Handling late payments: developing the Virtuous Revenue Cycle

Photo by Sora Shimazaki

ModuResources is an independent professional company that delivers services across the Well Lifecycle. With Well Engineering Services and Solutions, Rig Inspection services and solutions as well as training services as their main service streams, they serve a range of clients from Super-Major Oil companies, Majors, National Oil Companies (NOC), Independent Oil Operators through to drilling contractors and service companies.

While the company’s line of work may appear specialised and technical, one of the problems they face will be familiar to many business owners: delayed payments. This issue, explained Peter Hone, VP Technical Business Development, ModuResources, was particularly challenging during a downturn in the oil industry in 2016, where companies were in the midst of slashing their workforce and widening job roles.

While operating during a downturn is certainly daunting, ModuResources also saw it as a chance to improve how things were done. To improve their cashflow, they worked together with RIABU’s Director Simon J. Littlewood, to achieve a different perspective on their problems, and work differently with clients to ensure payments were met and cashflow secured.

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A different perspective

Hone described the situation in 2016, in the middle of the downturn. “Generally most companies reacted and slashed the workforce (usually labelling it a restructuring program) to meet the ‘numbers’,” he recalled. “The outcome of that, inevitably, was an increase in already delayed payments.“

“Everyone I spoke to was in the same boat and many went bankrupt as cash flow was affected adversely. As an industry it is hard to generalise, but many colleagues in other companies were struggling with late payments and the downturn compounded the delays. Companies had slashed staff, created new wider roles again, all possibly adding ‘process delays’ and hence delayed payments.”

In such a stressful environment, it can be tempting to lay the blame for delayed payments on the client. However, Littlewood’s experience suggests otherwise “In 80% of cases when you get paid late it is because of something you omitted to do or should have done differently,” he revealed.

“Blaming the customer – or for that matter the economy, or competitors – is very easy to do but only when you recognize that you can make changes in your processes to ensure you are first in line to get paid can you start to change things for the better,” he added.

Working with RIABU, ModuResources was able to gain an independent view and simple solutions to major issues. Recalling an outcome of their new approach, Hone recounted travelling to Kuala Lumpur to meet a company where they were struggling to get paid. “We met at their office, met their teams and learnt about their payables process, what actually worked for them, and the outcome was within days we had been paid,” he said.

Developing strategies further

From these positive early changes, ModuResources is looking to implement further strategies that continue to address the issue of late payments and cash flow. Currently, shared Hone, ModuResources is implementing a strategy where they ask to set up a meeting with the payables department on every call where they feel that a project or job may be awarded. “We tried it for the first time with a major operator from Malaysia recently. The client was impressed we were taking time to understand them and their processes and added ‘you will have no issues with late payment’.”

Another key strategy includes monitoring Days Sales Outstanding (DSO). Hone shared that while this was an area they did not monitor initially due to limited manpower, by working with RIABU they have been able to develop a workable model for measuring and improving DSO. “We presented the model at an early management meeting, and the results were that our Asia Pacific GM has been able to measure and improve the DSO and hence improve cash flow.”

Securing cash flow for business survival

ModuResources’ experience and their partnership with RIABU reveals the importance of securing cash flow through client payments, and highlights that there are approaches to make the process more effective and satisfying for companies and clients. This is especially crucial for the SME sector, which, according to Littlewood, provides 52% of Singapore employment and globally more than 70% of jobs. Despite their importance to both local and global economies, Littlewood noted that “they often exist on very little working capital – typically less than 30 days – and  are vulnerable to insolvency if external circumstances change.”  

Sharing his advice to SMEs facing problems with delayed payments, Littlewood advises business owners to ensure their whole team recognizes the importance of getting paid on time, then work together to make key changes in the way they approach customers.

“There are 8 steps in the Virtuous Revenue Cycle – starting with top-down ownership, having a clear credit policy, and a proper understanding of how your customer’s payment processes work and who owns key tasks,” he concluded.