The Credit Policy
The Credit Policy
• When was it written?
• When did you last challenge it?
• How often have you reviewed it?
• How often do people refer to it?
• Can everybody remember everything in it?
• Is it a document – or is it embedded into your daily processes?
• If you want to deliver business success – it needs to be
embedded
The Credit Policy – today’s objective
• This presentation is addressed to senior credit people
operating within Shared Service Centres (SSCs) or BPOs
• It’s a big topic – you face many challenges in implementing
credit policy
• We only have half an hour
• In the time available my objective is to leave you with some
Agenda
• About Co-pilot
• Evolution of Shared Service Centres
• Challenges in implementing Credit Policy
• How to meet the challenges
About Co-pilot
• We are independent advisers on credit management best
practice
• Our clients are multinationals, SSCs and BPOs
• Our focus is on delivery – helping credit management visibly
The evolution of SSCs – three phases
• Process cost reduction
• Service level excellence
• Strategic business enablement
• Where is your organisation?
• Does the Credit Management function influence/lead this
Challenges in implementing Credit Policy
• Relationship with Sales
• Understanding local laws and culture
• Billing and chasing in different languages
• Applying consistent risk rules and approach
• Operating on several different ERP systems
Challenges in implementing Credit Policy
• Resolving disputes and queries
• Empowering local people to make decisions
• Managing tasks by exception and prioritising work
• Blending multiple sources of information into decisions
• Ensuring compliance with credit insurance policy rules
• Credibility within the organisation
The CFO phone call
• “Our Key Account, “Acme Global” has just issued a profits
warning - sales are down 10%. What is the impact upon us?”
• Four possible answers:
1. I’ll get back to you
2. I’m sending you a pdf now – it shows you our global position at close of play last night
• All outstanding balances, payment history, risk profile and history, credit limit history, decisioning audit trail, etc
3. I’m sending you the pdf and, as we speak, I am running the new numbers through my risk analysis tool – it shows me that the impact upon Acme’s financial health is xxx
4. You have already sent the pdf, the analysis and your recommended action - and this is what the CFO is phoning to consult you on
PDF – example page
The Sales Director phone call
• Why won’t you give me a bigger credit limit on International
Widgets?”
• Answer: I’m sending you a Delinquency Report now.
• It shows that they regularly pay 45 days beyond terms and it
shows you how much this is costing us.
• Our margin on this business is x%
• If you want a bigger limit you need to negotiate a higher price, or get them to pay sooner
Meeting the challenge
Leadership and influence is stronger when credit policy implementation achieves:
• Visible delivery to the bottom line
– Driving sales growth
– Driving customer service
– Reducing costs and improving cash position
• Effective, real-time, management information (MI)
– putting yourself in a stronger and more authoritative position because you can
Meeting the challenge
• Best Practice is vital
• If you run large or multiple ledgers the biggest single impact upon visible business performance and MI will be achieved through deploying credit management software
Credit risk management software deliverables
3 examples (more at back of hand out)
• Ability to automate risk decisioning and monitoring on bulk of the risk
population (“80/20 rule” – freeing up the team to focus on the risks where they add most value)
• Ability to pull in data from multiple sources in order to achieve best
practice risk assessment for all categories – sole traders through to large corporates
• Ability to drive sales growth through:
– Better identifying good/bad new risks (at point-of-sale if applicable) – perhaps permitting higher initial credit limits
– Ability systematically to pre-authorise increased credit limits for good/improving existing customers
– And communicating this to Sales Department
Collections software deliverables
3 examples (more at back of hand out)
• Ability to manage collections processes across different brands and
businesses
• Significant improvement in DSO through more efficient collection
processes and speedy dispute resolution. This results in enhanced working capital and reduced funding costs
• Improved customer satisfaction through:
– making it easier for him to do business with you (EG: small business uses iPad -
“Click to pay”)
– enhanced ability to respond quickly and professionally to customer issues - and
to see that those issues are managed through to resolution and to customer's satisfaction
How to implement the solutions
ERP implementation?• Don’t go there!
– Credit people explaining what they want to IT people
– Things get missed or misunderstood
– Time-consuming internal project
– Huge costs
– Changes require another project
– There will always be things you didn’t think of – because you didn’t know you
could have them
• Specialist credit management software is:
– Able to work with multiple ERP systems
– Better (you have to see it to understand how you could improve processes)
– Quicker to implement
– Cheaper
– Future-proof
Which software?
• Available software:
– Credit risk management software
– Collections software
– Cash allocation software
– Data cleanse software
• Best Practice will mean that you need different suppliers for
each component
• Align the right suppliers and you can do some very clever and
Summary
• Successful Credit Managers will be those who embed and
evolve credit policy & use it to drive performance improvement
• Credit Managers need and deserve the best tools to do the job
– technology has to be aligned to credit policy
• It’s not easy and to get it right you need guidance:
– Where do I start?
– Risk software, collections software or both?
– How do I evaluate the suppliers?
– How do I create a combined solution?
– How do I move this forward with CFO and colleagues?
• Co-pilot has unique experience and knowledge and can guide
you through this process
Credit risk management software deliverables
• Ability to automate risk decisioning and monitoring on bulk of the risk population (“80/20 rule” – freeing up the team to focus on the risks where they add most value)
• Ability to pull in data from multiple sources in order to achieve best practice risk assessment for all categories – sole traders through to large corporates
• Ability to grow sales through:
– Better identifying good/bad new risks – perhaps permitting higher credit limits
– Ability systematically to pre-authorise increased credit limits for good/improving existing customers
• Significantly enhanced (“real time”) management information on a large range of criteria including aggregations, payment behaviour, risk trends, cash flow, cost of late payment
• Full audit trails
• Enhanced competitive edge through ability to adapt risk strategies quickly
• Ability to absorb new acquisitions into system, have an immediate overview of aggregate risk and implement original or “house” rule sets as you wish
• Significantly enhanced funding opportunities through real time ledger visibility and transparency
• Ability to negotiate better credit insurance terms and to reduce risk of claims rejected because of non-compliance to policy conditions
Credit risk management software deliverables
• Improvement in DSO through more efficient collection processes and speedy dispute resolution results in enhanced working capital and reduced funding costs
• Headcount (reduce, redeploy, or same number for growth)
• Reduction in bad debt through ability to set different strategies for high risk customers
• More motivated staff because they have:
– efficient daily planning for all tasks including follow-ups
– more information to hand (all on one screen)
– enhanced ability to respond quickly and professionally to customer issues - and to see that those issues are managed through to resolution and customer's satisfaction
• Improved customer satisfaction through the above and through making it easier for him to do business with you
• Ability to manage collections processes across different brands and businesses