How Process Redesign and Automation Helped a Leading HVAC Manufacturer Slash Payment Cycle by 27 Days and Boost Cash Flow
HVAC Co., a prominent $230 million HVAC manufacturing company, faced persistent operational inefficiencies that were significantly impacting cash flow. Despite a strong market position and demand for their products, HVAC Co. was experiencing lengthy payment cycles, stretching up to 75 days, which constrained working capital and limited their ability to invest in growth initiatives. This extended payment cycle placed a strain on liquidity, affecting supplier relationships and hindering the company’s agility in responding to market demands.
The root of the issue lay in a complex and fragmented payment process. HVAC Co. accounts receivable function operated under legacy systems with limited automation, resulting in manual and error-prone workflows. Furthermore, limited visibility into accounts and delayed reconciliation created bottlenecks, leaving sales and finance teams without a unified view of customer payment statuses. These inefficiencies not only prolonged the payment cycle but also resulted in higher operational costs and inconsistencies in cash flow forecasting.
To address these challenges, HVAC Co. sought our assistance to overhaul their operations and implement process improvements aimed at reducing the payment cycle and optimizing cash flow. Our team’s objective was to introduce a streamlined, data-driven approach that would bring much-needed efficiency, enabling HVAC Co. to reduce working capital constraints and build a foundation for sustainable growth.
HVAC Co.'s payment cycle was marred by multiple inefficiencies and operational silos. First, their accounts receivable team relied on manual processes for invoicing, payment tracking, and reconciliation. This manual handling not only introduced errors but also created delays, as staff were often bogged down by high transaction volumes and repetitive administrative tasks. These inefficiencies led to frequent discrepancies in payment records, making it challenging for HVAC Co. to follow up on overdue accounts accurately.
In addition to manual processing, HVAC Co.'s legacy systems were not equipped to support the company’s growing scale. Their outdated ERP and billing systems had limited integration capabilities, resulting in disjointed data flows between sales, finance, and operations. Without a real-time view of receivables, the finance team was often left to reconcile payments manually, leading to delays and an inability to effectively manage collections. This lack of system integration further impacted forecasting accuracy, leaving HVAC Co. with limited insight into future cash inflows and impacting decision-making.
Finally, HVAC Co.'s payment terms and collections policies were inconsistent across customer segments. With no standardized approach to payment terms, customer accounts often required individual negotiations, which extended negotiation timelines and created ambiguity around payment deadlines. This inconsistency further exacerbated the length of the payment cycle and hindered the accounts receivable team’s ability to implement proactive collections strategies.
"Their deep expertise in operational transformation was a game-changer for us. By optimizing our payment processes and deploying automation, they reduced our payment cycle significantly, allowing us to focus on scaling our core business." - CFO
To resolve HVAC Co. operational inefficiencies, we applied a structured, methodology-driven approach using industry-leading frameworks to deliver deep technical and process improvements. The solution was broken down into three distinct phases: Process Mapping & Diagnosis, Advanced System Integration & Automation, and Strategic Payment Policy Optimization.
Our initial focus was on uncovering the root causes of inefficiencies within HVAC Co.'s payment cycle using End-to-End Value Stream Mapping. We conducted workshops with cross-functional teams to map out the full accounts receivable (AR) process, from invoice generation to collections, identifying pain points such as manual data entry, inconsistent follow-ups, and system lags in payment tracking. By leveraging Lean Six Sigma tools, we identified over 25 redundant steps that were causing delays, including manual invoice reconciliation and inconsistent customer communications.
Using Data Analytics, we conducted a deep dive into historical payment data, identifying patterns in late payments, disputes, and missed follow-ups. This analysis revealed that nearly 35% of payment delays were due to errors in invoicing and a lack of proactive collections practices. To quantify potential improvements, we built a Cost of Delay Model that estimated the impact of delayed payments on working capital and established a baseline for measuring future improvements.
Armed with insights from the diagnostic phase, we transitioned to optimizing HVAC Co.'s technology stack using the ASCEND framework. The core of this phase involved implementing an integrated ERP and CRM system to automate the invoicing, collections, and payment reconciliation processes. We selected and deployed a scalable ERP platform with built-in automation features, integrating it with HVAC Co.'s existing financial systems to enable seamless data flow between sales, finance, and customer service teams.
To further enhance efficiency, we introduced Robotic Process Automation (RPA) to handle routine tasks such as payment reminders, invoice validation, and discrepancy resolution. This automation reduced manual touchpoints by 40%, eliminating errors and freeing up the accounts receivable team for strategic activities. Additionally, we leveraged Advanced Predictive Analytics to create a payment behavior scoring model, allowing HVAC Co. to prioritize follow-ups on high-risk accounts and optimize cash collection efforts.
A key aspect of this phase was deploying Live Dashboards and an automated reporting system that gave HVAC Co.'s finance team visibility into the status of outstanding payments, enabling quicker decision-making. This real-time visibility reduced the time required for month-end reconciliation by 50%, directly contributing to the reduction of the payment cycle.
Beyond technology enhancements, we focused on optimizing HVAC Co.'s payment policies using the Customer Profitability Segmentation. We classified customers based on payment history, volume, and profitability, enabling HVAC Co. to tailor payment terms to each segment. This segmentation allowed for dynamic credit risk management, where we introduced more stringent payment terms for high-risk customers and offered early payment discounts to incentivize prompt payments from priority clients.
To support this strategy, we implemented a Data-Driven Collections Playbook. This included automated, behavior-triggered reminders and personalized communications based on customer payment patterns, which significantly reduced the need for manual intervention. We also introduced Predictive Payment Analytics, enabling HVAC Co. to forecast cash inflows more accurately and proactively adjust their working capital strategy.
By combining these structured methodologies with state-of-the-art technology solutions, we helped HVAC Co. transform its accounts receivable processes, resulting in sustained operational improvements and enhanced financial agility.
Our operational transformation initiative resulted in a 27-day reduction in HVAC Co.'s payment cycle, significantly improving cash flow and freeing up working capital for reinvestment. With the new ERP system in place and a fully automated accounts receivable process, HVAC Co. achieved a 30% reduction in administrative hours within the finance team, allowing resources to be reallocated to higher-value activities. The integration of real-time data also enhanced cash flow forecasting accuracy, enabling better decision-making and financial planning.
In addition, the standardized payment terms and segmented collections strategy led to a 15% improvement in on-time payments across HVAC Co.'s customer base. By implementing early payment incentives and automated reminders, HVAC Co. not only accelerated collections but also built stronger relationships with priority customers. The combined impact of these improvements has positioned HVAC Co. to sustain efficient operations and reinvest in growth, even amid an increasingly competitive market.
* Our clients' confidentiality is paramount to us. Although their names may have been altered for privacy, the outcomes and results shared are genuine and authentic.
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