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Using Technology to Transform B2B Credit Service Delivery
Gary Brooks, October 2013
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Traditional role of Credit
The Switch from Defender to Playmaker
Objectives
(Semi-) Automation of Process Steps
Single Portal Concept
Credit Insurance
Location and Outsourcing
Conclusion
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Vast majority of inter-company and inter-country sales are on credit.
Typically > 80%
Trade AR is usually biggest (and riskiest) asset on corporate balance sheets
Typically 35 - 40% of total assets - and 65% of current assets
It often exceeds primary money supply M1 by a factor of 2 on average
And it’s a key source of funding for companies – typically twice the size of
bank credit
And a major cause of business failure……especially through late payments
European Commission report in recent years said that:
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33% of EU businesses regard late payment as a survival-threatening issue
46% France, 50% Italy, 51% Greece (and growing)
Argues that late payments hinder the functioning of the Single Market and crossborder trade
Passive or poor credit management processes and tools contribute to this
problem
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Despite the economic importance of trade credit, Credit has not
traditionally enjoyed a high profile in Europe
Often seen as clerical and routine – “back office”
Surveys show typically 70-80% of Credit time spent in routine activities:
Chasing, allocating, query resolution. Admin. and re-work
It has tended to be part of Finance – “Accounts Receivable” “Sales Ledger”
Companies have undervalued and under-invested in Credit
Credit professionals also play down their contribution and importance
This is changing as:
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The world recovers from the financial shocks of recent years
Credit is more difficult to obtain
Working capital is more important corporately and macro-economically
Bodies like ICTF actively promote the profession
Credit management becomes central to corporate strategy…….
………..requiring professional expertise and tools
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Credit is becoming part of an overall customer strategy
Increasing awareness of the importance of good credit practice for customer relations and
competitiveness
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>30% of firms vary terms to attract new business; >20% to retain business
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Around 35% support customers through short-term cash flow issues
Proactive credit management adds value to services, products and competitive ability
Generating sales, repeat sales and loyalty
So……. Credit can impact widely on many elements of corporate performance
Moving from back-end clerical role to front end
Credit could (should) be part of a Sales or Marketing function
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Customer segmentation and scoring
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Identifying opportunities to sell
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Commercial credit granting
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Effective customer life-cycle management
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Using sophisticated analysis tools
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In the hands of expert professionals
So how do we move away from the traditional, transactional role, to be more front line?
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Perceptions
Reporting lines and politics
Budget
Headcount
Scalability
Location
Centralised vs. decentralised
In-sourced or out-sourced
Multiple credit policies and attitudes to risk
ERP effectiveness
Complexity of groups and ERPs
Quality of reporting
Language capability, with “language critical mass”
Time zone coverage
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Specialist web-based solutions can overcome ERP limitations
Billing, risk management, collections and cash processing can be
largely automated
Multiple policies can be supported, including credit insurance
“High touch” approach can be achieved, at relatively low cost
Language coverage and local presence can be largely simulated
Aggregated views possible for multiple companies and ERPs
Enabling centralised Shared Service for complex organisations
Outsourcing can be supported in the same way
Solutions scalable for projects, acquisitions, business changes
Resource can be redeployed from transactional to value-added
Cost of credit can be reduced
Location – a choice rather than a constraint
Organisation and reporting lines can be flexible
Credit In a Box
Identify
Prospects
Apply,
Review,
On-Board
Ongoing
Review
Credit
Management
Bill and
Manage
Order
Process
Payments
Collect
Credit
Insurance
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Most information providers supply pre-qualified, highlytargeted leads based on multiple criteria:
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Country / region
Industry type
Size (turnover, people…..)
Parent-subsidiary linkages
Financial strength
Key ratios
Credit rating
Credit limit
Etc.
To ensure your business is chasing the right prospects and
channelling time and cost appropriately
Data can be injected into a CRM or ERP system to generate
a prospect base
Prospect becomes a pre-qualified customer
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A CRM tool can convert a prospect to a customer, but also…..
Workflow solutions can be bought or developed to e-enable request,
review and approval of new customer applications
Review and approval flow are electronic and new customers created
automatically
Change requests operate in the same way
Intelligent solutions have a link to a data agency, to qualify with a Yes /
No / Refer
Same principle as point-of-sale credit vetting
Credit professionals handle the No, Refer and complex cases
Automates the transactional enables focus on value-added work
Location-agnostic
ERP-agnostic
Low cost
Organisationally flexible
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Many competitive offerings in the European market; prices
Reports traditionally accessed online and downloaded
Increasingly, data can be delivered via XML into ERP or other linked or
web-based vehicle, from which it can be analysed and scored
Similarly, data can be shot into scorecards and on-line decision tools to
automate the credit-granting process
For example: specialist web-based risk management solutions that offer
credit limits based on status agency or other calculation
Much limit-setting can be automated within a set of simple rules based
around value and risk etc.
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For publicly quoted companies, ratings are available on-line or down-loaded from major
ratings agencies. Avoids the need for in-house analysis
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Other suppliers provide a similar facility, for all entities, with their own rules-based
failure scores and trends. Management data can also be input
Custom score cards can be built
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It is possible to automate and / or outsource the billing process
Daily invoice files can be transferred directly from accounting system to suppliers.
Processed under SLA and hosted online via a web portal.
Invoices despatched to customers in any format they choose including: Print, EDI, XML, fax and email.
Delivered in all major EDI standards, such as XML, CSV and PDF, directly
Supplier technology allows printing in a number of sizes, folds and envelopes
Invoices can be automatically consolidated, based on pre-defined rules to reduce production, printing
and mailing costs
Invoices can be available online and dispatched to customers same day.
Access to reduced postage due to scale and posting location
The same suppliers can be used to send statements and dunning letters
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Normally managed through your ERP or financial software
Typically, risk category determines rules for individual
customers
Orders are blocked, for example if credit limit will be (is)
breached and / or invoices are unpaid
Block kicks in after X days, depending on risk category
Third party software can also manage this automatically
and in semi-real time, if your ERP is not able
Rules can be loosened or tightened, depending on appetite
for risk, economic climate etc.
Enables centralised control, risk mitigation at a relatively
low cost if rules are sensible
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Banks of collectors are no longer affordable
A number of collections software solutions exist
Some are truly e-enabled – “self service” 24/7
Multi-language, currency, policy – customer size / risk / importance
Policy can change dynamically, based on behaviour, risk score
Dispute management is integrated
Communications by e-mail, fax, paper, SMS
Copy invoices
Credit card (other auto. payments) enabled
Ensure “high touch” in local language
Manage Controller priorities and workload
Good activity reporting and trending
With Collections Agency “on tap”
Increasingly, incorporating credit limits, risk ratings and incorporating order
blocking
Diallers can be used to manage and drive call activity
Higher control, lower cost, ERP- and location-agnostic
Enables Finance or Sales to play collections role
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Smart management of payment methods enables a good
level of automation. Reduced transaction processing time
Looking for low cost, working capital benefits
Automatic clearance
Lockbox
Direct debit, traite automatique, RIBA…..
SEPA in future (Spain February 2014)
Ideally, credit / debit card for certain markets and / or
transaction sizes
PayPal and alternatives for certain sectors
Integrated into some collections tools
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Most major ERPs provide some automatic matching
Most international banks provide rules-based matching software
for multiple ERPs
Increasingly, specialist web-based suppliers offering multialgorithm matching solutions
Takes overnight feed of open items, bank / card statements and
matches according to rules. Fed-back file updates ERP
Much of allocation done before Credit’s day starts
Remittance advice data, cheques scanned in and process
continues dynamically during the day, with update files crossing
Matching rates of 70 - 90% + depending on complexity of
algorithms, level of confidence and level of machine learning
Centralised or outsourced for economies of scale, reduced cost
and segregation of duties
Scalable with same rule sets
Evident benefits of cost, speed, working capital
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Once the customer is on-board, it joins the monitoring and review cycle
A number of solutions enable on-going automatic monitoring and alerts, including reference
agency tools, web-based solutions, XML to ERP
They typically offer, via daily AR feed:
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Recommended credit limits (agency, underwriter, custom criteria), updated daily / weekly / monthly
These can be insurance underwriter accredited
Key financial and other data
Risk and failure ratings and trends
Payment behaviour trending
Notice of publication of financials
Legal notices
Press releases / market intelligence
Positive / negative alerts
Individual customer and aggregated portfolio dashboards and trends
Some provide cash flow forecasts based on real payment history
Others calculate bad debt provisions based on risk ratings, overdues and other factors
Aggregation and visibility across the organisation, available to all stakeholders
Automation of the 60-80%
Location- and ERP-agnostic
Scalable
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A number of software tools support insured businesses
Can be integrated with client ERP and are mutually updating
On-going credit limits within discretionary limit (status agency /
highest cleared balance)
Credit limit increase prompts and requests
Automatic insured credit limit updates
Automated overdue reporting
Automated claims and claims status
Collections case referrals and updates
Low cost, location and ERP not an issue
Scalable and multi-level
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The web-based sector is evolving quickly
Most of the web-based solutions started life as a specialist tool
(credit data / insurance / collections / cash app.) and this
historic source remains their strength
Some providers are developing their tools to be more end-to-end
Examples: Risk software providers developing dunning triggers
and comms. ; collections software providers incorporating risk
ratings, credit limits…….
Apps being developed to help SMEs without Credit specialists to
manage collections and cash flow
You may have one or more specialist solutions to manage in your
journey to automation
Not many “total solutions,” but the market is going in this
direction
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Historically, it has been time-consuming and expensive to develop good
credit management functionality within major ERPs
There are, however, some ERP-specialist suppliers
Provide bolt-on within your ERP
Enable import of credit data from multiple sources (limits, ratings,
financials, key ratios…..)
Custom score cards can be built within the tools
Enable direct connection to insurers (limit management, overdue
reporting, claims management)
And to collections agents
Dunning collections strategies can be designed, and triggered using
ERP’s AR and customer master data
Also dispute management workflows.
To direct employee actions and priorities and document audit trails
All data and history in one place and not one or more web-based tools
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Credit insurers and finance providers can provide Credit In A
Small Box, especially to SMEs
In general, they:
o Advise on prospects and markets
o Underwrite and set limits
o Provide credit information / opinions
o Collections service
o Portfolio reporting and monitoring
o Bad debt management
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Some (or their brokers) have developed solutions to help
clients manage limits within DL
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Web-based solutions enable location to be a choice rather than a
restriction
Support management of complex global organisations and
portfolios
Aggregate data from multiple ERPs and promote simplification
and standardisation
Language capability does not all need to be in-country
Share access and data with all
Enable “ownership” and reporting line of Credit to be a variable
Shared service enabled, in virtual environment
Also support outsourcing of transactional work, using own or
BPO-proprietary tools
Enabling redeployment to value-added Credit roles
Credit Centre of Excellence
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Available tools enable (semi-)automation of most steps in process
(transactional, low value, low risk)
Manage highly complex environments
Multi-language and currency
Simplify and standardise
But also support multiple policies
Provide platform for shared service
And /or for outsourcing (agency / BPO)
Focus resource on High Risk / High Reward
Obtain real value from staff expertise (the <20%)
But retain “high touch” impact
Using web-based solutions via daily data feed
Irrespective of legacy ERP(s)
Third party services available “on tap”
Location no longer an issue
Scalable and low-cost
At the risk of being labelled a Philistine
Credit In A Box……..
…………………………… or Boxes