News: Credit Reporting

Part 2: Best Practices in Project Management: Project Selection – Fastest Time to Value

Friday, May 22, 2015  
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By: Mollie McIntyre, Cforia

Credit and collections managers and their order-to-cash (OTC) teams play a key role delivering critical 2015 CFO business objectives. Particularly in the area of a company's finance process plans and analytic approaches, working capital strategies and finance operations support systems, and especially strengthening corporate balance sheets by accelerating cash conversions of receivables, resolving disputes faster, shrinking reserve for bad debt requirements and reducing credit risks and write-offs .

Faced with the challenge of OTC project identification, definition, selection and successful implementation, this article is a continuation of Part 1: Best Practices in Project Management featured in last month’s Forius Today newsletter, and focuses on observable OTC Operational Activity across 200 companies. 

These will help you identify project return on investment (ROI) and fast time to value engagements. It also covers business best practices, which you can compare and contrast with your own operations to get a solid feel for where the improvement opportunity may exist.

1. Generating Reports and Departmental Performance Analytics

What we have observed around report generation and departmental performance analytics is that many departments and managers generate their reports using a number of manual and time consuming processes which include spreadsheets, pivot tables, and PowerPoint graphics. Because the data needed to form a report is often fragmented, and there is limited historical reporting available, precise metrics are often difficult to deliver. The IT Department is often required to step in and help change reports or generate a report based off of specific information.

 

Best practice environments use segmented days-beyond-term (DBT) measurements and granular controls as well as DSO and best possible DSO. Using these metrics, they are able to create executive dashboards, team goals and flexible user-managed analytics that don’t require IT support and enable the department to auto-generate reports and easily distribute metrics and analytics.

 

These report generation and departmental performance analytics best practices yield on average a return on investment (ROI) of 70 to 80 percent increase in automated reporting to management, the ability to eliminate 80 to 95 percent of Excel base reporting, and new financial controls for improved decision making, performance tracking and customer management.

 

2. Billing Process Methods

The observations made around billing process methods, is that on average 40 percent or more of the billing process is done through physical mailing of invoices. Companies are not leveraging best practices in bulk postal rates and are using a mailing service for invoice delivery.

Best practice environments are using automated electronic delivery (e.g. 99 percent of customer contacts have email addresses) for billing which provides the benefits of being fast, inexpensive and more flexible. In addition, all print and mail services are outsourced to specialists who can lower per piece costs significantly.

These billing process methods best practices yield on average a ROI of 50 to 95 percent elimination of physical mailing requirements and a 90 percent elimination of delays related to physical mail activity.

3. Multi-ERP Consolidation & Global Customer Management

What we have observed around multi-ERP consolidation & global customer management is that companies with multi-ERP, multi-business unit environments have a number of separate systems of record. With information stored in multiple places, they have limited visibility of customer exposure across their OTC systems and disconnected parent/child relationships in the systems. Collectors are aligned by ERP screen not by portfolio make cross border consolidation not possible.

Best practice environments are consolidating data across multiple systems, providing them with global visibility and client exposure. Data consolidation further allows use of client payment metrics across all bill/ship-to from all systems. User definable customer hierarchies to minimize FTE touch points, maximize visibility.

These multi-ERP consolidation & global customer management best practices yield on average a ROI of a 20 to 50 percent increase in resource efficiency through elimination of redundant manual activity and a 20 to 100 percent increase global client risk roll-up by parent/child hierarchies.

4. Credit Risk Management

What we have observed around credit risk management is the manual provisioning of new credit lines, limits and terms. Manual credit scorecards and manual integration of bureau data increase the lack of payment behavior visibility, making it difficult to make credit risk assessments a part of the collections process.

Best practice environments are using automation to integrate credit bureau data and assist in establishing new accounts. With credit data integrated directly into the system, credit managers can frequently review credit exposure and utilize hierarchical credit management for strategic accounts.

These credit risk management best practices yield on average a ROI of 20 to 50 percent efficiency improvement of credit provisioning, decisioning and risk analytics, a 40 to 80 percent rise on credit review frequency, and a 15 to 50 percent reduction in credit risk from action taken based on new analysis.

5. OTC Organizational Effectivity

What we have observed around OTC organizational effectivity is that typically accounts receivable is decentralized, creating limited segmentation of OTC issues. There is limited specialization of OTC teams and a high replication of complex and time consuming issue resolution activity.

Many best practice environments are moving to a shared service center. They have specialized OTC process experts and utilize matrixed portfolio ownership. This helps to keep training costs low, realizing a faster time to value.

These OTC organizational effectivity best practices yield on average a ROI of 15 to 50 percent faster turn-around on OTC process execution, 100 percent portfolio coverage each 30 day cycle through automation touches, and a 20 to 40 percent improvement in client issue resolution resulting in improved client responses.

Your OTC teams are an asset management group.  You manage the single largest asset on the balance sheet – A/R.  Typically A/R represents 60 percent of a company's available working capital. And the finance process plans and analytic approaches you take will have a major impact on strengthening the corporate balance sheets by accelerating cash conversions of receivables, resolving disputes faster, shrinking reserve for bad debt requirements, and reducing credit risks and write-offs.