OTC Best Practices Webinar - WordPress.com · OTC Best Practices Webinar: Crisis Driven Headcount Management ... Hi er ar c h i c al Vi ew o f al l In v o i c es ac r o s s al l ERP

Cforia Inc. USA +1.866.859.1054 / +1.818.871.9687 UK +44 (0) 203.286.0039 www.cforia.com

OTC Best Practices

Webinar:

Crisis Driven

Headcount Management

Matt Skudera, Vice President

Credit Research Foundation

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CRF Webinar Agenda

Webinar Topic Introduction

CRF Platinum Sponsor Intro

OTC Best Practices Discussion

Q & A


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)


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.


January 2016 CBO (Congressional Budget Office) released

“THE BUDGET AND ECONOMIC OUTLOOK: 2016 TO 2026”

CBO Outlook 2016-2026

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.”


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


CRF Webinar Guest Speaker

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

Chris Caparon

COO, VP Professional Services

Cforia Software


Why is your AR Department

the size

that it is today?


Target

DSO

Sales

Actual

DSO

Crisis Driven Headcount Mgmt

Time

FTE’s


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


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


What Methodology and

Approach will Optimize

Departmental Size and

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?

Order to Cash Performance


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


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?


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

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

Define

Measure

AnalyzeImprove

Control


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


Disparate OTC Databases

Integrating disparate ERPs to create a ‘normalized’ Global OTC databases

Cforia DB

C&C

Workbench

Dashboards

AR DB

Cash

Application

Automation

Cash Application Write-Backs to ERPs

Customer

Self Service

ERP 3

ERP 2

ERP 1

Email and Fax

Servers

Database Server ApplicationsInvoice

Copies


Clean vs. Dirty A/R

Collectable Clean

Receivables

Disputes

Dirty Receivables

Deductions

Dirty Receivables

Typical A/R Database

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)


Global View of Client Activity

Global HQ

Parent Parent

Co/CustomerCo/Customer

Co/CustomerCo/Customer

Invoice InvoiceInvoice InvoiceInvoice InvoiceInvoice Invoice


Harmonized Customer Data

BradCo

Cust # 341

BradCo

Cust # 458

BradCo

Cust # 231

BradCo

Cust # 981

BradCo

Cust # 312

ERP 1Braces

Divison

Brenda

BradCo

Cust # F321

BradCo

Cust # F493

BradCo

Cust # F401

ERP 2Implants and Joint

Replacements Div.

BradCo

Cust # 887212

BradCo

Cust # 674391

BradCo

Cust# 572122

BradCo

Cust# 458231

BradCo

Cust# 883011

ERP 3Recovery & Rehab

Products Div.

Ortho Supplies

is easy to do

business with !

Mary Jo

BradCo AP

BradCo Consolidated Customer

Hierarchical View of all Invoices across all ERP Systems

1 call replaces 3 calls


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 email 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


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


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


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 emailed?

Which customers paid with 0 or 1 FTEE in the past month?

Which customers have negative payment trends?

More


Credit Risk Driven Collections

DBT Trends

Customer

Touch

History

Credit Data

Other…

High-Risk

-Need Calls

Volunteers

Medium Risk

-Pay

w/emails

Risk Scoring


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


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


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


Dispute Resolution Results

1. Reduce Dispute Resolution Cycle Time by 10%-50%

2. 100% Dispute & Deductions Tracking

3. Improve Root-Cause Analytics Tracking 10%-90% - Helping to Identify

and eliminate chronic recurring upstream issues

4. Eliminate Current Manual (Email 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


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


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…


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


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


Client Case Studies

http://rtcompanystore.com/default.aspx

http://rtcompanystore.com/default.aspx

http://www.bray.com/

http://www.bray.com/

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CRF Webinar Q&A

Matt Skudera [email protected]

http://www.crfonline.org/

Chris Caparon [email protected]

ww.cforia.com

mailto:[email protected]

http://www.cforia.com/

mailto:[email protected]

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OTC Best Practices Webinar - WordPress.com · OTC Best Practices Webinar: Crisis Driven Headcount Management ... Hi er ar c h i c al Vi ew o f al l In v o i c es ac r o s s al l ERP