Credit Management
embedded as
STRATEGIC PARTNER
Results of Credit Management Survey
14/10/2015
Christian Pauwels
KPMG Management
Consulting
Relevance of management consulting
COO
CFO
 Procurement
 Effective decision support
 Supply chain
 Finance transformation
 Customer
Making KPMG
HRO
more relevant
to our clients
 HR optimization
 Talent management
CEO
CIO
 IT function efficiency
 IT sourcing
 Workforce optimization
 Operational strategy
 SSOA
 Enterprise wide cost
 Optimization
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2
Management consulting: service lines
Transformational program management & Post merger
Integration
Financial Management & Accounting Advisory Services
Physical Asset Management
Procurement , Supply Chain & Operational Improvement
Operations Improvement and Lean Sigma
Customer
EPM & CAM
People & Change
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Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
3
Credit Management
embedded as
STRATEGIC PARTNER
Results of Credit Management Survey
14/10/2015
Christian Pauwels
Agenda
 Working Capital & Credit Management
 Credit Management embedded as Strategic Partner
 Survey Questions
 Survey Sample
 Survey Executive Summary
 Survey Results
 Benchmark yourself
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Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
5
Content
 Working Capital & Credit Management
 Credit Management embedded as Strategic Partner
 Survey Questions
 Survey Sample
 Survey Executive Summary
 Survey Results
 Benchmark yourself
© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
6
Internal stakeholders within Credit Management
Finance
Sales
Order
intake/processing
Billing
Tax Manager
02C
Accounting
Legal
Treasury
Credit
Control
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7
The Cash Conversion Cycle and Credit Management
Receive raw
material
Raw
material and invoice
purchase
Customer order
Purchase
invoice
payment
DSO
Delivery and
sales Invoicing
Expected date
customer payment
Customer payment
time
DPO
Production
start
Production
ready
DIH
DWC = CASH CONVERSION CYCLE
WORKING CAPITAL
CASH CONVERSION CYCLE
Inventory
Turnover
X 360 days
+ Days Sales Outstanding (DSO) =
Accounts Receivable
Turnover
X 360 days
- Days Payables Outstanding (DPO)
=
Accounts Payable
Turnover
X 360 days
Inventories + AR - AP
Turnover
X 360 days
+ Inventories (F2D)
+ Days Inventory Held (DIH)
+ Accounts Receivable (O2C)
- Accounts payable (P2P)
= Working Capital
GOAL
= Cash conversion cycle
=
=
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8
Key Performance Indicators are a vital part of an
integrated Cash Conversion Management Cycle
Liquidity generation
(Cash Conversion Cycle)
Creditors
Purchase to Pay
Inventory
Debtors
Order to Cash
Forecast to Deliver
 Days Payables Outstanding (DPO)
 Days Inventory Held (DIH)
 Days Sales Outstanding (DSO)
 Best possible DPO
 Inventory turns
 Best possible DSO
 Percent early payment and percent
payment to terms
 Delivery service levels
 Credit note - invoice ratio
 Percent spend via corporate
agreements/contracts
 Service levels
 Cash-to-cash cycle times
 Percent of invoices in dispute by
category
 Spend by category
 Lead times
 Dispute resolution time
 Spend by customer type/segment
 Response times
 Aging and AR rollover rate
 Spend per functional FTE
 Fill rates
 O2C functional headcount
 Transactions per functional FTE
 Inventory management costs
 Pareto analysis of customer base
 Transactions per supplier
 Rate/productivity of value add
 Number of transactions by customer
 Spend/Sales ratio
 Returns rate and costs
 Transaction type per FTE
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9
Cash leaks identification within cash Conversion cycle
No standard Sales
Terms and Conditions
Sales and order
management
Customer
acquisition
Supply chain
management
Invoicing
Collection and dispute
management
Cash application
Risk
Credit vetting
performed, however,
no credit limit
assigned and reviewed
Credit check
+ 5 Days
High levels of
unbilled due to missing
approved orders
Cost
High levels of rework due
to incomplete/inaccurate
masterfile data
Order
processing
+ 2 Days
Delays in sending
invoice to customer
due to mail room
inefficiency
Supply
Invoice
production
and printing
Collection of
additional
information
+ 12 Days
No formal dunning
process in place,
no customer contact, and
no coordination between
sales teams and collections
Send
invoice
Collections
process
+ 4 Days
Poorly defined tracking
and escalation structure
leads to significant
resolution delays
Dispute
management
process
Customer
payment
+ X Days DSO reduction
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Cash
allocation
+ 3 Days
No automatic
cash allocation system
in place
10
Credit Management Policies – procedures
Structure of debtors
Terms and conditions of payment
Overdue debtors
 Domestic/ export
 What Terms/ Conditions ?
 Are dunning letters being used ?
 Countries
 Who defines Terms/Conditions ?
 How often are customers dunned ?
 Divisions
 What are the avg paym terms ?
 What happens after the pre-collection
 Customers
 How are prepayments handled ?
 Age structure
 Which payment methods exist ?
letters are sent out ?
 Are claims enforced by legal action ?
 Sales responsibilities
 How is sales department involved ?
 Credit risk
 Root Cause analysis for over dues ?
 Margins
 Which are the largest debtors ?
 How is credit ranking determined ?
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11
Agenda
 Working Capital & Credit Management
 Credit Management embedded as Strategic
Partner
 Survey Questions
 Survey Sample
 Survey Executive Summary
 Survey Results
 Benchmark yourself
© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
12
Survey Questions
Topic
Question / Statement
Policies & procedures
A written Credit Management Policy is defined in the company
The Credit Management Policy is supported by the Board of
Directors
The Credit Management Policy updated on a regular basis
The Credit Management Policy is available to all stakeholders
The Credit Management Policy is embedded in our Customer
Relationship (CRM) application
The credit Management policy is integrated in our ERP application
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Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
13
Survey Questions
Topic
Question / Statement
Screening of customers
Is only applicable for orders above a specific amount eg. € 10,000
Is based on financial ratios
Is based on a cash flow analysis of the customer
Is based on reports from external information providers
uses other than financial information
Cash payment for first order is mandatory
For existing customers the credit policy prescribes - a periodic
update of customer credit limits
For existing customers the credit policy prescribes - a periodic
update of customer payment conditions
For existing customers the credit policy prescribes - a periodic risk
analysis of the complete customer base
For existing customers the credit policy prescribes - an ad-hoc risk
analysis of specific customers
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Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
14
Survey Questions
Topic
Question / Statement
Role of Credit Management
credit management has an advisory role
credit management has a decisive role
credit management has a co-decisive role - 4 eyes principle
Sales bonuses are influenced by customer payments
Credit Management Tasks
Customer risk assessment
Personal contact with new customers to discuss credit limits
Personal contact with existing customers
Collaboration with external collection agencies
Dispute management
Initiate legal procedure
Credit Management Reporting
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Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
15
Survey Questions
Topic
Question / Statement
Credit Management is involved in
Offering cash discounts
Dispute management
Provisions for doubtful debtors
Amortization of bad debt
Approval of credit notes
Credit hold – delivery stop
Credit risk evaluation in proposal process
Credit Management & Authority
Who can overrule the decisions taken based on credit policy ?
Who decides on credit hold / stop of delivery of goods or services ?
Who can overrule credit hold decision ?
Credit Management &
Organization
The credit management department is organized centrally at HQ.
The credit management is decentralized per subsidiary or country
The credit management department has full access to sales visit reports
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16
Survey Questions
Topic
Question / Statement
Reporting Lines
Credit Management direct report
Credit Management ‘dotted line’ report
Techniques used by Credit
Management :
Credit Insurance , Retention of title , L/C , Guarantees (parent company, bank ,
personal) , Factoring
Performance Indicators used
DSO , BDSO , CEI , ADL , Aging balance , % bad debt / TO , Frequency of
credit limit overruling's
Education
Competences
Financial statement analysis on credit risk
Collection process
Legal aspects related to credit management
Tax aspects related to credit management
Accounting
IFRS
Operational Cash flow modelling
Global picture
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Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
17
Survey Questions
Topic
Question / Statement
Competences
Languages
Bank instruments to limit credit risk
Knowledge of customer industry
Payment techniques
Credit Insurance , VAT , Technical skills
Soft Skills :communication , presentation , …
Credit Management Practices
Cash discount , interest charged , collection cost charged
Career Path & Sourcing
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Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
18
Survey Sample
First Release
Companies
Number
Turnover > 250
mio
41
Turnover < 250
mio
44
Stock Quoted
34
Non-Stock
Quoted
52
Belong to
International
Group
75
Non-International
Group
12
Number of Credit Managers
7
8
11
60
<5
< 10
< 20
> 20
All sectors represented with predominant companies from
© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
Industry sector
19
Survey Sample
Performance in Credit Management
Sample Performance
DSO
120
100
100
80
60
53
40
20
0
0
DSO
Average
Average
Min
Max
DSO
53
0
100
Min
Bad debt /
turnover
4%
0,00%
75%
Max
% export
38%
0,00%
100%
Coverage by
credit
insurance
27%
0,00%
95%
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20
Survey Sample
Practices applied in Credit Management
Credit Management
Practices applied
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Cash discount for prompt
payment is offered -Local
Cash discount for prompt
payment is offered - Export
Interest charged for late
payment
Never
Seldom
Interest charged for late
payment - Belgium
Sometimes
Mostly
Interest charged for late
payment - Export
Collection cost charged for
late payment - Belgium
Always
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Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
21
Survey Questions
Topic
Question / Statement
Policies & procedures
A written Credit Management Policy is defined in the company
The Credit Management Policy is supported by the Board of
Directors
The Credit Management Policy updated on a regular basis
The Credit Management Policy is available to all stakeholders
The Credit Management Policy is embedded in our Customer
Relationship (CRM) application
The credit Management policy is integrated in our ERP application
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22
Executive Summary on Credit Management Policies
 In most companies a WRITTEN Credit Management Policy is
defined and supported by directors or the board  but room
for improvement
 The Credit Management Policy needs to be updated on a
regular basis
 In the current situation we observe that the Policy is not
available for all stakeholders
 The Credit Management Policy is not sufficiently embedded
in our systems, although more in ERP then in CRM
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23
A written Credit Management Policy is defined in the company
60%
51%
50%
42%
40%
40%
36%
30%
20%
12%
10%
10%
7%
2%
0%
0%
0%
AS - IS
TO - BE
stronly disagree
disagree
neutral
agree
strongly agree
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Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
24
The Credit Management Policy is supported by the Board of Directors
60%
50%
40%
30%
20%
10%
0%
stronly disagree
disagree
neutral
agree
strongly agree
AS IS
0%
7%
16%
47%
30%
stronly disagree
TO BE
0%
2%
8%
51%
36%
disagree
neutral
agree
strongly agree
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Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
25
The Credit Management Policy is updated on a regular basis
strongly agree
13%
22%
agree
40%
neutral
25%
disagree
stronly disagree
18%
3%
0%
59%
15%
3%
1%
20%
40%
60%
AS IS
80%
100%
120%
TO BE
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Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
26
The Credit Management Policy is available to all stakeholders
60%
55%
50%
40%
35%
30%
25%
24%
20%
20%
17%
13%
10%
3%
3%
3%
0%
AS IS
TO BE
stronly disagree
disagree
neutral
agree
strongly agree
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Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
27
The Credit Management Policy is embedded in our Customer Relationship (CRM) application
60%
50%
50%
40%
38%
33%
30%
20%
17%
15%
16%
13%
10%
10%
5%
3%
0%
AS IS
TO BE
stronly disagree
disagree
neutral
agree
strongly agree
© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
28
The credit Management policy is integrated in our ERP application
60%
52%
50%
42%
40%
30%
27%
20%
20%
18%
16%
13%
10%
4%
4%
3%
0%
AS IS
TO BE
stronly disagree
disagree
neutral
agree
strongly agree
© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
29
Survey Questions
Topic
Question / Statement
Screening of customers
Is only applicable for orders above a specific amount eg. € 10,000
Is based on financial ratios
Is based on a cash flow analysis of the customer
Is based on reports from external information providers
uses other than financial information
Cash payment for first order is mandatory
For existing customers the credit policy prescribes - a periodic
update of customer credit limits
For existing customers the credit policy prescribes - a periodic
update of customer payment conditions
For existing customers the credit policy prescribes - a periodic risk
analysis of the complete customer base
For existing customers the credit policy prescribes - an ad-hoc risk
analysis of specific customers
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Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
30
Executive Summary on Screening of customers
 Screening of new customers is not limited to an amount of
order intake
 Screening is based on financial ratio’s from reports of
external companies, but we want to move to more insight in
the cash flow
 Screening is also based on non-financial information
 Cash payment for first order is not dominantly practiced
 For existing customers an update of credit limits is common
practice, an update of payment conditions and risk analysis
is currently exercised on an ad-hoc basis, but a trend
towards common practice exists
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31
Screening of new customers - only applicabele for orders above a specific amount e.g. € 10,000
60%
56%
48%
50%
40%
30%
25%
23%
20%
15%
11%
10%
8%
7%
4%
3%
0%
AS IS
TO BE
stronly disagree
disagree
neutral
agree
strongly agree
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Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
32
Screening of new customers - based on financial ratios
70%
66%
60%
60%
50%
40%
30%
20%
16%
12%
12%
13%
10%
10%
7%
2%
1%
0%
AS IS
TO BE
stronly disagree
disagree
neutral
agree
strongly agree
© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
33
Screening of new customers - based on a cash flow analysis of the customer
60%
52%
50%
40%
37%
30%
28%
26%
20%
20%
15%
12%
10%
7%
3%
1%
0%
AS IS
stronly disagree
TO BE
disagree
neutral
© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
agree
strongly agree
34
Screening of new customers - based on reports from external information providers
70%
60%
60%
56%
50%
40%
30%
27%
24%
20%
11%
10%
9%
8%
3%
1%
1%
0%
AS IS
stronly disagree
TO BE
disagree
neutral
agree
© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
strongly agree
35
Screening of new customers - uses other than financial information
70%
62%
60%
54%
50%
40%
30%
22%
21%
20%
14%
9%
10%
7%
6%
3%
1%
0%
AS IS
TO BE
stronly disagree
disagree
neutral
agree
strongly agree
© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
36
Screening of new customers - Cash payment for first order is mandatory
40%
34%
35%
33%
30%
28%
26%
26%
25%
22%
20%
15%
12%
9%
10%
6%
4%
5%
0%
AS IS
TO BE
stronly disagree
disagree
neutral
agree
strongly agree
© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
37
For existing customers the credit policy prescribes - a periodic update of customer credit
limits
60%
52%
50%
41%
40%
29%
30%
21%
20%
20%
13%
13%
10%
4%
3%
2%
0%
AS IS
TO BE
stronly disagree
disagree
neutral
agree
strongly agree
© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
38
For existing customers the credit policy prescribes - a periodic update of customer payment
conditions
50%
44%
45%
40%
35%
31%
30%
30%
30%
28%
25%
20%
16%
15%
9%
10%
6%
5%
3%
3%
0%
AS IS
TO BE
stronly disagree
disagree
neutral
agree
strongly agree
© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
39
For existing customers the credit policy prescribes - a periodic risk analysis of the complete
customer base
60%
51%
50%
40%
38%
30%
24%
20%
20%
20%
13%
11%
11%
10%
7%
4%
0%
AS IS
TO BE
stronly disagree
disagree
neutral
agree
strongly agree
© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
40
For existing customers the credit policy prescribes - an ad-hoc risk analysis of specific customers
70%
61%
58%
60%
50%
40%
30%
21%
20%
16%
13%
12%
10%
8%
3%
3%
3%
0%
AS IS
TO BE
stronly disagree
disagree
neutral
agree
strongly agry
© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
41
Survey Questions
Topic
Question / Statement
Role of Credit Management
credit management has an advisory role
credit management has a decisive role
credit management has a co-decisive role - 4 eyes principle
Sales bonuses are influenced by customer payments
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Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
42
Executive Summary on the role of Credit Management
 Credit management has a decisive advisory role in the
company, the 4 eye principles is liked
 Sales bonuses are not yet based on customer payments
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43
Credit Management Role - credit management has an advisory role
45%
40%
38%
38%
35%
29%
30%
24%
25%
20%
18%
16%
15%
14%
10%
9%
10%
5%
4%
0%
AS IS
TO BE
stronly disagree
disagree
neutral
agree
strongly agree
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44
Credit Management Role - credit management has a decisive role
60%
51%
50%
41%
40%
30%
30%
24%
20%
16%
14%
11%
10%
8%
5%
1%
0%
AS IS
TO BE
stronly disagree
disagree
neutral
agree
strongly agree
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45
Credit Management Role - credit management has a co-decisive role - 4 eyes principle
70%
58%
60%
54%
50%
40%
30%
22%
21%
20%
16%
11%
11%
10%
3%
2%
0%
0%
AS IS
TO BE
stronly disagree
disagree
neutral
agree
strongly agree
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46
Credit Management Role - Sales bonuses are influenced by customer payments
60%
49%
50%
40%
30%
26%
25%
21%
21%
20%
20%
17%
10%
7%
7%
7%
0%
AS IS
TO BE
stronly disagree
disagree
neutral
agree
strongly agree
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47
Survey Questions
Topic
Question / Statement
Credit Management Tasks
Customer risk assessment
Personal contact with new customers to discuss credit limits
Personal contact with existing customers
Collaboration with external collection agencies
Dispute management
Initiate legal procedure
Credit Management Reporting
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48
Survey Questions
Topic
Question / Statement
Credit Management is involved in
Offering cash discounts
Dispute management
Provisions for doubtful debtors
Amortization of bad debt
Approval of credit notes
Credit hold – delivery stop
Credit risk evaluation in proposal process
Credit Management &
Organization
The credit management department is organized centrally at HQ.
The credit management is decentralized per subsidiary or country
The credit management department has full access to sales visit reports
Reporting Lines
Credit Management direct report
Credit Management ‘dotted line’ report
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49
Executive Summary on Credit Management Tasks, involvement and organization
 Dispute Management, legal procedure, reporting, risk assessment and
collaboration with external agencies are most common tasks. Contact
with the customer is perceived as less important
 The credit manager is less involved in issuing credit notes and approval
of cash discounts, but he has an important role in the delivery stop,
credit risk evaluation in proposal process, amortization of bad debt,
provisions for doubtful debtors and dispute management
 Decentralized organization
 Credit Management (CM) in HQ or local has no clear transparency to
sales information
 Currently, the CM reports to the CFO, but there is a trend for reporting
towards the CEO, at the expense of the CFO
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50
Credit Management Tasks
70%
60%
50%
40%
30%
20%
10%
0%
Customer Risk Assement
Personal contact with new Collaboration with external
collection agencies
customers to discuss credit
limits
Strongly disagree
Disagree
Neutral
Dispute management
Agree
Initiate legal procedure
Strongly agree
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Credit Management
Reporting
Linear (Strongly agree )
51
The Credit Manager is involved in :
70%
60%
50%
40%
30%
20%
10%
0%
Strongly Disagree
Disagree
Neutral
Agree
Strongly Agree
Offering cash
discounts
13%
27%
22%
26%
12%
Dispute
management
1%
8%
21%
59%
11%
Provisions for
doubtful debtors
0%
1%
6%
53%
40%
Strongly Disagree
Disagree
Amortization of bad
debt
2%
2%
8%
58%
30%
Neutral
Agree
Approval of credit
notes
12%
33%
27%
21%
7%
Credit hold –
delivery stop
4%
3%
6%
42%
44%
Credit risk evaluation
in proposal process
2%
3%
11%
51%
32%
Strongly Agree
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52
Credit Management Authority
AS IS
80%
Credit Management Authority
TO BE
80%
75%
70%
70%
60%
60%
50%
50%
43%
40%
75%
46%
43%
40%
36%
32%
30%
30%
29%
21%
20%
21%
18%
14%
20%
14% 14%
11%
18%
18%
11%
11%
10%
7%
7%
10%
7%
4% 4%
0%
0%
Overrule decisions of
C.Policy
CFO
0%
0%
Who decides on credit hold /Who can overrule credit hold
stop of delivery of goods or
decision
services
CM
CEO
SALES
7% 7%
4% 4%
Overrule decisions of
C.Policy
Other
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CFO
Who decides on credit hold / Who can overrule credit
stop of delivery of goods or
hold decision
services
CM
CEO
SALES
Other
53
Credit Management Organization
60%
51%
50%
40%
37%
33%
30%
20%
10%
0%
The credit management department is organized
centrally at HQ
The credit management is decentralised per subsidiary
or country
Strongly disagree
disagree
neutral
agree
The credit management department has full access to
sales visit reports
stronly agree
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54
Credit Management
Reporting Lines
AS IS
Credit Management
Reporting Lines
TO BE
80%
80%
71%
70%
70%
60%
60%
48%
50%
50%
40%
40%
30%
30%
20%
16%
44%
20%
20%
14%
12%
11%
10%
68%
7%
7%
8%
8%
8%
10%
7%
4%
0%
BU Manager
CFO
Head of accounting
7%
8%
8%
4%
0%
Credit Management direct report
12%
8%
Credit Management ‘dotted line’ report
Controller
Risk Management
CEO
0%
0%
Credit Management direct report
BU Manager
CFO
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Head of accounting
Credit Management ‘dotted line’ report
Controller
Risk Management
CEO
55
Survey Questions
Topic
Question / Statement
Techniques used by Credit
Management :
Credit Insurance , Retention of title , L/C , Guarantees (parent company, bank ,
personal) , Factoring
Performance Indicators used
DSO , BDSO , CEI , ADL , Aging balance , % bad debt / TO , Frequency of
credit limit overruling's
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56
Executive Summary on Techniques, Performance measurement
 In practice, we observe the CM uses less factoring, bank
and personal guarantees to protect the outstanding debts
 L/C, credit insurance , retention of title and parent company
guarantees are most used
 For the CM, the DSO, Aging Balance and % of bad debt / TO
are the most used performance measurements
 BDSO, frequency of credit limits overruns, CEI are not
common yet
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57
Definitions
 Collection Effectiveness Index (CEI): a measure of the ability
of the collections staff to collect funds from customers. The
CEI compares the amount that was collected in a given time
period to the amount of receivables that were available for
collection in that time period.
 Weighted Days Sales Outstanding (DSO): measures the
average time that receivables are outstanding. It attempts to
smooth out the bias of credit sales and terms of sale.
 Best Possible DSO (BDSO): utilizes only your current (non
delinquent) receivables to calculate the best length of time
you can achieve in turning over receivables. The closer your
DSO is to your BDSO, the closer your receivables are to your
optimal level.
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58
Credti Management
Technicques Used
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Never
Seldom
Sometimes
Mostly
Always
Credit Insurance
Retention of title
L/C
18%
22%
13%
28%
18%
14%
18%
18%
33%
17%
10%
26%
38%
22%
5%
Never
Seldom
Guarantees by
parental company
7%
23%
32%
35%
3%
Sometimes
Mostly
Bank guarantees
8%
29%
21%
35%
7%
Personal guarantees
by the owners
17%
41%
23%
17%
2%
Factoring
39%
32%
15%
11%
3%
Always
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59
Credit Management
Performance Measurement
120%
100%
80%
60%
40%
20%
0%
DSO
Count back DSO
BDSO
ADL
Never
Seldom
Sales weighted
DSO
Sometimes
Mostly
CEI
Aging Balance
% bad debts / total
turnover
Frequency of
credit limit
overrulings
Always
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60
Credit Management
Performance Measurement
70%
60%
50%
40%
30%
20%
10%
0%
Never
Seldom
Sometimes
Mostly
Always
DSO
Count back DSO
BDSO
ADL
Sales weighted
DSO
CEI
Aging Balance
% bad debts /
total turnover
4%
1%
9%
42%
44%
14%
14%
38%
17%
17%
18%
21%
29%
19%
13%
8%
20%
14%
41%
17%
20%
19%
25%
21%
15%
17%
25%
36%
12%
11%
0%
1%
2%
39%
58%
1%
9%
22%
35%
33%
Never
Seldom
Sometimes
Mostly
Frequency of
credit limit
overrulings
16%
24%
29%
22%
8%
Always
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61
Survey Questions
Topic
Question / Statement
Education
Competences
Financial statement analysis on credit risk
Collection process
Legal aspects related to credit management
Tax aspects related to credit management
Accounting
IFRS
Operational Cash flow modelling
Global picture
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62
Survey Questions
Topic
Question / Statement
Competences
Languages
Bank instruments to limit credit risk
Knowledge of customer industry
Payment techniques
Credit Insurance , VAT , Technical skills
Soft Skills :communication , presentation , …
Credit Management Practices
Cash discount , interest charged , collection cost charged
Career Path & Sourcing
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63
Executive Summary on Education, Competences, Career and Sourcing
 By preference the CM has a university degree, but
experience is more important
 According to the importance of experience, payment
techniques and knowledge of the customer industry are
recognized as high-valued competences in order to
understand the Order to Cash process
 IFRS, VAT and credit insurance are less important!
 Soft skills are very important
 The CM is not an interim manager but externally hired and
on payroll
 No clear career path is observed
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64
Credit Management
Education
40%
35%
30%
25%
20%
15%
10%
5%
0%
Academic Master in (applied)
Economics
Professional Master in Business
Economics
Strongly disagree
disagree
Bachelor in Management or similar
neutral
agree
By experience
strongly agree
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65
Credit Management
Competences
Credit Management
Comeptences
60%
50%
49%
41%
40%
30%
36%
42%
34%
33% 35%
27%
19%
20%
10%
19% 19%
18%
6%
0%
5%
0%
4%
0%
8%
5%
60%
50%
40%
30%
20%
10%
0%
0%
55%
30%
17%
19%
8%
1%
Not important
slightly important
Legal aspects
related to credit
management
important
IFRS
mandatory
Not important
slightly important
Credit Management
Competences
6%
4%
5%
0%
Operational cash Understanding the
flow modelling
global picture on
Order to Cash
process
important
very important
mandatory
55%
60%
48%
50%
37% 35%
30%
36%
5%
0%
43%
37%
39%
28%
24%
20%
10%
23%
Credit Management
Competences
60%
40%
7%8%
Tax aspects related
to credit
management
very important
37% 36%
29%
19%
14%
Accounting
Financial statement Collection process analysis on credit
risk
42%
42%
12%
6%
6%
50%
40%
43%
37%
26%
30%
12%
7%
6%
8%
2%
10%
0%
20%
10%
42%
37%
33%
8%
2%
10%
21%
18%
16%
11%
3%
7%
7%
12%
9%
2%
0%
Languages
Not important
Bank instruments to Knowledge of
limit credit risk
customer industry
slightly important
important
very important
Payment
techniques
mandatory
Payment
techniques
Not important
Credit insurance
slightly important
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important
VAT
Technical skills
very important
mandatory
66
Credit Management
Soft skills
60%
50%
50%
49%
40%
40%
33%
30%
30%
28%
19%
20%
28%
19%
17%
20%
19%
13%
0%
10%
9%
10%
0%
1%
3%
2%
Communication skills
Presentation skills
Not important
9%
slightly important
Leadership skills
important
very important
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Empathy
mandatory
67
Credit Managers
Sourcing
60%
55%
50%
47%
40%
38%
33%
30%
29%
30%
25%
20%
16%
14%
10%
7%
3%
0%
1%
0%
1%
0%
InternalDepartments
ExternalSelection
Strongly disagree
Disagree
Neutral
Interim
Agree
Strongly agree
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68
Credit Management
Career Development
70%
62%
60%
53%
50%
40%
33%
32%
30%
20%
13%
10%
3%
4%
1%
0%
1%
0%
Strongly disagree
Disagree
Neutral
CareertoCFO
Agree
Strongly agree
Careertootherdepartments
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69
Conclusion
 The Credit Management policy need to be available for a all
stakeholders and updated on a regular basis .
 The policy should be embedded in a system.
 Customer payment analysis should be done on regular basis to update
sales conditions and credit limits and not ad – hoc .
 The tasks of the credit manager are known and can be maintained.
 The credit manager need to have a full recognition as advisor in
acceptance of new clients and related credit limits and payment
conditions
 Performance should be measured by other KPI’s then DSO as CEI ,
ADL , BDSO
 Communication skills are important
 Career path development need to be taken into consideration
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70
Thank you
Presentation by Christian Pauwels
© 2015 KPMG CFO Advisory, a Belgian CVBA/SCRL and
a member firm of the KPMG network of independent
member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All
rights reserved
The KPMG name, logo and ‘cutting through complexity’
are registered trademarks or trademarks of KPMG
International Cooperative (KPMG International)