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The Credit Policy Why it is so important to know your own processes

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(1)

The Credit Policy

(2)

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

(3)

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

(4)

Agenda

About Co-pilot

Evolution of Shared Service Centres

Challenges in implementing Credit Policy

How to meet the challenges

(5)

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

(6)

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

(7)

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

(8)

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

(9)

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

(10)

PDF – example page

(11)

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

(12)

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

(13)

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

(14)

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

(15)

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

(16)

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

(17)

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

(18)

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

(19)

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

(20)

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

References

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