Order-to-cash management

fundamentals increase speed

and accuracy, reduce risk
From order management to invoice collection, a heightened
focus on Accounts Receivable (A/R) can help biopharmaceutical
companies optimize their order-to-cash process. In an
attempt to create efficiencies and accelerate cash application,
companies can seek the support of experienced Third Party
Logistics (3PL) providers to help improve accuracy and speed.
Industry trends impacting cash collection
Today’s distribution environment shows a noticeable shift from
traditional distribution to direct distribution. In a traditional
distribution model, product is ordered and shipped to
wholesalers, specialty distributors and specialty pharmacies.
Optimizing the order-to-cash process
To help optimize the order-to-cash process, biopharmaceutical
companies should explore considerations for both traditional and
direct distribution models. But they may need the help of a 3PL
provider to understand the expectations and best practices for the
diverse aspects of order-to-cash management in both models.
With that guidance, manufacturers can learn how to evaluate the
best order-to-cash management approach for their business and
market. They also can discover ways to increase speed to market and
reduce risk through different approaches to financial management.
“Each day that a customer’s invoices remain
outstanding is a day they aren’t realizing optimal
cashflow. We know that many of our customers
reinvest a significant percentage of their sales back
into their R&D process, so we're especially attuned to
expediting the order-to-cash process to enable that.”
— Stuart Martin
Director, Financial Operations
Cardinal Health 3PL Services
Reducing risk
In a direct distribution buy-and-bill model, care sites assume
significant risk by assuming product ownership, which often
leads to obstacles in the therapy adoption process. Chain
of custody and reimbursement concerns often interfere
with the willingness to administer high value therapies.
“It’s important to recognize that providers are being
asked to follow multiple, complex order-to-cash
processes while taking on significant risk for
floating the cost of these medications
as they await reimbursement.”
— Stuart Martin
Director, Financial Operations
Cardinal Health 3PL Services
Order-to-cash management fundamentals increase speed and accuracy, reduce risk | 2
In a direct distribution model, orders and payments are
handled directly with sites of care including doctor’s offices,
hospitals and clinics. On account of this, there are myriad
considerations for companies assessing their financial strategy.
Approaches may differ among wholesalers under the traditional
distribution model; for example, they may have a differing
ways for vendors to contact them, such as vendor-specific
email addresses or portals. They may require uploading of
invoices to those portals prior to any conversations about
collections. Under this model, it is important for wholesalers to
be timely with payments in order to take advantage of contract
discounts. A/R management in traditional distribution models
normally focuses heavily on deduction reconciliation.
Under a direct distribution model — common with hospitals, HCP
offices and clinics — small parcel shipments move specialty products
or rare disease products to the point where they are administered.
In these scenarios, there often are differing requirements from
Accounts Payable (A/P) and the purchaser and special considerations
for which person or department receives the invoice. Because
of this, there is intent focus on the collections portion of the A/R
management process, and establishing strong rapport with a contact
responsible for payables and administrators is especially important.
Manufacturers can help alleviate provider stress in these situations
by leveraging the breadth of service and depth of expertise that
3PL providers offer. Working with third-party order-to-cash service
providers can help streamline the reimbursement process for both
manufacturers and sites of care. Particularly for manufacturers
lacking dedicated in-house teams focused on invoicing and
receivables, outsourcing the order-to-cash process can help
ensure that reimbursement is expedited for all involved parties.
An additional strategy to reduce risk in the A/R management process
and help expedite speed to market for launch products is the title
model approach. By offering manufacturers a title model solution, 3PL
service providers can help mitigate licensing barriers and help foster
earlier patient access by bringing drugs to market faster. Within this
framework, a 3PL service provider takes title to product and sells it
to the manufacturer’s customer while the manufacturer’s required
state licensures are not yet in place. By taking title and closing the
licensing gap, 3PL service providers can help manufacturers expedite
product launch, lower distribution costs and generate revenue faster.
Title model — flow
PO
Foreign Import Services Consignment
organization Title model
Product organization Orders
Manufacturer-owned
Domestic inventory
• Hospitals
Invoice
• Practices
CMOs
Packagers • Specialty
pharmacies
• Wholesalers

Manufacturer
return policy
A/R net terms Product ships Invoice generated • Specialty
distributors

Site
of care

In a title model program, a 3PL provider may handle warehousing, distribution and order-to-cash management services on the
manufacturer’s behalf. The manufacturer’s customers will then make payments to a lockbox managed by the service provider. The
pharma company receives payment for goods from the 3PL provider and a single invoice each month for title model services.
The title model program can be particularly efficient for managing accounts receivable and accounts payable. A single-invoice
service invoice for the order-to-cash process enables an efficient collections management component of their business.
Manufacturers are able to exit the title model program seamlessly once state licenses are in place, if they choose to do so. Some
manufacturers may remain in this model for its advantages related to cash management and simplified financials. At that point, the
3PL service provider can convert to the role of a traditional 3PL service provider to continue timely, cost-effective delivery.
Under any approach, timeliness of the A/R process is critical across collection activity, cash
application, deduction management and returns/charge-backs reconciliation.
• Cash application • Deduction management
In the cash application component, a 3PL provider will - Wholesaler discounts: In a traditional distribution model,
access a manufacturer’s bank account or lockbox and wholesalers normally make timely payments in order to
apply available cash to open receivables. A commitment to capitalize on cash discounts. In this phase, a 3PL service
applying funds quickly ensures consistency and preserves provider can help reconcile deductions owed to the wholesaler
resources that may otherwise be dedicated to outreach against fees owed to manufacturers for their services before
to customers who have already paid their invoices. posting to the account. Wholesalers will deduct from
payments for their Distribution Service Agreement (DSA) fees
• Collection
and charge-backs for contract pricing, shortages, damages
While timely collection is always the focus, it’s also a reality that and short dated or expired returns, among other things.
not all customers will pay on time. It’s important to understand Reconciling these many deductions and the associated timing
how to manage and expedite collection on past-due accounts. of transactions can demand a great attention to detail.
3PL service providers should be able to specifically define open
- Returns and charge-backs: When customers return product
transactions and due dates for customers across the spectrum.
and deduct those amounts from their accounts payable
to manufacturers, it is advantageous to have a 3PL partner
working to manage the returns and reconcile amounts owed.
A 3PL provider can dedicate resources to help manage returns
and charge-backs with more accuracy and efficiency.

Order-to-cash management fundamentals increase speed and accuracy, reduce risk | 3

Expediting the close process Expectations and best practices

Month-end close activity is another important component of strong A/R In a pharmaceutical world where speed
management. Having a system of record for revenue and A/R reporting to market is essential to success, process
to help close books quickly provides critical insight to a company’s cash efficiencies and turnkey solutions can
flow and the impact it is making to operations. A 3PL service provider can mean the difference between success
offer insight to collections activity and finances as well as fully reconciled and failure. 3PL providers are focused on
month-end close data to support the manufacturer’s close process. business solutions so manufacturers can
focus on production of specialty products
3PL provider experience for patients worldwide. In any scenario,
there are order-to-cash fundamentals
When selecting a 3PL provider, manufacturers should consider the depth of
that every business should adopt:
experience a provider offers to guide the order-to-cash strategy. Adequate
partners will have experience managing multi-billion-dollar collections • Establish standard operating
across manufacturers of all sizes and an approach to collect as efficiently for procedures (SOPs) and mechanisms
start-up and small companies as they do for large, established ones. to ensure A/R specialists and collections
agents have a regular cadence for
3PL providers also should have experience in order-to-cash management to
follow-up and/or escalation.
support both traditional and direct distribution models. Especially when a
manufacturer has a diversified customer base that includes direct, wholesale • Prioritize and establish consensus
and retail relationships, it is important that the 3PL provider be experienced on what debts your organization
in the best approach to each. Where a wholesaler model focuses on efficiency will pursue. Determine when debts
and deduction management, relationships in a direct distribution approach will become uncollectable and adopt a
emphasize strong personal connections and an understanding of timing blanket approval process for write-offs.
and resource nuances in the business that will help expedite collections. • Evaluate resource allocation at your
Strong 3PL providers also will demonstrate fluency and capabilities in complex 3PL partner. Cash-heavy companies
markets, including cell and gene therapy. These new, highly complex products are may need separate resources for posting
challenging 3PL partners to think differently about financial processes when product versus collections to strike the proper
distribution and A/R management are handled through different paths — and balance. A nimble 3PL partner can ensure
often different partners. Establishing an outsourced A/R partnership that includes a the proper number of resources focused
“flash” or virtual title model approach in these situations can help mitigate financial on your business’s specific A/R profile.
risk and ensure sites of care are supported appropriately as they, too, navigate a • Be aware of customer policies and
new frontier in medicine. Experience and fluency in these complex markets are expectations. Some retailers may deduct
indicators of competency in customer and financial operations management. above and beyond your return policy,
An understanding across customer bases and markets enables a 3PL so be sure to anticipate reconciliations
partner to select the A/R approach best suited to a biopharmaceutical and communications to address those
company’s needs and deploy effective strategies to optimize the situations. Additionally, make sure you
collections process and produce the best outcomes. have the capability to research and
document shortages and damages
to help resolve any disagreements.

Order-to-cash management fundamentals increase speed and accuracy, reduce risk | 4

How A/R optimization supported speed to therapy
The challenge

A global, specialty-driven biopharmaceutical company with billions
of dollars in sales for its products in oncology, neuroscience and rare
disease was working with another 3PL provider to help establish
efficiencies in its A/R management; however, the company found that
its partner was limited in the back-office financial solutions it offered.
The biopharma team was working short-handed to address some
internal technology deficits and optimize its A/R process but quickly
recognized that its incumbent 3PL provider also faced issues with its
own outdated technology infrastructure that prevented the company
from providing the solutions the biopharma company needed.
They believed that the gaps in its process were easily identifiable,
including lagging reports that often included erroneous data. As
the team approached a growth period, the biopharma company
wanted to refine and advance its capabilities relative to data analysis.
The company sought standardization, reports and reconciliation
in a short timeframe. They wanted a partner with deep
experience who understood the nuances of purchasing trends,
customer mix and credit limits — and its pending growth
curve meant that supplier service and scalabilty were key.

The solution The result

To quickly ramp up efficiencies and support improvements to The biopharma company realized the process efficiencies it had
collections and cash posting, the Cardinal Health™ 3PL Services team hoped for, notably in the area of receiving actionable data in a timely
tailored strategies to suit the mix of direct distribution customers manner, particularly with real-time access to receivables reports.
and traditional wholesalers. 3PL Services applied its nuanced The Cardinal Health™ 3PL Services pre-close and post-close process
knowledge of timing and resources to focus on collections from became a major contribution to the efficiency of the month-end
direct distribution customers and its deep experience to take a close process. And the new strength of the A/R process enabled the
result-oriented approach to managing deductions with wholesalers. biopharma company to fully focus on moving product to market.
It also kept a careful eye toward the unruly nature of returns and “The previous organization we collaborated with took six to eight
charge-backs, especially in scenarios where customer contracts months to give us data that might have been mediocre,” said
contained unique clauses that could make returns more complicated. the biopharma company's Senior Director of Trade. "At this point
Acting as a seamless extension of the biopharma company’s team, with Cardinal Health, we are only one month removed with good
the 3PL Services team worked daily to access its lockbox, accurately data, and our speed to therapy is five to six months ahead.”
and promptly applying cash to open receivables. The team The Director of Specialty Pharmacy and Channel agreed, saying,
posted cash applications in 24 hours or less to bolster cash flow, “Patient care is the primary focus. If we can do these other things
providing real-time reports to support analysis and quick action. well and can get a patient to therapy faster, that’s a good day.”
The team applied that same reporting on a weekly basis to
demonstrate open transactions. With this high-level snapshot,
everyone had a quick line of sight to each customer’s due date and
payment status and the broader trending of open receivables.
Cardinal Health also demonstrated a deep understanding of the
impact of delayed month-end close activity on the biopharma
company's operations. The team delivered a pre-close analysis
five to seven days before the end of the month and established
a monthly review with the Finance team to engage everyone
in a greater understanding of collection activity and the
finances of the business. The pre-close activity put both teams
in a strong position to reconcile and close month-end books
quickly, and the Cardinal Health team consistently provided
a monthly packet within two business days after close.

Order-to-cash management fundamentals increase speed and accuracy, reduce risk | 5

About Cardinal Health™ 3PL Services

Cardinal Health™ 3PL Services delivers reliable, end-to-end logistics and order-to-cash
management to help mitigate risk, reduce costs and provide seamless, integrated service.
We offer both traditional 3PL and direct distribution models to ensure your product will
get to providers and patients at the right time and place. We reduce the administrative
burden of account reconciliation and order management through our best-in-class
order-to-cash management service. Our team is 97% current on Accounts Receivable
operations for over $27 billion in A/R activity annually across manufacturers of all sizes.
Our solutions are designed to provide you with visibility and confidence
in your 3PL management.

To find out how our 3PL Services team can support

your specific business, visit cardinalhealth.com/3PL

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