Pan-European FECMA Credit Management Congress Budapest, 16 & 17 May 2013 International Credit Management Organizational Models for Local and International Players Alberto Bottoni Vice President, Group Treasury ABB Ltd. May 26, 2013 Slide 1
Organizational Models for Local and International Players Agenda About ABB The Credit Management Process Account Management Approaches The Credit Policy ERP Systems, Customer Information Providers Outsourcing Office Locations Benchmarking Job Roles and Functional Reporting Centralization and Decentralization May 26, 2013 Slide 2
Organizational Models for Local and International Players Agenda About ABB The Credit Management Process Account Management Approaches The Credit Policy ERP Systems, Customer Information Providers Outsourcing Office Locations Benchmarking Job Roles and Functional Reporting Centralization and Decentralization May 26, 2013 Slide 3
ABB -A global leader in power and automation technologies Leading market positions in main businesses 145,000 employees in about 100 countries $39 billion in revenue (2012) Formed in 1988 merger of Swiss and Swedish engineering companies Predecessors founded in 1883 and 1891 Publicly owned company with head office in Switzerland May 26, 2013 Slide 4
Power and productivity for a better world ABB s vision As one of the world s leading engineering companies, we help our customers to use electrical power efficiently, to increase industrial productivity and to lower environmental impact in a sustainable way. May 26, 2013 Slide 5
How ABB is organized Five global divisions Power Products Power Systems Discrete Automation and Motion Low Voltage Products Process Automation $10.7 billion 36,000 employees $7.9 billion 20,000 employees $9.4 billion 29,000 employees $6.6 billion 31,000 employees $8.2 billion 28,000 employees (2012 revenues) ABB s portfolio covers: Electricals, automation, controls and instrumentation for power generation and industrial processes Power transmission Distribution solutions Low-voltage products Motors and drives Intelligent building systems Robots and robot systems Services to improve customers productivity and reliability May 26, 2013 Slide 6
Power and automation are all around us You will find ABB technology orbiting the earth and working beneath it, crossing oceans and on the sea bed, in the fields that grow our crops and packing the food we eat, on the trains we ride and in the facilities that process our water, in the plants that generate our power and in our homes, offices and factories May 26, 2013 Slide 7
ABB Group Treasury Organization Head of Group Treasury Group Treasury Operations Pension Management Corporate Finance & FiX Lead Center Risk Management & Insurance Export & Trade Finance Group Funding Offset & Countertrade Capital Markets Regional Treasurers Country Treasurers
ABB Credit Function Set-up CFO Group Treasuer Group Controller Group Treasury Operations Group Shared Accounting Center Group Risk Control Country Shared Accounting Center Treasury Risk Control Credit Management 39 Country Credit Managers
Organizational Models for Local and International Players Agenda About ABB The Credit Management Process Account Management Approaches The Credit Policy ERP Systems, Customer Information Providers Outsourcing Office Locations Benchmarking Job Roles and Functional Reporting Centralization and Decentralization May 26, 2013 Slide 10
Organizational Models An initial statement No organizational model is superior to another purely based on its own merits
What is Credit Management? Financial Statements Analysis Setting Credit Limits Disputes Resolution Order Control Process Credit Policy Define KPI s Credit Evaluation Standards Setting Payment Terms Define Collection Strategy Past Due Collection Commercial Risk Assessment Documentary Collection Risk Mitigation Letters of Credit Management Cash Discounts Policy Bad Debt Allowances Performance Reporting Country Risk Assessment Critical Accounts Customer Visits Issue Collection Instruments Credit Insurance Employee Development Customer Financing Write Offs Policy Credit Systems Cheques Collection May 26, 2013 Slide 12
Credit Management Activities Strategic Vs. Transactional (Example) May 26, 2013 Slide 13 STRATEGIC Credit Policy Define Collection Strategy Credit Evaluation Standards Country Risk Assessment Commercial Risk Assessment Customer Financing Risk Mitigation Employee Development Cash Discounts Policy Credit Systems Define KPI s Credit Insurance Bad Debt Allowances TRANSACTIONAL Past Due Collection Issue Collection Instruments Documentary Collections Disputes Resolution Cheques Collection Order Control Process Performance Reporting Financial Statements Analysis Setting Credit Limit Setting Payment Terms Letters of Credit Management Customer Visits Critical Accounts
Who is in Charge? Existing Organization Model (Business, Function, Countries) Credit Policy Ownership of the Policy Alignment of the Credit Function Policy Objective(s) Ultimate Repsonsibility for Credit Decisions Credit Limits, Payment Terms, Order Control Arbitration Process Delegation of Authority May 26, 2013 Slide 14
A Theoretical Model (For Illustration only, NOT a Recommendation...) CREDIT MANAGEMENT Country Risk Assessment Commercial Risk Assessment May 26, 2013 Slide 15 Customer Financing Risk Mitigation Cash Discounts Policy Credit Systems Define KPI s Setting Credit Limits Credit Evaluation Standards Financial Statements Analysis Performance Reporting BUSINESS Setting Payment Terms Define Collection Strategy Customer visits Critical Accounts Order Control Process TREASURY Credit Policy Employee Development Credit Insurance Letters of Credit Management Documentary Collections ACCOUNTING Issue Collection Instruments Bad Debt Allowance Cheques Collection Past due Collection
Organizational Models for Local and International Players Agenda About ABB The Credit Management Process Account Management Approaches The Credit Policy ERP Systems, Customer Information Providers Outsourcing Office Locations Benchmarking Job Roles and Functional Reporting Centralization and Decentralization May 26, 2013 Slide 16
Account Management How do you look at Customer risk? Example 1 Country/Business Unit 1 Acct. # 1 & Credit Limit 1 iwantobuy Ltd Country/Business Unit 2 Acct. # 2 & Credit Limit 2 Country/Business Unit 3 Acct. # 3 & Credit Limit 3 Fragmentation in decisions Overall exposure management is complex Different approach (order control, past due follow-up) More difficult to manage under a centralized process (not impossible) May 26, 2013 Slide 17
Account Management How do you look at Customer risk? Example 2 Country/Business Unit 1 Acct. # 1 & Credit Limit 1 iwantobuy Ltd Country/Business Unit 2 Acct. # 1 & Credit Limit 2 Country/Business Unit 3 Acct. # 1 & Credit Limit 3 Fragmentation in decisions Overall exposure management is slightly improved Different approach (order control, past due follow-up) Can be better managed with a centralized organization if in presence of a common systems platform May 26, 2013 Slide 18
Account Management How do you look at Customer risk? Example 3 Country/Business Unit 1 iwantobuy Ltd Acct. # 1 & Credit Limit 1 Country/Business Unit 2 Country/Business Unit 3 Credit decisions are taken on behalf of the Group Exposure management can be consolidated/centralized Common management approach across the organization May 26, 2013 Slide 19 Can be supported both by a centralized and a decentralized organization
Organizational Models for Local and International Players Agenda About ABB The Credit Management Process Account Management Approaches The Credit Policy ERP Systems, Customer Information Providers Outsourcing Office Locations Benchmarking Job Roles and Functional Reporting Centralization and Decentralization May 26, 2013 Slide 20
Credit Policy Basic Principles Clear governance guidelines on managing credit matters Definition of Roles and Responsibilities Framework for exceptions management Reflect realistic objectives that can be attained (e.g. do not limit/hamper operations) Define level of detail/coverage in the organization Very difficult to include all relevant matters in one single document Policy layers often required (Geography, Business) Able to facilitate and support the internal control process May 26, 2013 Slide 21
Credit Policy Building Blocks (Suggested) Objective Business, Geography, Risk Approach, Working Capital Management, Sales optimization Overall Management responsibility Who owns the Credit Process? Accountability for administering/changing the Policy Operations Definition of Exposure Establishing the Credit Limit Order Control Process Payment Terms and Payment methods Collection Process Critical Accounts Management Delegation of Authority May 26, 2013 Slide 22
Organizational Models for Local and International Players Agenda About ABB The Credit Management Process Account Management Approaches The Credit Policy ERP Systems, Customer Information Providers Outsourcing Office Locations Benchmarking Job Roles and Functional Reporting May 26, 2013 Slide 23 Centralization and Decentralization
ERP Systems Credit Management Accounts Receivable Invoicing Logistics Order Management May 26, 2013 Slide 24
ERP Systems + Assessment Credit Assessment Credit Management Accounts Receivable Invoicing Logistics Order Management May 26, 2013 Slide 25
ERP Systems How Many? May 26, 2013 Slide 26 Credit Assessment Credit Assessment Credit Management Credit Assessment Credit Management Accounts Receivable Credit Management Credit Assessment Accounts Receivable Invoicing Accounts Receivable Credit Management Credit Assessment Invoicing Credit Assessment Credit Management Logistics Invoicing Accounts Receivable Logistics Credit Management Accounts Receivable Order Management Logistics Invoicing Order Management Accounts Receivable Order Management Logistics Invoicing Invoicing Logistics Order Management Logistics Order Management Order Management
ERP Systems How Many? Bolt-On Consolidation Platform May 26, 2013 Slide 27 Credit Assessment Credit Assessment Credit Management Credit Assessment Credit Management Accounts Receivable Credit Management Credit Assessment Accounts Receivable Invoicing Accounts Receivable Credit Management Credit Assessment Invoicing Credit Assessment Credit Management Logistics Invoicing Accounts Receivable Logistics Credit Management Accounts Receivable Order Management Logistics Invoicing Order Management Accounts Receivable Order Management Logistics Invoicing Invoicing Logistics Order Management Logistics Order Management Order Management
ERP Systems + Assessment Credit Assessment Credit Management Accounts Receivable Invoicing Logistics Order Management Country / Business Unit 1 Country / Business Unit 2 Country / Business Unit 3 May 26, 2013 Slide 28
Customer Information Providers Earlier Days igivedata Inc. Country 1 ineedtosell Country 1 igivedata Inc. Country 2 ineedtosell Country 2 igivedata Inc. Country 3 ineedtosell Country 3 igivedata Inc. Country 4 ineedtosell Country 4 May 26, 2013 Slide 29 Lack of standard formats Inflexible Country agreements (different pricing, expensive cross-border information) Difficult to consolidate, compare, centralize information
Customer Information Providers Today igivedata Inc. Global Customer Information and Integrated financial analysys tools ineedtosell Inc. Global May 26, 2013 Slide 30
Customer Information Providers Today igivedata Inc. Global Customer Information and Integrated financial analysys tools ineedtosell Inc. Global Credit Assessment Credit Management Accounts Receivable Invoicing Logistics Order Management Country / Business Unit 1 Country / Business Unit 2 Country / Business Unit 3 May 26, 2013 Slide 31
Organizational Models for Local and International Players Agenda About ABB The Credit Management Process Account Management Approaches The Credit Policy ERP Systems, Customer Information Providers Outsourcing Office Locations Benchmarking Job Roles and Functional Reporting Centralization and Decentralization May 26, 2013 Slide 32
DIY Vs. Outsourcing 1 MANAGED INTERNALLY Positive Fit to Company culture Understanding of the Business Better and faster decisions Challenges Cost Professional knowledge Getting close to the business May 26, 2013 Slide 33
DIY Vs. Outsourcing 2 OUTSOURCE Positive Availability of expertise difficult to develop internally Focus on core business Challenges Defining the mandate scope to the oursourcing partner Distance from the business Company remain in charge for final decisions (not the oursourcing partner) May 26, 2013 Slide 34
Organizational Models for Local and International Players Agenda About ABB The Credit Management Process Account Management Approaches The Credit Policy ERP Systems, Customer Information Providers Outsourcing Office Locations Benchmarking Job Roles and Functional Reporting Centralization and Decentralization May 26, 2013 Slide 35
Office Location(s) HQ OFFICES Global General Management Business Management COUNTRY 1 Regional Business Management COUNTRY 2 Sales & Commercial Sales & Commercial Sales & Commercial Treasury Treasury Controlling Controlling Tax Manufacturing Manufacturing Consider: Functional Leadership of Credit Management Degree of Interface with Business and Functions May 26, 2013 Slide 36
Organizational Models for Local and International Players Agenda About ABB The Credit Management Process Account Management Approaches The Credit Policy ERP Systems, Customer Information Providers Outsourcing Office Locations Benchmarking Job Roles and Functional Reporting Centralization and Decentralization May 26, 2013 Slide 37
Benchmarking the Organization and the Process What is the World doing? Focusing only internally can be a limitation Just copying what somebody else is doing may not work either Need to be aware of new ideas, tools, technology Attention to what is being compared Consistency of data Industry practices Policies Approaches Individual (Company-to-Company) Industry Groups Professional Associations May 26, 2013 Slide 38
Austria Bundesverband CM Österreich Belgium Instituut voor Kredietmanagement Czech Repulic Czech Republic Credit Management Association Denmark Dansk Kredit Råd Finland Luottomiehet Kreditmännen Ry France Association Francaise des Credit Managers et Conseils Germany Bundesverband Credit Management e.v. Hungary Hungarian Credit Management Association Ireland Irish Institute of Credit Management Italy Associazione Credit Managers Italia Malta Malta Association of Credit Management Netherlands Nederlandse Vereniging voor Credit Management Sweden Svenska Kreditföreningen United Kingdom Institute of Credit Management May 26, 2013 Slide 39
www.ictfworld.org
About ICTF An independent, not-for profit, member-led, international association Formed in 2010 600 Members since its formation Governed by an international Board of Directors (Senior international credit and trade finance executives from the U.S. and Europe ICTF exists and operates for the benefit of its members
ICTF s Value Proposition and Member Benefits Best-in-class educational and networking events (US and Europe) Webcasts live and on-demand Online Member Discussion (Q&A) Forum Country Intelligence Column by Dr. Hans Belcsák Weekly Country Risk Updates Monthly Newsletters global business intelligence Quarterly Magazine published in association with CCR World Online Resource Center & White Papers Benchmarking Surveys, Credit Reports, Country Reports ICTF/Thunderbird Online Courses and professional designations
Organizational Models for Local and International Players Agenda About ABB The Credit Management Process Account Management Approaches The Credit Policy ERP Systems, Customer Information Providers Outsourcing Office Locations Benchmarking May 26, 2013 Slide 43 Job Roles and Functional Reporting Centralization and Decentralization
Job Roles Depending on Business and Geographical Set-Up Global Credit Manager Business Unit Credit Manager Regional/Country Credit Manager Trade Finance Manager (Specialist) L/C & Documentary Collections Manager (Specialist) Credit Analyst A/R & Collection Specialist May 26, 2013 Slide 44
Functional Reporting 1 Finance/Treasury Probably the best logical solution Financial Analysis and Risk Assessment are generally part of the skills profile in the Finance function Key risk decisions part of Finance provide a natural balance towards the Commercial function Need to show the ability to support the business commercial targets and to take controlled risk Need to act as a constructive support to the business ( finance salesmen ) Avoid excessive focus on controls and collections (bureaucratic perception) May 26, 2013 Slide 45
Functional Reporting 2 Business/Commercial Can help understand the commercial strategy of the Company/Business Unit, which is an important component on making overall credit decisions May result in better integration/interface with the business, therefore allowing for better service and support Business may have more interest in prioritizing the top line numbers than in seeking for balanced risk/reward decisions May 26, 2013 Slide 46
Functional Reporting 3 Customer Service/Integrated Supply Chain Adoption of Order-to-Cash processes often results in combining functions such as Order Management, Logistics, Accounts Receivable and Credit in one organization In this context, Credit Management can benefit from the fact of monitoring an integrated process Decisions can be taken evaluating several aspects in the chain Credit can actively support overall process optimization Need to balance process efficiency with preserving risk management and business support May 26, 2013 Slide 47
Organizational Models for Local and International Players Agenda About ABB The Credit Management Process Account Management Approaches The Credit Policy ERP Systems, Customer Information Providers Outsourcing Office Locations Benchmarking Job Roles and Functional Reporting Centralization and Decentralization May 26, 2013 Slide 48
Centralization Vs. Centralization What needs to be addressed? Cost Operational Efficiency Risk Management Controls Management Information May 26, 2013 Slide 49
Centralization Common, Global ERP systems Customer Information Availability (Global Providers, Internet, etc.) Standardization of processes (Credit analysis, order control, etc) KPI Measurement, Reporting Creation of critical mass in Credit Management Teams (professional development, sharing of expertise) Understanding of Local Market Market Development Customer Visits Critical accounts management (Legal issues) Recruiting with language skills/local knowledge May 26, 2013 Slide 50
Decentralization Separate ERP systems Customer Information Availability via Local Providers Global Processes executed locally KPI Measurement, Reporting requires consolidation Credit Management Job often performed as partial responsibility of a Treasury/Accounting employee Understanding of Local Market Market Development Customer Visits Critical accounts management (Legal issues) Recruiting with language skills/local knowledge May 26, 2013 Slide 51
Centralized Credit Management with Decentralized Organization Country/Business Unit A iwantobuy Ltd Country ABCDE Acct. # 1 & Credit Limit 1 Country/Business Unit B Assessed by Credit Manager Country ABCDE Credit Assessment Credit Management Accounts Receivable Invoicing Logistics Order Management Country/Business Unit C
Decentralized Credit Management with Centralized Organization Country/Business Unit 1 Acct. # 1 & Credit Limit 1 iwantobuy Ltd Country/Business Unit 2 Acct. # 1 & Credit Limit 2 Centralized Credit Management Team Country/Business Unit 3 Acct. # 1 & Credit Limit 3 Credit Assessment Credit Management Accounts Receivable Invoicing Logistics Order Management
Closing Comments No organizational model is superior to another purely based on its own merits Centralization or Decentralization are not a mere issue of geographic locations or cost management Organizational decisions may miss their target unless they are coupled with a clear understanding of the credit process and the responsibilities involved Global ERP Systems and Customer Information providers provide a natural platform to consolidate credit management operations Standardized customer risk analysis can be beneficial to both a centralized or decentralized organization Developing new markets can be better supported via a decentralized structure May 26, 2013 Slide 54
Closing Comments No organizational model is superior to another purely based on its own merits Centralization or Decentralization are not a mere issue of geographic locations or cost management Organizational decisions may miss their target unless they are coupled with a clear understanding of the credit process and the responsibilities involved Global ERP Systems and Customer Information providers provide a natural platform to consolidate credit management operations Standardized customer risk analysis can be beneficial to both a centralized or decentralized organization Developing new markets can be better supported via a decentralized structure Irrespective of the organizational model, in order to be successful Credit Management needs to be dynamic, responsive, show appetite for controlled risk taking, support the business while optimizing the risk and show consistency, integrity and transparency in the decision making May 26, 2013 Slide 55
Thank You!