1 Controer s Guide to Managing Credit, Receivabes & Coections Incuding Best Practices for AR, Credit, Coections 50 Key Process & Department Benchmarks Automating AR Imaging, e-invoicing, Scoring, RCM Outsourcing & Offshoring Options Internationa Issues Lega Issues Pubished by: IOMA s Institute of Finance & Management
3 Pubished by: IOMA s Institute of Finance & Management Controer s Guide to Managing Credit, Coections & Receivabes 1 Sound Shore Drive, Suite 100, Greenwich, CT Teephone: (203) Fax: (203)
4 Chris Horner: Editor Bikram Gautam: Survey Manager Perry Patterson: President & Pubisher Wayne Cooper: Chairman & CEO Janice Prescott: Managing Editor Monique Nijhout: Desktop Editor Jim Sestito: Director of Marketing 2010 IOMA s Institute of Finance &Management. No part of this pubication may be reproduced, stored in a retrieva system or transmitted by any means, eectronic or mechanica, without prior written permission of the Institute of Financia Management, Greenwich, CT USA.
5 Controer s Guide to Managing Credit, Coections & Receivabes TABLE OF Contents Preface Executive Summary PART I. Best Practices in Credit & CoectionS ACCOUNTS RECEIVABLE: Are You Overpaying for Retai Lockbox Banking Services? ACCOUNTS RECEIVABLE: In How Many Days Do You Cose the AR Ledger? ACCOUNTS RECEIVABLE: Monetize AR Into Cash Through Receivabes Exchange Bankruptcy: Protect Your Guarantee When a Customer Enters Chapter Bankruptcy: Steps to Hande Customer Bankruptcy in Asia/Latin America Bankruptcy: 10 Ways Controers Can Hep Their Companies Mitigate Risk of Key Suppier Bankruptcy Coections: Tough Coections Environment Cas for Strategic, Long-Term Approach Coections: Coections Is Top Outsourced Credit, Receivabes Function CREDIT: Today s Chaenging Goba Economy Puts the Spotight on Financia Statement Anaysis CREDIT: How Credit Can Lead in Initiating Win-Win Synergies With Saes CREDIT: Now GAAP-Compatibe, XBRL Enhances Financia Anaysis CREDIT: IOMA Survey Yieds Data on Credit Dept. Size as Pressure to Do More With Less Grows CREDIT: 15 Strategies to Buid Credit-Saes Team in Trying Times CREDIT: Survey Detais Recent Recession s Impact on Business Credit CREDIT: Speeding Up the Order-to-Cash Cyce: Top Goa for Credit Pros CREDIT: Three Case Studies Revea How Credit Can Hep Purchasing Evauate Suppiers Heath CREDIT: One Quarter of Credit Pros Offer Anticipation Payment Discounts to Speed Cash Fow CREDIT: Just 51.3 Percent of Credit Pros Now Check Trade Credit References Manuay as Standard Practice CREDIT: How to Mitigate Business Identity & Credit Terms Fraud IOMA s Institute of Finance & Management. No part of this pubication may be reproduced, stored in a retrieva system or transmitted by any means, eectronic or mechanica, without prior written permission of the Institute of Finance & Management, Greenwich, CT USA.
6 Controer s Guide to Managing Credit, Coections & Receivabes CREDIT: Chaenging Economy Fues Requests for Long-Term Payment Pans CREDIT: How Credit Can Respond When Large Customers Sow Payments CREDIT: Four Ways to Offer Credit to Those Who Don t Quaify for Open-Account Terms CREDIT: As Recovery Takes Hod, Credit-Saes Coaboration More Critica Than Ever CREDIT: How Vendors May Benefit by Acting as Lender of Last Resort Internationa: FCIB Experts Tips on Mitigating Internationa Credit Risk Internationa: Status of Chinese Credit Management Today Internationa: January 1, 2011, Is Target for Latest Incoterms Revision Internationa: 10 Ways to Speed Up Your Internationa Coections Internationa: Expoiting New Goba Saes Opportunities Requires a Forma Internationa Credit Poicy Lega Issues: What s in a Name? Misidentifying the Debtor Under Revised Artice Lega Issues: Vendor s Predefaut Rights: Converting a Credit Sae to Cash Lega Issues: Create a Process for Compiance With State Escheatment Laws Lega Issues: FTC Red Fags Rues Take Effect December 31, 2010 Are You Compiant? Lega Issues: Longer Arms Find Deeper Pockets The Doctrine of Marshaing Operations/Administration: How Often Does Your Credit Department Update High-Risk Credit Line Accounts? Operations/Administration: Five Keys to Effective Credit Management in Today s Economy Operations/Administration: Do You Benchmark Bad Debt Write-Offs & Overdue AR Against Industry Norms? Operations/Administration: Five Strategies to Boost Staff Productivity Without Automation Operations/Administration: Manage Deductions: Critica in Today s Cash-Tight Economy Operations/Administration: Centraized Structure Is Mode at 81% of Credit Departments Operations/Administration: Operations/Administration:Credit s Roe in Working Capita Management Operations/Administration: How to Set and Monitor Your Auto Write-Off Toerance Operations/Administration: Survey Detais Shift in Business Credit Focus Technoogy, Eectronic Initiatives: Automating Credit Reviews Can Deiver Strong ROI in Current Voatie Economy Technoogy, Eectronic Initiatives: Credit Automation More Critica in Today s Economy IOMA s Institute of Finance & Management. No part of this pubication may be reproduced, stored in a retrieva system or transmitted by any means, eectronic or mechanica, without prior written permission of the Institute of Finance & Management, Greenwich, CT USA.
7 Controer s Guide to Managing Credit, Coections & Receivabes Technoogy, Eectronic Initiatives: e-invoicing Top Financia Automation Priority Technoogy, Eectronic Initiatives: Are You Getting the Best Price for Bank ACH Services? Technoogy, Eectronic Initiatives: Automating Risk Anaysis: A Credit Best Practice Technoogy, Eectronic Initiatives: Underutiized Auto-Cash Soutions Yied Rapid ROI in Tough Times Technoogy, Eectronic Initiatives: Median Discount at 23 Percent for Whoesae Lockbox Maintenance Technoogy, Eectronic Initiatives: AR Pros Highight Automation to Maximize Performance Technoogy, Eectronic Initiatives: Bank List Prices for Remote Deposit Capture Accounts Average $102 Per Month PART II. Credit & Coections benchmarks & analysis Benchmark #1: Percent of AR Beyond 60 Days (% of Saes) Benchmark #2: Percent of Annua Bad Debt Write Off (% of Saes) Benchmark #3: Annua Bad Debt Write-offs (Net of Recoveries) Benchmark #4: Number of Active Customer Accounts (Averages) Benchmark #5: Number of Empoyees in Credit & Coections Benchmark #6: Number of Empoyees in AR Benchmark #7: Annua Number of Checks Processed Benchmark #8: Average Number of Cash Appicators Benchmark #9: Annua Number of Transactions Processed Benchmark #10: Average Number of Deduction Speciaists Benchmark #11: Average Number of Customers Handed Per Coections Staffer Benchmark #12: Deductions as % of AR Benchmark #13: Department Operating Budget Credit, Receivabes and Coections Benchmark #14: Are Deduction Baances Incuded in Your AR Portfoio? Benchmark #15: Do You Use an Automated Decisioning System in Credit Approva? Benchmark #16: Have You Significanty Upgraded Your Credit/Receivabe Software System in the Last 3 Years? Benchmark #17: Do You Coect Interest From Customers on Deinquent Accounts? Benchmark #18: Do You Aow Anticipation Payment Discounts? Benchmark #19: Main Credit, Coections, and AR Goas Benchmark #20: Top 3 Standards Used to Measure Credit Department Performance Reative to Objectives, in Order of Importance IOMA s Institute of Finance & Management. No part of this pubication may be reproduced, stored in a retrieva system or transmitted by any means, eectronic or mechanica, without prior written permission of the Institute of Finance & Management, Greenwich, CT USA.
8 Controer s Guide to Managing Credit, Coections & Receivabes Benchmark #21: Top Best Practices for Maximizing Performance in Credit Area Benchmark #22: Top Best Practices for Maximizing Performance in Coections Benchmark #23: Top Best Practices for Maximizing Performance in Receivabes Area Benchmark #24: New Technoogies Adopted Over the Last 12 Months That Provided Greater Efficiency/Enhancement Benchmark #25: Organizationa Structure of Credit Department Benchmark #26: Type of Automated Credit Decisioning System (if any) Benchmark #27: Use of Eectronic Invoicing Benchmark #28: Acceptance of Eectronic Payments Benchmark #29: Do You Use a Singe Bank to Process Your Eectronic Payments from Customers? Benchmark #30: Percentage of Saes Accounted for by Top 10% and Top 25% of Customers Benchmark #31: Average Time to Approve a New Order (in Days) Benchmark #32: What Is Your Auto Write-off Toerance? Benchmark #33: Do You Utiize an Auto-Cash System? Benchmark #34: If You Utiize an Auto-Cash System, Is it ERP-Based or Custom-Buit? Benchmark #35: Auto-Cash Hit Rate Benchmark #36: Doar Amount You Wi Automaticay Ship to New Accounts With No Credit Investigation Benchmark #37: How Often Do You Manuay Check Credit References? Benchmark #38: When Do You Use Credit Scoring? Benchmark #39: How Often Do You Update High Risk Credit Line Accounts? Benchmark #40: Percentage of Credit Department Tasks Outsourced & Cost Benchmark #41: Average Number of Empoyees Reporting to a Singe Manager Benchmark #42: To Whom Does Your Chief Credit Executive Report? Benchmark #43: To Whom Does Your Chief Accounts Receivabe Executive Report? Benchmark #44: Within Your Credit & Coections Department, What Functions Are You Responsibe For? Benchmark #45: Within Your AR Department, What Functions Are You Responsibe For? Benchmarks Anaysis: One Quarter of Credit Pros Offer Anticipation Payment Discounts to Speed Cash Fow Benchmarks Anaysis: DSO, Past Due Percentage Are Top Credit Efficiency Standards Benchmarks Anaysis: e-invoicing Top Financia Automation Priority Benchmarks Anaysis: How Credit Can Lead in Initiating Win Win Synergies With Saes IOMA s Institute of Finance & Management. No part of this pubication may be reproduced, stored in a retrieva system or transmitted by any means, eectronic or mechanica, without prior written permission of the Institute of Finance & Management, Greenwich, CT USA.
9 Controer s Guide to Managing Credit, Coections & Receivabes Benchmarks Anaysis: IOMA Survey Yieds Data on Credit Department Size as Pressure to Do More With Less Grows Benchmarks Anaysis: Just 51.3% of Credit Pros Now Check Trade Credit References Manuay as Standard Practice PART III. Guide to Automating Credit Strategic Issues: Which Credit, AR, and Coections Functions Shoud You Automate? scoring, Decisioning: Credit Decisioning Systems Now Used by 67 Percent of Credit Pros at Large Companies scoring, Decisioning: Impementing Credit Scoring Soutions Is Now More Affordabe scoring, Decisioning: New Too Heps Set Credit Limits for Pubic-Company Customers E-Invoicing, E-Payments: E-Invoicing Now Rated Essentia by 73 Percent of Credit Pros at Large Companies E-Invoicing, E-Payments: OB10 Provides e-invoicing Without Any IT Investment E-Invoicing, E-Payments: Transcepta Lets You E-Bi Customers From Your Current Accounting ERP System AR Imaging: Making the Business Case for AR Imaging System Technoogy AR Functionaity And ERP Systems: Survey Anayzes Impact of Impementation of ERP on Credit and Receivabes Functions Receivabes Coection Management (RCM): Credit Expert Recommends Automating AR With RCM to Maximize Productivity Eectronic Funds Transfer (EFT): Cut Costs by Eiminating Paper Checks With ACH or Check 21 Conversion Eectronic Funds Transfer (EFT): What Credit Managers and Their Controers Need to Know About Using Credit Cards in B2B Transactions Eectronic Funds Transfer (EFT): Bue Book Lists Prices of 13 ACH Services PART IV.Outsourcing & OffshoringAccounts Receivabe Summary Overview of the AR Function in an Organization AR activities in an organization The typica AR cyce Biing/invoicing Setting credit management poicies Remittance processing Maintaining an accurate AR edger for each customer and sending account statements at periodic intervas Tracking of customers' current and past-due baances Maintaining customer database Coection process IOMA s Institute of Finance & Management. No part of this pubication may be reproduced, stored in a retrieva system or transmitted by any means, eectronic or mechanica, without prior written permission of the Institute of Finance & Management, Greenwich, CT USA.
10 Controer s Guide to Managing Credit, Coections & Receivabes Accounting for credit memos and adjustments Making provisions Bad debts management Cash fow forecasting Reporting Interna contros and monitoring of the AR process Outsourcing AR AR sourcing options AR outsourcing drivers Outsourced AR process Outsourced processes within AR Assessing the Outsourceabiity of AR When to outsource AR INSIGHT: The Question of Risk Assessing potentia cost savings from outsourced AR INSIGHT: Cost Savings Can Disappear Devising and impementing an effective AR outsourcing strategy INSIGHT: Other Considerations in Creating an Overa Strategy INSIGHT: What to Do Before AR is Outsourced Vendor Seection Engaging consutants Services provided by consutants Comparative anaysis of offshoring ocations INSIGHT: Evauating Vendors The RFP process Three-step seection approach Three crucia items for the RFP Offshore F&A vendor andscape Offshore F&A vendor segments AR and non-ar services offered by vendor segments Biing rates/pricing structures in offshored AR services Vendor fit anaysis Best-fit anaysis Fina vendor seection Governance Genera considerations Contract negotiating team INSIGHT: Liabiity Issues INSIGHT: Contract Termination Contracts Key eements in an outsourced AR contract IOMA s Institute of Finance & Management. No part of this pubication may be reproduced, stored in a retrieva system or transmitted by any means, eectronic or mechanica, without prior written permission of the Institute of Finance & Management, Greenwich, CT USA.
11 Controer s Guide to Managing Credit, Coections & Receivabes Defining scope and setting responsibiities Service eve agreements (SLAs) SLAs in outsourced AR contracts Benchmarking SLAs Transition INSIGHT: Post-Transition Reationship Management Communicating With the Provider Making Changes Over Time Keeping things on track Data Security in Offshoring Contracts Exit Strategy Concusion IOMA s Institute of Finance & Management. No part of this pubication may be reproduced, stored in a retrieva system or transmitted by any means, 9 eectronic or mechanica, without prior written permission of the Institute of Finance & Management, Greenwich, CT USA.
13 Preface Despite the economic recovery and the expected return to past growth rates, controers face daunting chaenges in the years ahead. Some of the biggest chaenges incude the cost of and the method of automating the credit and coections function with e-invoicing, e-payments, AR imaging, and scoring systems; how to raise productivity and efficiency in the credit and coections department operations with benchmarking to set future goas; what best practices to utiize for driving process improvements; and how to evauate outsourcing and offshoring strategic options and understanding where and when to utiize them. The purpose of this report is to provide expert insight and advice on how controers can utiize and buid the credit and coections strategies needed to fourish in this chaenging business and reguatory environment. IOMA s combination of experience in and working knowedge of the credit, receivabes, and coections function, its proprietary research and nationwide network of industry and financia contacts, pus its 15 years of coverage of this market from a reporting and research perspective make it uniquey suited to prepare this report. This report provides controers with what they need to know in terms of the best practices for AR, credit, coections; provides them with 50 key process and departmenta benchmarks; expains in pain Engish the automation of AR imaging, e-invoicing, scoring, and RCM; provides a framework of options for outsourcing and offshoring credit and coections; and expains credit and coections internationa and ega issues. In deveoping this report, IOMA reied on data from its own research incuding its Credit & Coections 2010 Benchmarks & Anaysis Report, its Guide to Automating the Credit Department research report, its Best Practices in Credit & Coections Guide, and a specia contribution from VaueNotes, a firm speciaizing in researching and writing about the outsourcing of credit and coections activities. Lasty, during the past year, the editors at IOMA have conducted dozens of interviews with credit, coections, and receivabes managers and executives for this report. We trust you find the resuts of our work usefu for your panning. Sincerey, Perry Patterson President and Pubisher IOMA s Institute of Finance & Management 2010 IOMA s Institute of Finance & Management. No part of this pubication may be reproduced, stored in a retrieva system or transmitted by any means, 11 eectronic or mechanica, without prior written permission of the Institute of Finance & Management, Greenwich, CT USA.
15 Executive Summary Controers and other financia executives with responsibiity for credit, receivabes, and coections need the best toos, strategies, benchmarks, and advice to set goas to improve the operations of this vita function. During the recent period, a significant shift in U.S. business practices has occurred and with it, the strategic focus and goas of what you expect from your credit department and its professionas. Growing revenue and market share were the twin mantras of the past decade, but today, increasing cash fow and profitabiity reign supreme. When it comes to extension of trade credit, the return to fundamentas and due diigence that characterized the past two years is ikey here to stay at east for an extended period. As a resut, credit, receivabes, and coections professionas ideay situated to hep their companies acceerate cash fow, turn over receivabes faster, and reduce portfoio risk are in the corporate spotight to a degree that hasn t been this intense in a ong time. Controers, typicay responsibe for recommending benchmarks for measuring the financia and operating performance of the credit, receivabes, and coections functions, need to be as never before on top of the chaenges facing these departments. IOMA s Controer s Guide to Managing Credit, Receivabes, and Coections has been produced to meet exacty this need. The guide covers four basic areas critica to managing credit, AR and coections: best practices, benchmarks, automation, and outsourcing. Best Practices Whie there is no need to highight the chaenges facing your credit department today the foowing data hep to carify the magnitude of the chaenges controers and their credit departments are facing today: Customers are paying more sowy and requesting extended terms more frequenty. In Juy 2010, the nationa average number of days that businesses paid their bis beyond contracted terms (days beyond payment terms DBT) increased by 2 percent over June. Average DBT has now risen by 3.3 percent since February (Experian, Juy 2010, Business Benchmark Report). Experian aso found that the nationa average doars deinquent rose 6 percent whie doars severey deinquent (91 or more days) jumped 13 percent compared with February An Apri 2010 survey conducted by OB10 and Internationa Accounts Receivabe Professionas (IARP) reveas that 54 percent of respondents reported that their customers were paying them more sowy IOMA s Institute of Finance & Management. No part of this pubication may be reproduced, stored in a retrieva system or transmitted by any means, 13 eectronic or mechanica, without prior written permission of the Institute of Finance & Management, Greenwich, CT USA.
16 Controer s Guide to Managing Credit, Coections & Receivabes Business bankruptcies continue at record eves. According to the 2nd quarter 2010 business bankruptcy fiings, tota quartery fiings of chapter 7s, 11s, 12s, and 13s whie down from their peak of 16,053 in 2nd quarter 2009 remain at a historicay high eve. For exampe, through the first quarter of 2010, business bankruptcies were up 25 percent versus the prior year. Coectabiity of overdue accounts continues to fa. For the second quarter of 2010, B2B accounts received by members of the Commercia Coection Agency Association of the Commercia Law League of America (CCAA) fe dramaticay. Doar amount and number of accounts paced for coection dropped 23 percent compared with second quarter The drop in coectabiity of overdue accounts is yet another refection of the uncertain prospects for U.S. and goba economic recovery. To hep controers navigate this increasingy treacherous business environment, this guide contains dozens of best practices being empoyed by cutting-edge credit professionas today. These cover a the key areas of credit, incuding bankruptcy, AR, credit, coections, career issues, operations/administration and technoogy initiatives. Today s trade credit chaenges, moreover, occur in the context of an ongoing sea change in the credit profession one that has ony been acceerated by the crisis of According to the Credit Research Foundation (CRF) study Future Trends in Business Credit and Receivabe Management, today s credit executive is, far more than previousy, at the center of a broader spectrum of cross-functiona activities, incuding bank reationship management, cash forecasting and management, and customer financia advising. Today s credit pro aso is more often partnering with saes, marketing, and other departments. Many best practices in this section of the report address these new questions and chaenges in detai. Benchmarks Credit executives and the controers they report to need to be armed with the kind of extensive inteigence this guide provides, incuding 52 individua key credit benchmarks, broken down by industry sector and company size to ensure you re comparing appes to appes. This part of the report aso anayzes the benchmarks and provides up-to-date inteigence on professiona deveopment needs. Sampes of benchmarks controers wi find in this guide: 1. Speeding order-to-cash cyce top goa for credit pros: IOMA s survey reveas that owering days saes outstanding (DSO) has become the top goa of our respondents, cited by 30.6 percent. This is foowed by reducing overdue AR (25.9 percent) and reducing bad debt (12.9 percent). These resuts confirm that today controers, CFOs, treasurers, and the credit managers who report to them are intensey focused on working capita especiay improving the company s cash position. 2. Reducing DSO and past-due percentage aso top credit efficiency standards: When survey respondents measure their department s performance against goas, DSO is the ceary favored standard, cited by 33.3 percent. The ony other standard giving DSO a run for its money is past-due percentage, another easy-to-use benchmark that provides a quick snapshot of the condition of a company s AR, cited by 25.9 percent. 3. Automating risk anaysis: Reducing risk in the AR portfoio is integra to improving the company s cash position. Automated credit scoring and decisioning is vita to achieving this goa and being competitive IOMA s Institute of Finance & Management. No part of this pubication may be reproduced, stored in a retrieva system or transmitted by any means, eectronic or mechanica, without prior written permission of the Institute of Finance & Management, Greenwich, CT USA.
17 Controer s Guide to Managing Credit, Coections & Receivabes in the current highy voatie business environment. Over haf (54.5 percent) of our respondents now utiize credit scoring aways or usuay. In addition, 29.3 percent are now using an automated decisioning system in credit approva. The inescapabe concusion is that automating risk anaysis is, for many organizations, the ony reaistic way to truy anayze the coectabiity of your company s AR. 4. Commercia coectors, now on the hot seat, need to work smarter and more strategicay: How is your competition achieving this? Consistent phone contact with customers is the top strategy, cited by 50 percent of respondents, whie caing ate payers eary and often (47.6 percent) and caing customers before invoice is due (31.7 percent) were aso among the most successfu coection best practices. Credit pros know that it s not enough to just work harder you must work smarter in today s tough commercia coections cimate. 5. Effective deduction management critica in today s cash-tight economy: Preventabe and erroneous customer deductions cost U.S. companies miions of doars every year. In today s economy, that kind of beeding is simpy no onger tenabe. So it s no surprise that managing deductions has emerged as a top time- and cost-saving strategy in credit departments. 6. A new wave of credit automation: A across the ine, automating credit functions has become more centra to remaining competitive even in a time of restricted IT budgets. Credit executives and their controers are taking a ong-term approach and impementing a wide range of such initiatives. In fact, neary one-third (30 percent) of survey respondents cite a credit automation initiative as their top costcontro and efficiency-generating strategy of the past year. 7. E-invoicing and e-payments ead the way: Especiay noteworthy is the number of credit departments that have automated invoicing and payment acceptance processes: ACH, 27.8 percent; e-invoicing soution, 22.2 percent; check imaging, 20.8 percent; e-ockbox imaging, 19.4 percent; e-payment acceptance, 9.7 percent; and onine check viewing, 8.3 percent. These are exacty the soutions that speed up the saesto-cash cyce. In addition, such soutions are increasingy affordabe, sophisticated, and customizabe 8. Renewed focus on ABCs of credit: Credit pros are no oner hearing some variation on the theme, Se, se, se somehow we get paid. The credit function is front and center again aong with a renewed appreciation for credit fundamentas. When asked to share their most successfu credit strategy of the past year, 47.6 percent reported better customer credit information and investigation. Periodic account reviews garnered the responses of 38.1 percent. And fuy one-third (32.1 percent) cited deveoping and impementing a written credit poicy. 9. Credit standards receive new emphasis: Aong simiar ines, due diigence in evauating the creditworthiness of customers is receiving much greater emphasis. Our survey reveas that consideraby more credit pros tightened credit standards during than the previous year. Today 43.1 percent of credit pros update high-risk credit ine accounts every six months. 10. Coections is top outsourced credit, receivabes function: Despite a the pubicity regarding the gains to be made from outsourcing, a majority of credit departments are not outsourcing any functions. Among those that are outsourcing, coections is the most commony outsourced function. This indicates that credit is regarded as a core function that companies want to keep in-house IOMA s Institute of Finance & Management. No part of this pubication may be reproduced, stored in a retrieva system or transmitted by any means, 15 eectronic or mechanica, without prior written permission of the Institute of Finance & Management, Greenwich, CT USA.
18 Controer s Guide to Managing Credit, Coections & Receivabes Automation A refrain that controers and credit executives have grown a too famiiar with is: Do more with ess. When asked whether their credit, receivabes, and coections staffs have grown or shrunk compared to two years ago, 66 percent of IOMA survey respondents report they are smaer whie just 34 percent answer arger. Nevertheess, when asked whether their departments workoads have increased or decreased during that same period, a dramatic 90 percent report arger workoads and just 10 percent smaer ones. How is this happening? Credit departments remarkabe productivity gains are being driven principay (if not excusivey) by the automation of an ever-widening range of credit, AR, and coections functions. The fact that such automation soutions have become increasingy affordabe for smaer to midsize organizations is heping to drive the trend. The key esson: credit departments riding this wave most successfuy are not ony bringing their companies the advantages automation offers but aso contributing to their companies bottom ine. The importance of automation, in particuar as a change driver, is acceerating dramaticay the changes, discussed above, that are transforming the credit profession. The controer is in a critica position to hep the credit professiona ead this transformation and become the company s go-to eader in assessing and impementing automation soutions that wi drive cross-functionaity whie deivering cost and efficiency gains. This section of the guide is designed for proactive controers who recognize the new paradigm and are seeking strategies and inteigence to hep them meet the chaenge. With the current continuing pressure on IT budgets in particuar, it is critica that credit provides a convincing ROI for any credit automation projects they recommend and the controer is in a key position to aid the credit manager in doing so. This guide provides exacty the ROI information required. Another key chaenge for the controer is determining which functions are ripe for automation in this department and what actuay wi be gained by automating those functions. Controers must avoid the mistake of simpy overaying automation on broken processes. As a recent study by Aberdeen Group puts it: The top two strategic actions of best-in-cass companies are to standardize and acceerate processes. The combination of these actions touches many departments across an organization as it executes the quote-to-cash cyce. As a resut, formaizing and documenting these two actions form the foundation for automation and acceeration. Otherwise, automating poor processes means you continue to operate poory, ony faster. Whether it s impementing automated credit decisionmaking, making the critica move to e-invoicing and accepting payments eectronicay, improving the credit and AR functionaity of your ERP systems, jumping into the fast ane with eectronic funds transfer (EFT), going the whoe nine yards with coection receivabes management (CRM), or any other technoogy soution to improve your credit department s (and broader organization s) profitabiity and competitiveness, this section of the guide offers a wide range of tested strategies and hands-on, rea-word soutions. Outsourcing The pressure on margins has forced companies to identify newer ways of optimizing costs. Not surprisingy, support-reated activities have been the first to go under the scanner. There is a imit to how IOMA s Institute of Finance & Management. No part of this pubication may be reproduced, stored in a retrieva system or transmitted by any means, eectronic or mechanica, without prior written permission of the Institute of Finance & Management, Greenwich, CT USA.
19 Controer s Guide to Managing Credit, Coections & Receivabes much companies can reduce costs internay. Beyond that point, companies wi need to adopt aternate options outsourcing is one area where companies have shown significant interest. A popuar perception is that outsourcing can reduce costs, redefine processes for optima vaue reaization, and provide insights and opportunities for further cost reduction. Within outsourcing, offshoring, which impies the service being deivered from an overseas ocation, is expected to bring in further cost savings. Accounts receivabe (AR) has been one process that is being increasingy outsourced. However, there are many caveats to the benefits commony ascribed to outsourcing: Outsourcing comes with risks attached. Companies need to be aware of the extent and nature of risks that they are exposed to on account of outsourcing. There are many hidden costs in the outsourcing/offshoring process, which may erode potentia savings from the outsourced/offshored activity. Since AR invoves customer interaction, any outsourcing error can resut in significant damage to a company s brand and image. If companies decide to outsource any AR process, it is imperative they foow a structured approach. Specific areas where information is hard to come by incude: Figuring out which AR process can and which cannot be outsourced; Which are the most commony outsourced functions, and why; Deveoping an overa outsourcing strategy so that it genuiney works for you; Issues to consider whie evauating vendors; Key vendor segments for AR processes and understanding how to choose the one that is right for you; The essentia requirements for an AR vendor; How to seect a vendor; Pricing modes and biing rates for AR services; How to structure a contract and define service eves for key AR processes; and How to ensure ongoing process improvement. This section of the guide provides companies with the required guidance on each of these aspects IOMA s Institute of Finance & Management. No part of this pubication may be reproduced, stored in a retrieva system or transmitted by any means, 17 eectronic or mechanica, without prior written permission of the Institute of Finance & Management, Greenwich, CT USA.