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Part five of this guide outlines how shared services can be seen as a value generator and the most effective way to leverage best practices in collections. The impact of the credit crisis on cash flow and liquidity has brought trade receivables management to the forefront of corporate finance. Receivables are typically the largest asset on a balance sheet and also the largest source of funds for a company. While there has been an increased focus on collections management over the past five years, the most recent turn of the economy has catapulted this function from a purely back-office cost centre to a more strategic and vital component of the front office. Creating a SSC is very much like outsourcing the credit and collection functions to a group within your own company by taking these activities from those business units, which may be even in-country or in-region, and moving them to a centralised centre where the sole focus is to do that particular function. Best practices are developed that are 100% focused on doing that particular activity. The best practices deployed in these SSCs include using proven technology solutions that are developed specifically for all aspects of the order-to-cash cycle. Employing Best Practices in a SSCThe most important aspect of a SSC is implementing best practices across all regions and areas related to the credit and collection activity. Consolidating a corporation’s credit and collection activity, which may be performing these activities throughout all of Europe for example, into a centralised centre is more efficient. In this example, it is critical to have the necessary European language skills and local area knowledge to carry out the credit and collection functions. The core collection strategies in different industries may be very similar; for example, in most industries it is advantageous to start the collection activity before the due date and then follow up with the customer a number of days later if the payment has not been made. Depending in the industry, it may prove to be more effective to initially contact the customer via email, so this piece of the workflow can easily be automated. Then, if the customer becomes delinquent, an employee can follow up the email with a phone call. This planned workflow can save resources in terms of employee hours. The best methodology is to segment customers into groups reflecting how you are going to collect from those customers, and then assign those groups to collection teams. This allows specific teams to excel in specific areas, such as high risk collections or collections from the government or collections from large retailers, as each of these types of customers will generally dictate a different set of best practices. System and Data Consolidation in a SSCIn most shared services environments, companies need to employ technology that allows the consolidation of all the disparate systems. For example, a firm may use SAP but have three different editions of SAP; or predominantly they have SAP, but there’s still a business unit that’s using an old legacy system or even a different enterprise resource planning (ERP) system, such as Oracle. Typically none of these systems are integrated or even if there is a common ‘data warehouse’ the integration and subsequent refreshes are not at the detailed levels needed to properly manage the order-to-cash cycle. A SSC team member would need to access multiple systems, multiple times a day, which leads to great inefficiencies. Today, SSCs are moving outside of their core ERP systems towards using specialised credit and collection systems to integrate and consolidate data, in order that they can effectively group then segment the customer by type. When the data is consolidated in one format and properly presented to the SSC team member, they can place one phone call to the customer to speak to them about their entire outstanding. There is no longer a need to go into 10 different systems and make 10 separate phone calls to the same customer. This not only provides significant efficiencies but also increases customer satisfaction. The ease in which risk can be assessed using these specialised tools is a great asset to senior executives, particularly given today’s credit crisis. A credit manager only needs to look at one dashboard to view the total exposure for any one customer across all the businesses supported by the SSC. This allows them to properly assess risk across customers, regions, industries and currency. This same consolidated database allows the SSC to properly manage the order hold and release process to effective manage each customer credit line to help maximise the potential of each customer relationship. This methodology also allows companies to more easily add a new business to the centre, thereby ensuring consistency and best practices. The SSC model is also helpful in the integration process associated with acquisitions or mergers. Rather than waiting months, and sometimes years, to fully integrate the credit and collection function of acquired or merged entity, today’s technology allows companies to simply interface the new data feeds into the existing systems, thereby immediately being able to use the best practices of the SSC. Creating a Standard Set of MeasurementsBy consolidating best practices into a SSC, it is possible to roll these practices out to all the users and have them be a part of the standard corporate methodology - versus waiting months for it to move from one business unit to another business unit by word of mouth or just by chance. By consolidating the processes into a SSC, the whole firm has visibility of what the standard corporate policy is and how to effect change to create best practices. This means that the SSC can rollout dashboards that can be easily leveraged at the business unit level to monitor progress and look for weak spots. Key metrics may include number of calls made, cash collected, disputes resolved, and outstanding accounts receivable (A/R) balances by bucket. Having real-time views to this data is vital to the success of the SSC. ConclusionUntil recently, treasurers sold the idea of a consolidated SSC mainly on the basis that it was a cost savings play. Many corporates start with an environment where they have eight or nine different business units doing their own collections. Chances are that they will be able to consolidate that function and gain cost effectiveness - for example it will allow you to leverage a full-time equivalent (FTE) to do more work than if the FTE was in a distributed environment. Today, many treasurers realise that although cost savings may be one aspect of consolidation - and it may even be the aspect that it was sold to management on - a SSC can play an important role in instilling best practice because within it the credit and collection teams are under one area of control. Now it is possible to understand what works best and quickly deploy to all the SSC team members. Case Study – HenkelHenkel decreased past-due accounts receivable (A/R) and centralised its order-to-cash operations with AvantGard. Background: Henkel is a German-based company that is organised into three unique operating sectors, including: laundry and homecare products, cosmetics and toiletries, and adhesive technologies. The manufacturing and technology company has about 52,000 employees worldwide and uses shared service centres located in Connecticut, USA and Manila, Philippines, which are responsible for managing its North American business activities. Structure: When Henkel of America first approached SunGard in its pursuit of locating an automated solution, its collections environment was decentralised and comprised a team in excess of 70 individuals. A total of 15 separate systems housed credit operations information and the majority of processes and communications were manual in nature. Problem: As a global organisation with a number of different locations, Henkel found that it was unable to gain the visibility that it desired into key information required to perform cash forecasting and risk analysis surrounding the order-to-cash life cycle. Because information was located in 15 disparate systems, credit and collections employees were receiving a disjointed view of data and customers, which in turn hindered the efficiency and accuracy rates at which transactions could be processed and settled. Henkel’s credit and collections processes were entirely manual, which meant that there was greater possibility for costly inaccuracies to arise that could potentially be associated with human error. Also, the processing of data by hand is a highly tedious activity that was requiring the attention of a large number of staff members and monopolising valuable time that could be spent on supporting more goal and revenue driven activities. These factors were causing the organisation to reach a point where business growth could not efficiently be facilitated without adding employees to process the increasing quantities of transactions. Reporting was another area that needed improvement, as Henkel did not have the level of detail or real-time view into information that it needed in order to make the best possible business decisions and forecast as precisely as desired. Solution: Some specific requirements that Henkel put forward included: a quick implementation timeframe that would not interfere with ‘business-as-usual’ activities, seamless integration with its ERP system, process automation, real-time visibility into data, a consistent approach to collections, significant ROI and lastly, sophisticated reporting capabilities. Henkel choose SunGard as its provider because the vendor proved most capable of precisely accommodating the organisation’s overall collections needs. SunGard implemented AvantGard Receivables. Henkel has benefited through:
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