OTC Best Practices Webinar:

Transcription

1 OTC Best Practices Webinar: Crisis Driven Headcount Management Matt Skudera, Vice President Credit Research Foundation

2 CRF Webinar Agenda Webinar Topic Introduction CRF Platinum Sponsor Intro OTC Best Practices Discussion Q & A

3 What we will cover today Crisis Driven Collections Headcount Management Optimizing OTC Resource Productivity Achieving 100% Portfolio Coverage - Each 30-Day Cycle Applying Six Sigma DMAIC Methodology to Order-to-Cash (DMAIC OTC) Strategic Collections Management (SCM) Methods for Dispute Resolution Cycle-Time Compression (DRC)

4 Typical OTC Workloads Collectors, Dispute Resolvers and Credit Analysts can have responsibility for 500 or more customer accounts each. On a rolling 30-day cycle, Client-to-Collector ratios above 150 do not typically leave enough time to effectively touch 100% of your A/R balance-carrying customers. Above 150 accounts, the industry averages range between 40% to 60% A/R portfolio coverage on a rolling 30-day basis. Result: As much as 50% of your current balance-carrying customers, are not being touched by a C&C team member monthly.

5 CBO Outlook January 2016 CBO (Congressional Budget Office) released THE BUDGET AND ECONOMIC OUTLOOK: 2016 TO 2026 December 2015 interest rate hike and projected continued increases in the effective federal funds rate (EFFR): (will) rise from their currently low levels. The Federal Reserve had held the target range for the federal funds rate (its primary policy rate) at zero to 0.25 percent since late 2008, but in December 2015, it raised the range to 0.25 percent to 0.5 percent. CBO projects that the federal funds rate will rise to 1.2 percent in the fourth quarter of 2016 and to 2.2 percent in the fourth quarter of 2017 before settling at 3.5 percent in the second quarter of 2019.

6 CRF Platinum Partner - Cforia For 16 years Cforia Software has served over 240 customers managing $250B of Working Capital in 55+ countries Cforia s sole focus is delivering technology transformation to streamline order to cash (OTC) processes and results in Local, Hosted and Financial Shared Service Center Environments OTC Best Practice examples are based on direct experience with a global enterprise customer base Cforia Software is also a continuing contributor to the CRF News & CRF Management Review publications

7 CRF Webinar Guest Speaker Chris Caparon COO, VP Professional Services Cforia Software Chris Caparon has led over 240 Cforia Order-to-Cash (OTC) Improvement Projects globally, integrating real-time data across multiple ERPs Systems, Countries, Currencies and Languages significantly impacting DSO/DBT and available Working Capital. Chris has degrees in both Electrical and Computer Engineering from the University of Michigan

8 Why is your AR Department the size that it is today?

9 Crisis Driven Headcount Mgmt Sales Actual DSO Target DSO FTE s Time

10 Crisis Driven Headcount Mgmt The history of Order to Cash (OTC) management is working from Excel, reports or even system generated work queues Full Time Employee (FTE) staffing is based on high-level metrics Not tied to specific KPI s Collector capacity KPI s and metrics are difficult to obtain Management engages when high level metrics (DSO) are impacted Management Reacts by Hiring Temps > Perm

11 OTC Current State Multiple Systems of Record (ERP) & Systems of Engagement Off-System/Manual Credit or Collections workflow & processes Call-Focused collections processes 50-60% AR portfolio coverage every 30 day cycle System generated worklists are not based on capacity Overloading worklists causes abandonment of the system Collections prioritization not controlled by management Parent/child relationship is poorly supported and increases the number of FTE touches required to manage the relationship No ability to separate sub-ledgers to optimize collections and disputes performance Not managing collections process via exceptions Limited IT resource and knowledge impairs OTC performance

12 What Methodology and Approach will Optimize Departmental Size and Performance?

13 Order to Cash Performance Departmental goal: deliver optimal financial performance in DSO (DBT), DDO, Write-Offs while simultaneously minimizing overhead and cost How many Full Time Equivalents (FTEs) are required to deliver optimal financial performance? If you had 3 times the FTEs would your DSO and DDO be lower? What is the fewest number of FTE s that could deliver optimal performance? How do you calculate FTE requirements? How do you track your FTEs? How many processes are actually in OTC?

14 OTC has Multiple Processes Manual & Paper > Process &Technology FTE Event Optimization Cforia FTE Event Coefficient > WC Release Orders & Hold/Release Management Multiple-EIPP Billing Options Zero-Touch OTC Lifecycles Strategic Receivables Mgmt (SRM) Proactive Collections & Dispute Prevention Customer Harmonization and Aggregation Lockbox TIF/PDF OCR Automation Cash App: Automate BAI, BAI2, MT940, EDI 820, Excel and CSV Data Deductions Resolution Compression and Prevention via Root Cause Review

15 Introducing Lean into AR Each FTE (Full Time Employee) has a finite number of tasks they can accomplish in a workday = FTE Events (FTEEs): 100% Portfolio Coverage of NECESSARY Customers/Transactions is the goal Goal #1: Exponentially scale the number of FTEEs for smaller customers/ transactions (Segment: high volume low value): Zero Touch Collections People are expensive, electrons are free Goal #2: Maximize the value of each and every FTEE to yield the desired Financial Outcomes: Who is in control of your FTEEs? IT, your customers or you?

16 Lean Sigma OTC Principles Applying Six Sigma DMAIC Methodology to OTC Define Finance Outcomes Measure KPI s Analyze Data & Root Causes Improve Finance Processes Control Continuous Improvements Control Improve Define Analyze Measure Current A/R measurements (DSO, %PD, etc ) do not support Best Practices methodology What is the Capacity available in the A/R department? What Capacity is required to deliver desired Financial Outcomes

17 Collections Best Practices Create single database to drive OTC performance Segregation of "Clean" versus "Dirty" receivables to optimize resource effectivity Full visibility of parent/child hierarchy for exposure, priority and work queues Client Portal for Self Service (e.g. Reprint Invoices, generate statements, make disputes, make payments) 100% NEEDED portfolio coverage every 30 days Zero-touch collections to exponentially scale FTE events Automatic generation of work queues by Segment, Treatment, Risk Class, Specialization AND capacity An FTE event saved is an FTE event earned Single solution for managing all aspects of AR Collections No Alt+Tab or having to drive multiple screens Creating KPI s that support DMAIC process and reporting

18 Disparate OTC Databases and Fax Servers Invoice Copies Database Server Applications Dashboards ERP 1 Cforia DB C&C Workbench ERP 2 AR DB Customer Self Service ERP 3 Cash Application Automation Cash Application Write-Backs to ERPs Integrating disparate ERPs to create a normalized Global OTC databases

19 Clean vs. Dirty A/R Collectable Clean Receivables Disputes Dirty Receivables Deductions Dirty Receivables Undisputed Transactions (Clean & Past Due) Cash Forecastable Transactional Discrepancies (Pricing, Freight, Tax) Item Level Resolution Often Contractual (Service Agreements, Trade-Funds Co-Op) Item Level Resolution (often across hierarchy) Typical A/R Database

20 Global View of Client Activity Global HQ Parent Parent Co/Customer Co/Customer Co/Customer Co/Customer Invoice Invoice Invoice Invoice Invoice Invoice Invoice Invoice

21 Harmonized Customer Data 1 call replaces 3 calls Ortho Supplies is easy to do business with! Brenda BradCo Consolidated Customer Hierarchical View of all Invoices across all ERP Systems Mary Jo BradCo AP ERP 1 Braces Divison ERP 2 Implants and Joint Replacements Div. ERP 3 Recovery & Rehab Products Div. BradCo Cust # 341 BradCo Cust # F321 BradCo Cust # BradCo Cust # 458 BradCo Cust # F493 BradCo Cust # BradCo Cust # 231 BradCo Cust # F401 BradCo Cust# BradCo Cust # 981 BradCo Cust# BradCo Cust # 312 BradCo Cust#

22 Zero Touch Collections Zero-Touch Segment = Low-Value / High-Volume Collections 100% portfolio coverage every 30 day cycle econtact HTML process to replace Call-Based Collections One button press can replace 100s of phone calls (FTEEs) Do not review every before it is sent Avoid the unintended consequence of customer driven FTEEs Your smallest customers can consume extensive FTEEs for very low value events like invoice reprints Enable Robust Customer Self-Service and Online-Payments Customers can reprint their own invoices and statements Pay their bills on line via ACH, Credit Card or other Automate Cash Application for all Online-Payments 100% Payment Reconciliation Hit-Rate > Zero-Touch

23 Best Practices in edunning Latency of payment data. Data Connectors required to synchronize OTC data > FTE s trust what they see > One Call Resolution & better outcomes Segregation of Clean A/R from Dirty A/R Only clean A/R drives trust in outbound correspondence Disputes or other Dirty A/R must NOT trigger a dunning event Control over the transactions lists in the letter template. On a template by template basis, you must be able to control which transactions are sent to segmented customer Parent/Child Configuration You must dun customers at the consolidated/parent level. If the children within a parent generate dunning the system will collapse because you re A/P contact will overwhelmed with documents. You are a single company to them, not individual bill-to s. Must have ability to run targeted campaigns and track results

24 edunning, cont. Customer-facing documents must be in the format your customer s need and want The date and number formats must be managed so that it is easy for your customer to read and respond to your correspondence MMDDYYYY vs. DDMMYYYY vs. XXX.XXX,YY vs. XXX,XXX.YY all matter Support the appropriate logos and brands Departmental Empowerment = No IT resources (or outside consultants/vendor) needed to change OTC priority, workflows or to reconfigure reminder/dunning templates

25 Best Practices in Prioritization Segregation of Clean A/R from Dirty A/R Do not touch every invoice to minimize call prep time and call efficiency Collections calls are in aggregate and disputes are transactional Implement Parent/Child to compress the FTEEs Align worklists with capacity. Prioritize based on the cash flow delivered Account balance-driven vs. transaction delinquency events Must use customer AND invoice data to make decisions Use customer payment and credit risk behaviors to only call customers who need to be called Which customers pay when ed? Which customers paid with 0 or 1 FTEE in the past month? Which customers have negative payment trends? More

26 Credit Risk Driven Collections DBT Trends Customer Touch History Credit Data Risk Scoring High-Risk -Need Calls Medium Risk -Pay w/ s Other Volunteers

27 Collections (Clean AR) Tracking Number of FTEEs per collector & customer per month by type and outcome Did they pay with an electronic touch? Do they need to be called? Adoption rate of Zero Touch Collections Value per FTEE Low to high high to low Required Capacity vs. FTEEs Aligning work queues with available capacity Untouched customers DBT (days beyond terms) tracking and trending by customer and collector # of required FTEEs per month

28 Disputes & Deductions Best Practices Prioritization to maximize cash flow "Pre-Term Touches" improving overall collections effectivity, CEI and DSO - Strategic receivables management A/R automation tool tightly integrated with ERP and supporting evidence - POD s, imaging, contracts and other digital docs Tracking case created and routed to resolution support teams Identification and collaboration with the key stakeholders Driven by the resolution time fence if it exists Cases prioritized by type, value and financial impact/risk Which are recoverable/preventable? Which are regular business transactions that need to be processed? Root-Cause analysis by code and resolution process > Elimination of chronic causes = Prevention Focus

29 Dealing with Majors & Big Box Resolution/FTE Cycle Compression Improvement Methods AP Vendor Portal Automation Support Helping to streamline what is a manual process Downloading the claims and related data Mining EDI feeds to complete the transaction When IT says you have 98% EDI automation and you have no deduction reason codes assigned, you have 0% automation The EDI feeds contain critical data than IT imports into ERP or management tool Group deductions If you have 100 x $20 deductions and $20 is below the minimum threshold for dispute then have 1 x $1000 and manage the entire balance

30 Dispute Resolution Results 1. Reduce Dispute Resolution Cycle Time by 10%-50% % Dispute & Deductions Tracking 3. Improve Root-Cause Analytics Tracking 10%-90% - Helping to Identify and eliminate chronic recurring upstream issues 4. Eliminate Current Manual ( and Phone-Based) Dispute/ Deductions Resolution Methodology 5. Create Systems Based Intra-Departmental Collaboration, Communication & SLA s Particularly with Client Facing Field Resources 6. Enable High-Volume Lower-Value Customers to Self-Service 7/24/365 to initiate Disputes and Deductions against specific Invoices 7. Split Invoices into Clean/Dirty to Clear Undisputed Portions for Payment Working toward eliminating Short-Pay Artistry 8. Single View of Customer Truth across all Billing, Support and Supplementary Systems of Record

31 Deductions Tracking Number of FTEEs per Dispute/Deduction Value per FTE Low to high high to low Required Capacity vs. FTEEs Untouched Disputes/Deductions Number of FTEEs per day, month Trending of FTEEs over time Increased Dispute/Deduction Submissions & Recovery Rates Root Cause Analysis by type and owner DDO, DSO, DBT By customer, FTE, owner, type.. Trending over time

32 Held Order Management Held orders are unscheduled FTEE s that are often used as collections events Many held orders are the result of poor credit checking logic in the ERP system Credit checking policy does not create exceptions nuisance holds It is critical to improve the credit checking methodology to only put orders on hold that need to go on hold Seasonality, credit risk, payment trending, parentization

33 OTC Success Factors Implement best practices to optimize your FTE performance Focus on managing by exception for all FTEE s in your department Compress FTEEs based on best practices Initiate KPI s to track and measure departmental performance Allocate time to review your processes and KPIs to support the DMAIC process It is critical to have flexibility in your OTC tools to support prioritization changes based on your KPIs If it takes IT and consultants to implement change then it most likely won t happen

34 Experts 2016 Advise 1. Optimize FTE Allocation and Efficiencies - Resource Productivity Gains 2. Increase Customer Responsiveness - Make doing business with your company easier - Customer Self Service 3. Provide a world-class experience to internal customer(s) - Collaboration 4. Deliver focused and quantifiable financial improvements Measurable Impacts 5. Cultivating Continuous Improvement processes within financial supply chains

35 Client Case Studies

36 CRF Webinar Q&A Matt Skudera Chris Caparon ww.cforia.com