Credit In A BoxUsing Technology to Transform B2B Credit Service Delivery

Gary Brooks, October 2013

Outline Agenda 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

The Key Role of Trade Credit

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:

o 33% of EU businesses regard late payment as a survival-threatening issueo 46% France, 50% Italy, 51% Greece (and growing)o Argues that late payments hinder the functioning of the Single Market and cross-border

trade

Passive or poor credit management processes and tools contribute to this problem

Credit Dept.’s Historic Role

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:

o The world recovers from the financial shocks of recent yearso Credit is more difficult to obtaino Working capital is more important corporately and macro-economicallyo Bodies like ICTF actively promote the profession o Credit management becomes central to corporate strategy…….

………..requiring professional expertise and tools

Cabin Crew to Co-Pilot Credit is becoming part of an overall customer strategy Increasing awareness of the importance of good credit practice for customer relations and

competitiveness >30% of firms vary terms to attract new business; >20% to retain business 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

Customer segmentation and scoring Identifying opportunities to sell Commercial credit granting Effective customer life-cycle management Using sophisticated analysis tools In the hands of expert professionals

So how do we move away from the traditional, transactional role, to be more front line?

How do we get from this:

To this?

What are our Challenges and Constraints?

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

I hope to show that 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

Step Through the Process

Credit Management

Identify Prospects

Apply, Review, On-Board

Bill and Manage Order

Collect

Process Payments

Ongoing Review

Credit Insurance

Step 1: Targeting Creditworthy Businesses

Most information providers supply pre-qualified, highly-targeted leads based on multiple criteria:o Country / regiono Industry typeo Size (turnover, people…..)o Parent-subsidiary linkageso Financial strengtho Key ratioso Credit ratingo Credit limito 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

New Customer Applications

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

Credit Information 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.

Use of Agency Data in Web-based Solution

Ratings For publicly quoted companies, ratings are available on-line or down-

loaded from major ratings agencies. Avoids the need for in-house analysis

Others Score and Trend all Companies

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

Billing 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

Order Management 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

Collections 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

Collections Tool Data Flow

Overview of Process

Multiple Policies

Effectiveness Reporting

Payments 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

Cash Allocation Most major ERPs provide some automatic matching Most international banks provide rules-based matching software

for multiple ERPs Increasingly, specialist web-based suppliers offering multi-

algorithm 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

Cash Application

On-going Alerts and Reviews

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:

o Recommended credit limits (agency, underwriter, custom criteria), updated daily / weekly / monthlyo These can be insurance underwriter accreditedo Key financial and other datao Risk and failure ratings and trendso Payment behaviour trendingo Notice of publication of financialso Legal noticeso Press releases / market intelligenceo 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

Examples: Portfolio Hierarchy Views

Portfolio Risk Maps

Bad Debt Calculation

Customer Profile

Customer Data

Supporting Credit Insurance

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

One-Stop Shops? 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

Some suppliers are ERP-specific

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

ERP-Specific Solutions

Credit Insurance Inside the Box

Credit insurers and finance providers can provide Credit In A Small Box, especially to SMEs

In general, they:o Advise on prospects and marketso Underwrite and set limitso Provide credit information / opinionso Collections serviceo Portfolio reporting and monitoringo Bad debt management

Some (or their brokers) have developed solutions to help clients manage limits within DL

Location and Outsourcing

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

A New Paradigm

In Conclusion 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