robert s. shultz partner, quote to cash solutions (q2c) [email protected]
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Increasing Your Credit Department’s Value Through Automation and Process Improvement
Robert S. ShultzPartner, Quote to Cash Solutions (Q2C)
Consulting firm focused on improving client’s liquidity focusing on:◦ The quote to cash process, policies and procedures◦ Organization: Staff deployment and alignment◦ Credit, collection and dispute management system tools
Customized skills development and training Expert witness support in bankruptcy and collection
litigation cases
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Quote to Cash Solutions (Q2C)
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Determining what is ripe for automation in “Your” company.
Justifying the cost
Selecting a vendor
Getting Started: Steps to an effective implementation
What can be gained through credit, collections and dispute management automation
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Today’s “Scope”
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Where is the Pain? What is the potential ROI? Who needs to be involved? What solution is best: Outsource? Software
tools? What can we afford to do? or… What can we not
afford to ignore?
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Determining what is ripe for automation: First ask:
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Proactive management of credit risk, cash application, collections and dispute management?
Use meaningful KPI’s and meet or exceed expectations? Have effective workflow integration, performance
efficiency and staff productivity? Able to analyze and report customer and portfolio risks
and revenue opportunities? Insure compliance with regulatory requirements? Provide the root cause information needed to lead
process improvement efforts? Serve as a valuable resource to internal stakeholders and
customers?
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A Quiz: Does Your Credit and Collections Operation….
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Process Inputs
Process Outputs
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Defining the “Points of Pain” What is broken?
Credit/CollectionsCash Application
Dispute Management
• Customers• Sales• Internal
Stakeholders• Senior
Management
• Customers• Sales• Internal
Stakeholders• Senior
Management• Audit
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Does your project fit within the overall systems strategy of your company?
The simple compelling need?
What implementation costs, staff resources and turnaround time will management support?
Will you be overlaying automation on broken processes?
Regardless of costs, are there control issues that mustbe addressed to meet regulatory requirements?
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Before you proceed… You must know:
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No system is perfect
Tactical reality vs. a Strategic long term initiative
Incremental improvements in a short time-frame
It is all in the ROI Will it pay for itself?
ERP vs. Third Party….Do a gap analysis You may
be surprised
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Sometimes you have to “Ready, Fire, Aim”… Don’t get bogged down with long term major system implementations. They are hopes and dreams.
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Credit, Collections and Cash Application Customer Management:
- Order hold/release - Bill Presentment Process Management:
- Deductions Management - Integrated Workflows- Document access, archiving and retrieval
Reporting and dynamic dashboard options:- Key Performance Indicators -Performance Tracking
Self service access to information and documents by inside stakeholders and customers
Scope: Areas where automation can help
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Costs Internal IT and other staff
resources: Pre and post implementation
Software License, maintenance and training
Equipment
Savings/Benefits Increased Liquidity
through DSO reduction: ◦ Reduced need for
borrowing◦ Annual cost of funds
savings Increase in Staff
Productivity Process Improvement and
Reduced Dilution Reduction in Bad debts Intangible benefits:
◦ Better customer care◦ Competitiveness◦ Compliance
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Return on Investment Drivers
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Year 1 Year 2 Year 3Annual Revenue $ $ $
Net Receivables $ $ $
Annual Deductions $ $ $
Receivables Interest Rate % % %
Net Receivables Reduction % % %
Deduction Recovery Improvement % % %
Bad Debt Avoidance Improvement % % %
Project Benefits
Net Receivables $ $ $
Interest Cost of Net Receivables $ $ $
Value of Net Receivables Reductions * $ $ $
Headcount Avoided - - -
Burdened Labor Rate = $xxK/Annum $ $ $
Value of Labor Savings $ - $ - $ -
Annual Deductions $ $ $
Value of Deductions Improvement** $ $ $
Value of Bad Debt Avoided $ - $ - $ -
Annual Benefits $ $ $
*Interest rate * % improvement/degradation * AR balance
**Recovery rate % * yearly deductions
ROI Worksheet Template
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Get strong Senior Management supportAppoint a Project Leader with a vested interestThe functional manager should not relinquish a
leadership roleCreate a team of stakeholdersEstablish a list of needs and set priorities Prepare a Request for Proposal (RFP)Evaluate options
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Getting Started:
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You can customize your current ERP
A third party software provider that integrates
with your ERP
Software as a Service (SAAS)
Outsource or In-Source
“The key is to determine what best fitsyour company’s needs and reality “
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Options to consider:
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Provide an overview of your business
List your functional needs Ask the vendor specific questions relevant to your
needs Do your due diligence
Be clear on the form and timing of the response Invite a “short list ” of vendors to answer
questions and demonstrate their product. Ask for your data in the demo.
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Key elements of an RFP :
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Don’t fall in love with technology just because it exists
Look at vendors that will service what “YOU” need
Get references from companies similar in industry and size. Ask:◦ What level of support did the vendor provide pre and post
implementation?◦ How effective was the training?◦ How do users feel about the product? Is it user friendly?
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Some cautions…..
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They focus on issues you are trying to resolve on a full-time basis. Credit and collections is not an after-thought, it is their market and revenue stream.
They spend R&D dollars to improve their product based on user needs.
User groups you can relate to, who have a real impact on the next release.
Implementations are easier and of shorter duration.
Why a third party vendor?
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Poor leadership from top management
Automating existing redundant or non-value-added processes
Attempts to heavily customize an “Off the Shelf” product
Unrealistic timetable: Working backwards from a “drop dead”
completion date.
An unrealistic expectations, too broad a scope
Poor project management
Inadequate IT resources
Does not address the company’s strategic marketing or financial
strategies
Inadequate education and training
People try to maintain the status quo
Inadequate testing
Flawed data migration
Forget that the project is for the users, not IT
Top Reasons Why Projects Fail:
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A consistent approach to credit approval and review
Integrate the order entry/billing process
Integrate cash application
A structured approach to collections
Leverage deduction management as a road map to improve root cause visibility and processes
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What can be gained through automation?
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Determining credit risk boils down to two concerns:1. The risk of payment being delayed beyond
trade terms2. The risk of non-payment
Automation can bring visibility: oDetermine the “real” risk oHelps defend decisions based on facts
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“A consistent approach to credit approval and review”
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Meets the “need for speed” Consistency, predictability and fairness Quality credit decisions with reduced resources The credit manager becomes the “Go To”
person “Actionable” and “timely” information and
management reporting Quantify the basis for decisions and the
perceived risk Extend credit based on strategic company
goals
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Advantages of credit analysis automation:
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Based on financial and payment history you can manage:o New account approval
o Transaction approval
o Easy access to customer and portfolio risks and trends
o Ability to segment the portfolio: Family tree, risk, industry, sales territory etc.
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Address all the dimensions of credit risk management:
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oCredit and collections policies
oMarketing and sales strategies
oCash forecasting
oBad debt calculations
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Portfolio analysis is more than just credit…. It can drive:
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The score is driven by the credit policy
The credit policy is agreed to up front by all areas affected
“It is critical to get senior management
endorsement” up front”
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Integrate the credit policy and process:
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Take advantage of data on remittance detail in what ever form it is received Every deduction tells a story
Develop an automated dispute workflow process
Use information gathered as agenda topics for cross-functional process improvement efforts
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Integrate cash application:
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Collections is not an accounting function it requires “Actionable” up to date
information
Ability to prioritize contacts, automate workflow to a “resolver and escalate when necessary
Ability to track contact notes and follow-ups
Match payments and credits to open debits
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Collections and dispute management:
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Flexible assignment of accounts to a collector or reconciliation analyst
User defined collection strategies based on a customer’s level of risk and payment habits
Daily prompting of collection contacts Pre-defined contact notes to reduce keystrokes Flexible contact options: Phone, or customizable fax,
email or letter Reason code driven workflow and tracking User defined escalation and turnaround policies Track and report key performance indicators Drill down capability Minimal key strokes to get to the information needed
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Checklist of tools you should look for:
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Track historical information: Customer payment history, disputes by type, status, time taken from identification to resolution and broken promises
Track customers at every level of the family tree Access to account information and obtain copies of
documents by internal stakeholders and customers A dashboard and robust management reporting tools Ability to integrate document archiving and retrieval in
to the cash application, collections and account reconciliation process
Instant access to documents Auto-dial capability for high volume collections Ability to forecast cash Self service by internal stakeholders and customers
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Checklist of tools you should look for:
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Result: Increase the value of the credit collections functions
Automation investments can pay for themselves Arbitrary decisions = A thing of the past Simultaneously analyze multiple credit variables Everyone knows the special requirements up front Easier to explain and defend difficult decisions Efficient collection practices = Cash Reduction in disputes and bad debts= Lower costs Visibility to root cause issues=Improved efficiency
and process improvements
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Questions?
Increasing Your Credit Department’s Value Through Automation and Process Improvement
Robert S. ShultzPartner, Quote to Cash Solutions (Q2C)