricky as startups start to grow and mature. Profit starts to matter more, to demonstrate business sustainability over time, but high growth is still expected. Now will be the time to start looking at cohort profitability – figuring out which groups of customers are making the company the most money over time. The goal is to find the sweet spot – grow steadily and make enough money to keep going. It’s a delicate tightrope walk between the urgent need for growth and the responsibility to be financially self-sufficient.

Mature startups: IPO on the horizon?

At some point, successful startups start thinking about going public. It’s a big deal. Now the company finances go under a magnifying glass. Bad habits, overspending or inefficiencies in sales and marketing, trying to achieve growth no matter what the costs are can make or break the IPO, and the future of the company. 

Key tips for staying on top of your SaaS business KPIs

In the competitive world of SaaS, measuring success is crucial for businesses to survive and thrive. Being able to track the most important KPIs is vital for making informed decisions, and financial data is no exception – the goal is a “no-surprises” approach to running finance.

Tip #1: Know your cash 

A simple statement, but unfortunately, it’s rarely the case. You can’t rely on stories, promises and spreadsheets. Implement a digital software solution, such as OPYO, to be able to monitor and understand cash analytics, regularly. 

Tip #2: Know your cash flow

Annual and Monthly Run Rates (ARR/MRR) and Profit and Loss accounts offer valuable insights and are important metrics. Yet (especially) in challenging times, the real king emerges – cash flow. Cash flow information becomes the compass that guides startups through turbulent waters. Understanding the actual cash flow is crucial since what’s recorded on the books as revenue doesn’t always translate to real cash in hand. This can lead to a scenario where you are lower on cash in reality compared to where you think you are – that’s a risky place to be in. 

Tip #3: Don’t compromise on accurate cash forecasting

As mentioned above, run rate and actual cash don’t often correlate — booked revenue that wasn’t yet paid and sits in aged accounts receivable (AR) — revenue but no cash.

Accurate cash flow forecasting depends on running a tight ship when it comes to Account receivables (AR). Easier said than done. Looking at company finance departments, we see several key challenges to efficiently managing AR, enabling accurate cash flow prediction. 

Efficient Accounts Receivables management: Challenges

Managing account receivables can be a challenging and daunting task, but if dealt with correctly, it can also reveal opportunities to grow, adapt, and strategize. Let’s overview some of the common challenges around accounts receivables management:

Weak enforcement of payment terms

Many businesses offer products or services on credit, with invoices tied to specific milestones. Ensuring timely payments in such cases is essential, yet challenging.

Lack of monitoring

Monitoring accounts receivables data for insights can be challenging, but it can raise early warning signs you don’t want to miss. Here are a few key metrics to look at:

  • Days Sales Outstanding (DSO) – indicates the average time a company takes to collect payment after a sale. It is considered healthy when it remains within 50% of the stipulated commercial terms. For instance, if the payment term is EOM+30, a favorable DSO would be 45 days.
  • CFF Accuracy – To forecast cash flow effectively, it is recommended to adopt a bottom-up approach. This involves analyzing DSO at various levels, starting from individual buyers, progressing to business units, and culminating at the corporate level. This detailed assessment allows for a comprehensive understanding of receivables management and facilitates precise cash flow predictions.
  • Best Possible DSO – Indicates what your on-time payment turnaround is going to be.
  • Average Days Delinquent (ADD) – the average number of days it takes to collect late payments. The lower your ADD score, the better.
  • Turnover Ratio – shows how well you manage the credit you  provide your clients and how efficient you are at collecting payments. The higher the ratio the better.
  • Collection Effectiveness Index (CEI) – helps to understand how strong your accounts receivable management is
  • Decentralized AR management

Businesses lose control of AR if they can’t centrally track them or easily audit customer communications.

Ineffective communication strategy around AR

If you’re not clear and formal about payment expectations, and your no-delays policy, customers may think it’s OK to be late. 

Sluggish dispute resolution 

Customers will tend to hold payments until disputes are resolved or corrected. Disputes can also worsen the relationship with the customer, creating unnecessary friction that makes it much more difficult to collect payments – leading to bad debts or increased credit risks.

Lack of Payment Incentives: 

The absence of incentives for early payments may encourage customers to delay, prioritizing their own liquidity for as long as they can, an incentive to pay early can help – directly affecting cash flow.

Conclusion: Sailing Towards Success

Smartly navigating these challenges is critical for creating a resilient startup that can sail beyond early growth stages into stable profitability and growth.  These aren’t just obstacles; they’re the building blocks for creating a strong foundation for lasting growth.

Collection and how you manage Accounts Receivables is not just about overcoming financial hurdles. It’s about helping the business generate and identify opportunities to grow, adapt, and strategize – all are critical capabilities in the dynamic world of SaaS.



Partnership between TCS and OPYO

Our Blog

Partnership between TCS and OPYO

Posted on January 4, 2022 by Opyo Team

OPYO challenges common assumptions, helping your business drive immediate change with standard technology and limited resources; faster than ever before. Effective management – OPYO offers a robust and proactive credit management solution, supporting business, responding to your daily changing needs. OPYO is connected deeply into daily transactions, with sensitive sensors, powerful forecasting models and AI capabilities, linked to business drivers, focused on process improvement. Designed to identify inefficiencies, risk, spot opportunities and call for immediate action. OPYO is about generating value: Identify, quantify and act. faster than ever before. Effective management – OPYO offers a robust and proactive credit management solution, supporting business, responding to your daily changing needs. OPYO is connected deeply into daily transactions, with sensitive sensors, powerful forecasting models and AI capabilities, linked to business drivers faster than ever before. Effective management – OPYO offers a robust and proactive credit management solution, supporting business, responding to your daily changing needs. OPYO is connected deeply into daily transactions, with sensitive sensors, powerful forecasting models and AI capabilities, linked to business drivers OPYO challenges common assumptions, helping your business drive immediate change with standard technology and limited resources; faster than ever before. Effective management – OPYO offers a robust and proactive credit management solution, supporting business, responding to your daily changing needs. OPYO is connected deeply into daily transactions, with sensitive sensors, powerful forecasting models and AI capabilities, linked to business drivers, focused on process improvement. Designed to identify inefficiencies, risk, spot opportunities and call for immediate action. OPYO is about generating value: Identify, quantify and act. faster than ever before. Effective management – OPYO offers a robust and proactive credit management solution, supporting business, responding to your daily changing needs. OPYO is connected deeply into daily transactions, with sensitive sensors, powerful forecasting models and AI capabilities, linked to business drivers faster than ever before. Effective management – OPYO offers a robust and proactive credit management solution, supporting business, responding to your daily changing needs. OPYO is connected deeply into daily transactions, with sensitive sensors, powerful forecasting models and AI capabilities, linked to business drivers