Account Receivables Management

Assisting companies to improve the working capital cycle

January 2010

Ensuring that excellent AR Management leads to Superior Organizational

Performance

Accys

CONSULTING - OUTSOURCING

2Accys

Context Setting – What is Accounts Receivables Management

Revenue CashDebtors

Faster collections = lower WC = higher ROCE = higher profit = higher valuation

The AR processes of a company would involve:

a) Customer risk assessment and credit extension processesb) Sales documentation - accurate, complete & timely

invoicing c) Focused follow up with the customers OR branch OR

sales (account) managers to realize sales proceeds within the due dates

d) Correct application of receipts, ledger a/c & TDS reconciliations

Sales growth, Cash generation, Risk tolerance, Profitability, Market share

Bad debts, charge-offs,

and collection operating costs

Managing Conflict

3Accys

1. AR is among the top 3 tangible assets of a company – Growth Capital

2. Rarely does the management focus on AR – unless serious issue develops

3. Cost of AR is very high (administrative, bad debt, interest) – 19 % of revenue

Why is Accounts Receivables Management Important

Value to a company due to focused Account Receivables Management

Budgeting

Faster dispute

Resolution

Reduced bad debts

Enhanced customer service

Increased cash flow

Higher credit sales & margins

Lower administrative

costs

Decreased short

payments

Reduced bad debts & provisions

4Accys

Reasons for Account Receivables Delays

Reasons for delay in AR % of customers

1. Risk Assessment

2. Order Management

3. Invoicing

4. Collection follow up

5. A/c Reconciliations

6. Fund Application

7. A/c Management

Inefficient processes in own business 70 %

Customer not happy / complaints

30 %Inefficiency in the customers business

Customer facing fund issues

Customers purposely delaying

The “Real” Cost of Account Receivables Delays

Cost element of AR Totals

30 60 90 120 180 365 Approximate %age of Money Collected 15% 25% 35% 10% 10% 5%

Monies collected 1,500,000 2,500,000 3,500,000 1,000,000 1,000,000 500,000 10,000,000

Cost of money @ 12% Interest Rate 18,493 102,740 302,055 32,877 49,315 25,000 530,480

Follow up costs as % of revenue - assumption 0 0.50% 1% 1.50% 2% 2% -

Follow-up Cost - 12,500 35,000 15,000 20,000 10,000 92,500

Bad debt Probability 3% 5% 10% 20% 33% 55% -

Expected deductions and bad debt cost 45,000 125,000 350,000 200,000 330,000 275,000 1,325,000

Cost of collection 63,493 240,240 687,055 247,877 399,315 310,000 1,947,980 1,947,980

19%

Average Collection Days

Total Cost of collection as % of customer collections Total Cost of collection

5Accys

Challenges in Account Receivables Management Processes

No credit policies /Customer credit

analysis

Services / Productrendered

Invoice generation &

dispatch

Sales realizationsprocess

Follow up only after due date

Delays in AR issue

resolutions

CustomerAgeing grows

1. Reduced cash flows2. Increased bad debts3. Low efficiency4. Reduced cash

forecasting5. Customer risk

Team focus on core KRA’sLack of process & AR skillsConflicting relationships

Lack of a sustainedfollow up process

Lack of information sharing, business intelligence & process flowApplication of funds, TDS details

Delay in generation, inaccurate / incompleteCustomer billing details

Only ageing – no detailsNo customer a/c reconciliationsNo quick closure of issuesReliance on stretched a/c team

Undisciplined credit

extension

Confirmation of saleSale documentation

6Accys

Robust “credit extension ” processes

Do it Yourself - Best Practices to Improve the Working Capital Cycle

Elimination of payment barriers

One point contact for reliable information

Systematic collection procedures

Timely and accurate cash application

Support from the top management

Regular communications with client

Clearly stated staff responsibilities

Valid risk assessment parameters

7Accys

Accys - Account Receivables Management Services

Coherent and carefully monitored follow-up on every account, business intelligence to understand root cause and resolution

“”Do ARM better”

ARM services enable a corporate to improve the quality of revenue, maintain and grow the competitive advantage and provide better decision making

ability to the management

The Accys ARM Value The Accys ARM Value PropositionProposition

Reduce hidden costs of AR – while increasing cash turnover, reducing bad debts – at a lower AR transaction cost

“Do ARM at lower cost”

System-driven processes,procedures & policiesapplied uniformly across your entire credit portfolio with a dedicated & trained team

“Do ARM faster”

Pre invoicing activities

Post invoicing activities

OrderProcessingQuotation

PricingAdministrati

on

Credit Control

Policies & Standards Invoicing

CustomerRisk

Assessment

Customer Reconciliati

ons

Special CollectionProcess

Short payments processing

Dispute Manageme

nt

CollectionStrategy

Application of funds

CollectionProcess

8Accys

The Accys Delivery Model

AR Health check

AR Snapshot

Ongoing Monitoring

High level proactive assessment of key customer accounts

Undertaken at a single point in time

Allows process owners a better understanding of

AR processes and controls

Reactive approach when a specific

problem has been encountered

Detailed validation for identifying issues, their root cause and

remediation's

Improve specific areas of concern to process

owners, better customer management

Regular assessment of credit and

collection management

processes. Combines health checks with

snapshots

Ongoing assessment of established

processes can help improve

management confidence in

account receivables management and cash flow cycles

Assists management to understand changing

landscape of customer risks, enable visibility into cash position and

manage and reduce AR transaction cost

Situation Approach Potential Benefits

9Accys

The Accys Delivery Model (contd.)

Understand client requirements

Accys AR team – to improve client AR process

at reduced AR cost to the client

Accys AR team – to improve client AR process

at reduced AR cost to the clientGo – Live stage

Accys - Account Manager

Client Project

Management team

Accys Project team

List of clients

Contact details of

client / customers

Run a pilot project / one time at client site

Key client stakeholders

Accys Project team

3-4 NCR based clients

Monitoring and

Managing

Proposal stage 1. Independently assess

the AR processes and requirements

2. Understand in depth the clients requirements, the delivery timelines, the staffing & infrastructure requirements, process costs, escalation processes, SLA etc

3. Participate in AR review meetings and rigorously monitor implementation of action points.

4. Escalate key concerns/ issues on a real time basis.

5. Continuously identify improvement avenues and develop road map for AR improvement

6. Ensure compliance with defined policies, processes, budgets and payment schedules.

Benchmark

10Accys

Accys - Account Receivables Outsourcing Process - Overview

Payment not received within 10 daysLock in invoicePayment date

Within 48 hrs of dispatch Payment Received

Payment not received

Re-issueinvoice

Invoice approved byclient

Invoice dataRe-checked

Invoice correctionmechanism

Issues with invoice

On call with client Immediate

effect

Yes

NO

Confirmation recd

Regular follow upsPayment dueAs per communication

Payment received

Payment not received

Within 2 working days

Escalation with Account Manager

Follow up

Approval requested

Dispute resolutionMechanism

13th of the month

Within 15 days

ManagementEscalation Process

Escalation Results

Amount still unpaid till 21st

No action till 30th

Payment received

Payment received

Confirmation of invoice

Thank you/confirmation call

After 72 hrs ofconfirmation call

11Accys

Invoice Delivery & Acceptance Process - Detailed

Check the invoice value

Check for O/S of previous invoices

Validate the invoicebeing raised correctly

Validate amount &Billing address

Validate other clientSpecifications (if any)

CALLINGPROCESS

Check PODdetails & status

Invoice Confirmation

InvoiceAcceptance

Expected invoice payment date

EXISTING CLIENTS

NEW CLIENTS

D

No

No

Check

wit

h t

eam

for

reaso

ns

for

dela

y/iss

ues

confirm

ed

Confirm

iss

ues

INVOICEREPOSITORY

Follow up & confirmation process

Invoice re-generation

InvoiceStatus update

INVOICEDISPATCH

THANK YOUCALL

DISPUTE RESOLUTION MECHANISM

Update the payment receivable date

Dis

pute

reso

lved

Unresolved

Expected amountreceivable date

Not paid

Amount paid within due date

Yes

CustomerDatabase

Complete Status

1

2

3

Within 48 hrs of dispatch

After 72 hrs of confirmation #2

After 48 hrs of confirmation #1

4

5

Status update

Through E-mails & calls

Check the invoice value

Check for O/S of previous invoices

Validate the invoicebeing raised correctly

Validate amount &Billing address

Validate other clientSpecifications (if any)

CALLINGPROCESS

Check PODdetails & status

Invoice Confirmation

InvoiceAcceptance

Expected invoice payment date

EXISTING CLIENTS

NEW CLIENTS

D

No

No

Check

wit

h t

eam

for

reaso

ns

for

dela

y/iss

ues

confirm

ed

Confirm

iss

ues

INVOICEREPOSITORY

Follow up & confirmation process

Invoice re-generation

InvoiceStatus update

INVOICEDISPATCH

THANK YOUCALL

DISPUTE RESOLUTION MECHANISM

Update the payment receivable date

Dis

pute

reso

lved

Unresolved

Expected amountreceivable date

Not paid

Amount paid within due date

Yes

CustomerDatabase

Complete Status

1

2

3

Within 48 hrs of dispatch

After 72 hrs of confirmation #2

After 48 hrs of confirmation #1

4

5

Status update

Through E-mails & calls

12Accys

Benefits of AR Management Best Practices

CFO

TREASURY

CASH MANAGEMENT

Accys

Increased Transactional Efficiency

1. Reduced transaction costs2. Reduced staff dependency3. Improved customer relationships4. Faster dispute resolutions

Improved Customer to Cash Cycle

1. Accelerated collections2. Managed customer risk3. Reduction in DSO4. Reduction in bad debts / provisions

Improved Financial Management

1. Visibility on cash flow & treasury2. Reconciled customer accounts -

audit3. Customer risk assessment &

exposure4. Enhanced working capital 5. Reduced interest costs

13Accys

Accys Advantage over Internal Departments

Accys Internal departments

Cost of AR Variable and lower

Fixed and increasing

AR Efficiency Result oriented Undefined

AR follow up Proactive Reactive

AR Process & Reporting

Defined Random

Account Reconciliations

For every client Ad- hoc basis

Relationship Management

Continuous Personal

Dispute Resolutions Defined process Variable

Focus Core focus Need based

Area Organization

Cost of Accys AR Management offsets the benefits:

1. Reduced bad debt expense2. Lower deductions 3. Reduced interest cost on working capital4. Improved customer service

14Accys

The Accys Success Story

Gaurav GuptaCEO+ 91 98111 63422gaurav@accys.in

Preeti SachanManager+91 99710 10275preeti@accys.in

Accys Management Services Private Limited418, 4th Floor, The Galleria TowersDLF, Phase IVGurgaon, HaryanaIndia - 122009

Partnering with Accys

Thank you