As companies migrated to this model for finance and accounting, they soon realized that any cost savings could easily be wiped out by poor results. For instance, if DSO (days sales outstanding) were to creep up, customer service to decrease, and controls on payments to be out of sync with cash flows, then the cost savings realized would essentially be obliterated by the low service levels and poor performance that actually drove up bad debt expense, increased borrowing requirements, lengthened exception processing, and ultimately drove up transactional costs.

I want to share with you a recent SunGard Insights study that revealed disparities when comparing perceptions about Shared Service Center (SSC) levels and capabilities.  According to the study, 40% of respondents whose businesses are serviced by the SSC felt that it was not meeting their Service Level Agreements (SLAs), while 3.4% of respondents working from within the SSC identified that this was a problem.

Additionally, 36.5% of the respondents whose businesses are supported by the SSC state that they are dissatisfied with service level results while only 19.7% of the respondents from within the SSC report the same perception. The predominant underlying issues in these gaps are lack of communication, workflow and visibility, all of which can be mitigated through recent technology advancements such as online portals, workflow tools and sophisticated reporting functionality.

The study also reveals a shift in the drivers for migrating to an SSC. Companies are realizing that they can derive more value from their SSC and operate smarter and more efficiently if they are able to standardize processes and improve on those processes with technology.  Compared to a similar SunGard study from 2010, the driver to operate more strategically by standardizing operations grew from 11.8% in 2010 to 21.2% in 2013. For those companies with mature SSCs, when asked what they would do differently when setting up an SSC, 58.9% of respondents said they would standardize processes and 53.5% said they would implement technology.

For this reason, many companies are now seeking to create true centers of excellence, with increased collaboration and communication between the SSC and each business line. Centers have moved from one global center to multiple regional centers, and in some cases a centralized service that is actually physically distributed across multiple sites. With this, Service Level Agreements have been established and success metrics reach far beyond cost savings. Focus has shifted towards delivering greater value to the organization with an overall benefit of increasing cash flow. How SSCs deliver that value though is the key to their success, and will be the topic of my next blog.

Has your company centralized A/R functions into an SSC? I’d like to hear about your experience.

Download the study

The quicker cash is applied; however, the better visibility managers have to the past-due status of an account/portfolio. Where real-time dashboards are used, the past-due numbers are skewed even if they show progress against targets if the cash is not applied in a timely manner. Many companies will immediately age the cash in a similar way to credits, but I have seen it the other way, where the cash remains in the current column thus amplifying the past dues. This serves as a great incentive to apply the cash as quickly as possible. The only danger is if the cash is applied just to keep the ledger looking good and is not based on customer instructions. This will lead to reconciliation issues further down the line.

A well maintained account that is sent to a customer in the form of a statement or list of outstanding items will encourage the customer to deal with your account first as they will view your company as easier to deal with. Customers who have less reconciliation issues and do not have to spend time telling collectors ‘paid on a particular date, etc.), can spend more time getting invoices approved. Everything that is done in the Order-to-Cash process must compel the customer to pay and a clean, a reconciled account is no exception.

One challenge that a credit and collections manager will have, in addition to making sure their team has the payment detail in order to apply the cash, is having the appropriate SLAs in place with the treasury or accounting teams that are, more often than not, responsible for applying the cash.

Technology however can play a key role in helping a company quickly apply cash and updating the collector’s calling queue freeing up their time to focus on actual past-dues. The solution should auto-apply as much as possible and suggest intelligent matches based on promises and disputes (for short pays). The less manual intervention, the quicker cash can be applied, giving the cash application person or team more time to investigate unidentified payments or to assist with reconciliations where appropriate.

Are you able to quickly apply cash? I’d like to hear from you.

In part I of my Credit Limit Policy and Delegation of Authority blog series, I discussed the importance of distributing authority and responsibility.  In part II, I will touch upon the importance of mobile in our daily lives and whether we are ready to use it in our credit risk management processes.

Twenty years ago, the first month of my senior year, I connected my desktop to the university network via a local dial up number and was using Lynx, a text based browser.  WiFi was not yet in the human vernacular.  After graduation, a friend bought his first cellular phone the size of a small brick, paying $35 a month for 30 minutes of service.

Fifteen years ago, on my first day on the job at a software company, I was issued a laptop and a Nokia phone and I considered myself mobile.  Eight years ago, I was issued my first BlackBerry 7501t (with the side rolling wheel before the trackball and touchpad) and was blazing along on EDGE network.  In July 2012, I received my first smartphone, a Samsung Galaxy S3, riding on 4G LTE.  Each time I touched new technology I was in wonder and amazement. Each time brought a new definition of what it means to be “mobile”.

I often am in discussions regarding how mobile will influence the business processes surrounding credit and collections management.  In the consumer circles, we exist in a world where we make an online purchase and monitor the progress from time of order up to the time it is delivered to our front door…. all from our miniature devices which fit in my shirt pocket and which are more powerful than my twenty year old desktop.

Today, connectivity is a basic assumption of personal and business life.  In the near term there are some conventional associations we can make on how mobile can impact Receivables Management and the Order-to-Cash process.  A common one is:  how does the credit and collections team include and influence participation in the Credit Limit approval process.

In my previous article, we discussed how other folks such as a Managing Director or Financial Director participate in the approval process; especially if these roles are constantly on the move. Is it time to provide the visibility, the notification, and the actionable approvals via a smartphone?

Defining the Delegation of Authority in credit risk management and its associated routing is one endeavor; executing and ensuring participation from the people assigned to take action is another endeavor and one very much worth exploring and investing in.

Can you envision an environment where your organization can review, comment, approve, and request additional information on Credit Limit changes at the speed that business happens in?  I’d like to hear from you. 

A key focus within the credit team is to evaluate, recommend and coordinate credit line extensions to expand revenue opportunities. While this is well-known and understood, there are challenges in ensuring those credit line changes are in adherence to policy and are auditable.  Let’s take the following common scenario.

A credit analyst has been tasked with reviewing a customer account.  The credit analyst has captured the required data to be evaluated such as financials, industry trends, and that customer’s payment history.  The analyst subsequently makes a verbose analysis on his research and recommends an updated credit limit.

What happens next? 

• In one business, it is possible that the analyst has the responsibility and authority to grant that credit line on his own.
• In another business, it may be required that this credit line change be reviewed and approved by a credit manager, a managing director for the region of that customer, and a financial director based on the amount of the credit line.

In the latter case it is necessary that this Delegation of Authority can be acted upon consistently and efficiently.  Also, in many discussions I have had, an SLA (service level agreement) may also be in place with sales teams or customers to respond to credit line change requests in a specified time frame.  There is great opportunity without an auditable system to fall outside of the defined policy.  How does the credit manager get notified that he needs to take action on a review?  How does that credit manager acknowledge approval of that review?  Which managing director does this review now go to?  What response time SLA is he assigned?  Does a financial director now need to approve it based on the amount?  These are questions that challenge practitioners today.

By using defined workflows that leverage advanced BPM (business process management) for technology, companies have a clear sense that responsibility and accountability is properly assigned and can be audited. Instead of Delegation of Authority enforcement controlling you, you can cross over the line that puts you in control of your environment.

In my next blog article, I will discuss how mobile technologies can further help in this area.

How are you managing Delegation of Authority and coordination of approvals? I’d like to hear from you. 

Imagine a collections analyst makes an average of 20 calls per day.  Traditionally, they would first consult an aging report either in MS Excel or on paper.  Let’s assume it takes 2 minutes to determine who they are going to call.  Once they know who to call, the next step is preparing for that call.  Reviewing the account, looking at individual invoices and previous notes, consulting payment history . . . that might take 4 minutes?  Now the call is held and that results in follow up activities including invoice reprints, proof of delivery, communications with a customer to confirm details of discussion, communicating to internal groups regarding account status which might take about 3 minutes? 

If we add all of that together (prioritization = 2 minutes, preparation = 4 minutes, follow up = 3 minutes) the sum is 9 minutes for one call.  Based on 20 calls a day, that is 180 minutes, or 3 hours per day, per person.  These are tiny little slices of inefficient time that really add up across the day.  Add to that any credit risk responsibilities, dispute management and deduction management activity, order hold release processing or assistance provided to the cash application department.   It is no wonder that the call volumes are often less than desired when chatting with people managing these groups.

What if you could reduce the three hours to one?  How might that impact the results of the team?  If a credit and collections department has 12 staff members and each of those 12 saved two hours per day on average; that would increase the productivity of the team by 24 hours per day which is the equivalent of 3 full time people.  

Providing your existing staff with the equivalent productivity of 3 people has a much greater impact than actually going out and hiring 3 additional staff members.  New hires would have to learn your systems, your customers, and the who’s who of your internal network of individuals that sit outside of the collections department but play a role in the overall process.  Giving that same productivity to the existing staff is like cloning three additional well trained staff members that can maximize every bit of that time toward achieving better financial results.

How do you get your credit and collections staff to save two hours a day from administrative tasks?  You can do this by eliminating manual prioritization and implementing automation technology that uses a strategic automated rules engine which takes into account things like order holds, amount delinquent, credit risk changes, and statistical collections dollars at risk to automatically present a daily work queue to your staff.   You can also improve productivity by significantly reducing the preparation by consolidating all of the important information into one central repository for exceptionally fast retrieval of data.  Finally, you can improve productivity by automating the follow up process with standardized templates and leveraging the consolidated, centralized data to automatically populate those templates.  Harnessing your credit and collections team’s productivity frees up their time from focusing on accounts that are already going to pay to those accounts that really need to be contacted for payment.  It has a direct impact on generating financial results and increasing cash flow.

How do you go about harnessing your team’s productivity? I’d like to hear from you?

In Part I of my Automated Dispute Resolution Workflow blog series, I discussed why dispute management still remains a challenge for many credit and collections departments. In Part II, I explored the benefits of automating dispute resolution workflow. In Part III, I described the eight critical components of rule-based dispute resolution workflow. In the final part, I will discuss how you can gain control over your dispute environment.

Like any other tool, automation software can only fulfill its potential with skillful use. While properly designed automated workflows deliver productivity benefits out of the box, it is the data they generate that ultimately generates the most value. In the case of dispute resolution automation, root cause analysis provides the intelligence that will enable you to gain control over your environment. Because many disputes represent recurring issues, the most important thing you can do is to identify the root cause of each dispute type. That done, in most cases you will be able to implement improvements to your order-to-cash systems or work out solutions with your customers to prevent their reoccurrence. By eliminating disputes at their source, you reduce your back-end processing burden.

A key measure in this regard is invoice accuracy. By increasing invoice accuracy (the percentage of invoices that are paid without a deduction) you not only reduce deductions, but also improve cash flow. On average, clean invoices are typically paid within a week of stated terms while invoices containing discrepancies are paid 30 to 60 days late. In addition to root cause analysis, front end transaction reconciliation, which matches customer expectations, as evidenced by their PO, other order details, and/ or their vendor compliance agreement with your order processing data and sales agreement, to identify discrepancies before the order is shipped and billed, can positively impact invoice accuracy.

Even so, there will always be disputes and other payment exceptions, especially with firms that create deductions scenarios through their sales promotion planning process. So while front end prevention of unnecessary disputes is a major part of the solution, so is efficient back-end resolution processing. Automated dispute resolution workflows, especially in a sales promotion planning environment, delivers a compelling return on investment because of their overhead savings and cash flow enhancements. Furthermore, the data they generate is a catalyst for reductions in profit dilution when it is used to both reduce the volume of recurring disputes and to make iterative improvements in the resolution process.

By using automated dispute resolution workflows that leverage advanced BPM (Business Process Management)technology companies can transform themselves. Instead of dispute handling controlling you, you can cross over the line that puts you in control of your environment.

Are you finding that dispute management remains a challenge for your organization? I’d like to hear from you.

In Part I of my Automated Dispute Resolution Workflow blog series, I discussed why dispute management still remains a challenge for many credit and collections departments.  In Part II, I explored the benefits of automating dispute resolution workflow. In part III, I will describe the eight critical components of rule-based dispute resolution workflow.

To realize its maximum potential, rule-based dispute resolution workflow must achieve a very high level of process definition. After all, the goal is end-to-end automation. A failure in any area essentially creates a detour from the prescribed dispute resolution road map that in some respect will necessitate traversing it manually. That slows things down, creates added opportunities for errors, and breeds inconsistency in terms of both process and customer interactions. Accordingly, here are eight critical components that need to be incorporated within any rule-based dispute resolution workflow solution:

1.  Automatic assignment of processing tasks: To ensure compliance, only one handler should be working on a dispute at a time – all others are locked out. When one handler completes their task, there is an automated pass-off to the next handler. In addition, some tasks may be handled automatically in the background such as notifications and electronic document retrieval. It is also vital that when necessary, task assignments be driven through the sales/ customer service portal. Rule-based dispute resolution workflow cannot be confined to just the credit or accounting departments. It must transcend the receivables area to incorporate participation by all other internal and external partners.
2. Enforce user verification to certify all required approvals: Another compliance feature needs to be built around user security and approval authorities. The system should proceed to the next step only if the appropriate data has been entered or otherwise captured and it is consistent with the user’s selection. Selections or approvals that fall outside of predetermined parameters should be immediately flagged for correction or for verification based on the acquisition of updated data or documentation.
3. Ability to define parallel paths: There are two situations where this is necessary. Because multiple disputes can be related to a single item (e.g. both a pricing and quantity deduction taken on a single invoice line item) there need to be parallel workflows. Multiple reason codes on a single item will require multiple resolution workflows. The other scenario requiring parallel paths occurs when no action is taken by a handler. ‘Action’ taken advances process. ‘No action’ taken within cycle time parameters initiates a parallel process to ensure there are no delays in resolving open issues.
4. Provide decision routing: In most situations, only two way decision trees are required (e.g. true/false). However, an advanced system also needs to handle multiple decision scenarios. For example, there will be times a handler will not be able to rule a claim as either valid or invalid, but must also be able to choose that additional information is required before a decision is made or that the work completed so far requires correction. In those cases, the capability of backing up the workflow a step or two so the additional documentation can be acquired or previous steps corrected needs to be built into the system.
5. Capable of interactive required actions: Sometimes there will be a need for a handler to interact with what otherwise would be an automated action. A common scenario involves the sending of any sort of correspondence. In most cases the system will generate and send emails and faxes automatically, but sometimes the handler will need to add a note or otherwise edit the message. Another frequent situation involves data capture. In most cases, the system should be able to automatically acquire electronic documents such as a Proof of Delivery from a carrier, but on the occasions it cannot the handler will need to acquire the POD manually.
6. Enforce resolution state: The system needs to not just drive the resolution process to a final determination (Valid or Invalid), but it also needs to complete the task associated with that determination. For example, if the final resolution state for a deduction is that it is an invalid claim, then the system needs to return to it to an appropriate status in the collection process workflow. Conversely, if the claim is valid the system should process the appropriate credit or adjustment.
7. Provide a comprehensive audit trail: One of the benefits of automated processes is that they can provide ‘evidence of control within the system’ – a key point auditors look for and whichis difficult to document with manual processes. The components of a comprehensive audit trail is every action date and time stamped as well as associated with a user ID. Claim status is also tracked along with any notifications made. With that done, reporting software can provide auditors with all the documentation they require as well as giving the process manager the tools necessary for performing root cause analysis.
8. Provide a conceptual model of each distinct exception process: Because designing comprehensive and efficient dispute resolution processes is a major challenge, the software needs to contain tools that allow you to build automated workflows using a graphic interface.

The ability to choose process components from drop down menus and then to be able to visually work with the scope and sequence of each workflow is very important. By working with a conceptual model, it is also much easier to make iterative improvements to your workflows, something that you will need to do periodically as a result of the ongoing root cause analysis of your dispute environment.

Stay tuned for Part IV of my automated dispute resolution workflow blog series in which I will discuss how you can gain control of your dispute environment.

Are you finding that dispute management remains a challenge for your organization? I’d like to hear from you.

In Part I of my Automated Dispute Resolution Workflow blog series, I discussed why dispute management still remains a challenge for many organizations. In Part II, I will continue to explore automating dispute resolution workflow. Until recently, automated dispute resolution has focused on identifying dispute types and providing the dispute handler with data, documentation and communication tools. Although there was some workflow automation, such as automated escalation, the primary focus of dispute management software has been information capture and sharing. These tools provided a quantum leap compared to the largely manual processing they replaced, but remained constrained by the experience and effort of the dispute handler, and the amount of time that person could allocate to their workload.

In order to boost productivity to a new plateau, dispute resolution now requires a highly automated workflow environment that can be easily configured to match complex scenarios outlined in internal operating standards. So what has changed? The emergence of XPDL (XML Process Definition) as the language of BPM (Business Process Management), and BPM is the key to developing a rule-based workflow that can address the needs of the dispute resolution process.

A flexible, but rules driven exception handling process is needed to address the complexity of vendor compliance agreements, the distinct resolution processes necessary for each type of dispute and the variable components that must be included in each dispute resolution workflow. This is the promise of XPDL applied within the context of BPM. In terms of dispute resolution, there are four primary needs:

1. Easily configurable to handle all contingencies, which often change
2. End-to-end automation to eliminate operator interference in process completion
3. Rules defined for the entire process to ensure next steps are actually taken
4. Support by a matching engine (usually associated with auto-cash solutions), which facilitates the identification and coding of disputes during the cash application process as well as periodic (at least monthly) automated matching operations to clear off related adjustments and balances.

Stay tuned for Part III of my automated dispute resolution workflow blog series in which I will discuss the eight critical components of rule-based dispute resolution workflow.

Are you finding that dispute management remains a challenge for your organization? I’d like to hear from you.  

I have visited numerous credit and collections departments over the years and managing disputes still remains a time consuming challenge for many of them. There are several reasons for this, but all are related to the complexity of commercial trading relationships which typically involve multiple points of interaction between trading partners pointing toward an increased need for networking or collaboration solutions.

On the buyer side of the equation you typically have the requisitioner, purchasing agent, receiving, quality assurance, and accounts payable.  Meanwhile sales, order processing, customer service, shipping, operations, billing, cash applications, credit and collections all play a role for the vendor. With that many cooks stirring the pot, any deviation from a clean transaction is sure to launch ripples across the supply chain, impacting the cash settlement process.  Here are a few reasons why dispute resolution still remains a challenge:

Vendor Compliance:
Increased inventory management sophistication has prompted buyers to demand more from their vendors. The outgrowth of this is the vendor compliance manual that specifies virtually everything from packaging to labeling to delivery times in minute detail. Failure to comply results in specified penalties the buyer will take as a payment deduction. Likewise, buyers have increased the number of specifications included in their purchase orders. From the vendor perspective, this has created an increasingly complex compliance environment. Instead of being able to treat every customer order the same more and more customer orders require special handling, the exceptions being the rule.

Post Audit Claims:
Understandably, this increasingly complex vendor compliance environment has resulted in rising dispute volumes. In turn, high dispute volumes provide an opportunity for Post Audit Claims, in which a third party working on behalf of the buyer audits the transaction history, often going back several years, between their client and its vendors in order to identify overlooked compliance issues that are then presented in the form of a claim. These are extremely time consuming to defend even if you have good records, and so impose a huge burden on the limited resources of most vendors. And of course, there also remain a variety of common dispute and claim issues involving things like returned merchandise, sales tax and freight that are part and parcel of every buyer/seller relationship and which are often evidence of internal system weaknesses. Companies that embrace a true automated deduction workflow solution will be ahead of the game due to better tracking and reporting.

The Need for Distinct Processes for Different Exception Scenarios:
Because each different type of exception will require a different set of responses, selling organizations face a huge challenge in formulating all the necessary standardized resolution processes. There are different routing, approval levels, and notifications that need to take place for each and every exception scenario. In the absence of a hard-wired process, exception handling will tend towards inconsistency, which ultimately just adds to the confusion. Standardization ensures consistency in the process no matter who is handling the dispute, payment deduction, warranty claim, customer inquiry or whatever else might have come up. The key is to enlist technology that can help associate an exception type with each issue that arises, and to then have a preset protocol for handling every exception and dispute type.

The Variable Components of the Exception Resolution Process:
Not only will there be a host of dispute resolution scenarios, but each resolution process has its own variables. The following list itemizes key components that are found in most dispute resolution processes.

>Reason Codes
>Activity Owner or Actor
>Authorizing Authority
  -Levels of authorization
>Cycle Time Parameters and Service Level Agreements
>Exceptions at the Item Detail Level
>Supporting Documentation
  -Documents
  -Images
  -Contracts
  -Bill-of-Lading
>Final Dispensation
  -Credit
  -Charge-off
  -Collect

Additional variables arise as these components interact with each other and the sequence in which they come into play. Some resolution processes will be relatively simple and straightforward while other situations will require a complex solution. Moreover, as changes occur within your business (e.g. a reorganization of the Sales function or a new accounting system), these components will be affected. The challenge is to stay on top of the interrelationships of all these components and the complexity of your resolution processes.

Stay tuned for Part II of my automated dispute resolution workflow blog series in which I will discuss how Business Process Management can apply to dispute resolution workflow and help companies overcome dispute resolution challenges.

Are you finding that dispute management remains a challenge for your organization? I’d like to hear from you.

Recent developments have allowed for an automated collection claim process that facilitates the translation of claim data derived from the creditors AR system into the agency’s collection software and then standardizes feedback from the agency to the creditor. On the front end, automated claim placement is abetted with an electronic acknowledgement of receipt. As the claim is worked by the agency, AR account updates are automatically transmitted by the creditor to the agency while claim status information is transmitted back to the creditor in a standardized format that allows the creditor to not only monitor individual claim progress, but also apprehend a single consolidated view of their entire 3rd party collection efforts. Thus constituted, an automated collection claim placement process contains these three primary features:

1. Automated Claim Placement
2. Automated Agency/Creditor Data Flows
3. Ability to Closely Monitor Status and Performance

The benefits associated with automating collection claim placement are related to timeliness, visibility and performance. To a large extent, performance improvements are an outgrowth of seamless processing and transparency and result in lower recovery costs.

In terms of timeliness, claims are placed in accordance with the creditor’s corporate collection policy parameters, not when the collector gives up or the manager decides tougher action is required. With an automated system, whether the account has been worked in-house or by an outsourcing partner, the credit manager can still put a hold on new placements, but otherwise a claim will be filed automatically. As a result, there are fewer unnecessary delays in claim placement, which enables the agency to start working claims sooner. That leads directly to higher recovery rates. Moreover, higher agency recovery rates mean fewer claims are ultimately forwarded to attorneys, which increases both the net recovery rate to the creditor and the agency’s commissions.

The greater visibility associated with an automated collection claim process also yields significant dividends. Because the agency receives full details on new claims, there are fewer subsequent requests for information from the creditor, and there is no need to rehash details – the agency starts work where the creditor left off. By the same token, enhanced status updates are provided to the creditor, and maybe most importantly, everybody is on the same page when a decision about how to proceed is required. The efficiency gains combined with improved transparency help to form a stronger relationship.

From a performance perspective, all parties benefit from the greater efficiency of an automated system. Data entry errors are for the most part eliminated as are incomplete claim files. As a result, agency management expenses are reduced even as recoveries increase. The shortened collection cycle also provides a cost-effective increase in cash flow for the creditor.

In the final analysis, both the creditor and the agency win. The dynamics related to increased process efficiency accrue to everyone involved in the process. In addition, the increase in process transparency creates an opportunity to renegotiate agency rates when it can be proven that the claims being submitted are cleaner, more comprehensive, and more timely, thereby reducing the agency’s costs of collection. After all has been said, increasing performance while lowering costs is the bottom line when it comes to optimizing AR performance.

Are you thinking about or have already automated the collection claim process? I’d like to hear from you…