Credit management as a driver for business transformation

1. Credit management as a driver for business transformation It can happen – it is happening ICTF Prague 20th October 2014 1

2. Credit management as a driver for business transformation • I believe this is the ultimate challenge for credit management – it is our future • It is driven by the credit manager and enabled by technology • It represents the step away from the “back office” perception • It represents an opportunity for credit managers to grow as individuals and to operate at the next level up professionally • There are fellow ICTF members in this audience who strongly agree and have started or are about to start the journey • Some members may strongly disagree – let’s have a debate! ICTF Prague 20th October 2014 2

3. About Co-pilot • We advise large corporates and multinationals on credit management software • We have been doing it for 8 years • We know what works and what doesn’t work • We advise on software, processes and best practice • There are many different possible solutions - we help clients pull it all together • We’re with the client from start to finish • Typical client • Credit Director/Group Credit Manager • An individual who wants to drive change and for whom the timing is right • We are seeing an increasing focus on credit management driving sales growth • This is a key step towards business transformation ICTF Prague 20th October 2014 3

4. Key learning for Co-pilot these past 8 years? • “You don’t know what you don’t know” • It’s not just about functionality: • It’s about having the latest technology (must be future-proof) • But it’s also about how you USE the technology • The power of end-to-end data all in one place • The power of operating in ONE system (Data integrity) • It’s about what the software partners are like to work with ICTF Prague 20th October 2014 4

5. iPhone syndrome Making the photo bigger with your fingers A fantastic idea Somebody thought of it Or maybe it was collaborative But afterwards it was obvious And who do we all think had the idea? ICTF Prague 20th October 2014 5

6. Not me  ICTF Prague 20th October 2014 6

7. iPhone syndrome So today I’m going to talk about the principles, not individual ideas or solutions The intellectual capital for those ideas belongs to clients, Co-pilot or competing suppliers and it would be unprofessional of me to air it here But in any event, the principles are what we should be discussing ICTF Prague 20th October 2014 7

8. Today’s audience • This presentation is primarily addressed to senior credit people operating large multiple ledgers • Some of you have ledgers which are smaller (by number) but large by volume of risk – core principles will apply though solutions may be different • Some of you will think that these ideas could apply to your company • Some of you will think they don’t apply to your company • Some (not all) of this second group might be wrong ICTF Prague 20th October 2014 8

9. Credit management historically seen as “Back office” • KPIs tended to be negative and after-the-event (the sale) • Reduce DSO • Reduce or avoid bad debt • Reduce unallocated cash • Deal with disputes • Recent years have seen a focus on costs (eg: SSCs and BPOs) • Often driven by the same “back office” perception • Good credit managers have always supported sales • Through good relationships and collaboration - often event-driven • A strong belief that credit management is the “eyes and ears” of the business • Many credit managers will feel that this support has not always been seen or valued by the board • Probably the CFO just thinks you’re doing your job – “that’s what I expect you to do anyway” • And that’s probably because credit management support has been “day-to-day”, rather than strategic, planned, implemented and reported ICTF Prague 20th October 2014 9

10. So what is credit management-driven business transformation? • It is a credit management-initiated strategy and plan to support sales growth - more than a series of daily events or interventions • The sales outputs are planned, significant and visible • It positively enhances the customer experience • It is “inclusive” – it impacts the sales role and the way that the company does business with its customers – these things change • And, not to lose sight of things, all the traditional things are done better too Head in the clouds, feet on the ground ICTF Prague 20th October 2014 10

11. What has to be in place? • A credit manager who sees the opportunity and wants to make it happen • Credibility and trust • Board • Credit team • Stakeholders • Ability to manage the change process • The right team • The right technology • Internal support • The credit team • Stakeholders • Project management • External support – the right partners ICTF Prague 20th October 2014 11

12. Don’t let anyone tell you it is easy • Managing a change project is a significant challenge • Issues, politics and all sorts of weird things are thrown at you from every angle • As we learned at ICTF Barcelona, Nick King initiated and is implementing such a project • He will tell you that it has given him a few grey hairs  • But it has also been a good learning experience – he is stronger and wiser for it. Scored under the “Hay model” he operates at a higher professional level  • And, don’t forget, the impact upon Travis Perkins’ business will be profound: ICTF Prague 20th October 2014 12

13. Travis Perkins business impact - recap • Cost savings • Significant improvements in all the traditional credit management metrics • Strong sales growth – more new customers and more business with existing customers • Significant improvements to the customer experience – TP will look like a different business to its customers • A positive influence on customer payment behaviour • Change to the sales process – 1,900 Branch Directors embedded into the process Manual processes could not deliver these outcomes - the environment Nick has created operates in real time ICTF Prague 20th October 2014 13

14. Real time credit limit decisioning is essential • The 80/20 rule: • You should target automated decisioning and monitoring on >80% of the portfolio • This frees up the credit team to focus on the risks where they add most value • Which is supported by automated workflows for analysis and decisioning • Credit Policy should act like a valve that you can open or close • You need to be able to react to external changes and internal needs as business requirements change • If Credit Policy is simply a document (PDF/Word) it will not deliver this • Credit Policy needs to be embedded into daily workflows - and you need control over it • Decisioning based upon real-time end-to-end data is stronger • Ability to develop and adapt scorecards is essential • Can you “Champion Challenge” your scorecards? If you have got all this you can safely make portfolio-wide decisions in real-time ICTF Prague 20th October 2014 14

15. Your business • Your businesses/EDP systems Bus. Bus. Credit management team Bus. Bus. ICTF Prague 20th October 2014 15

16. Four types of software • Your businesses/EDP systems Bus. Bus. Credit management team Bus. Credit risk software Collections software Bus. Data cleanse software Cash Allocation software ICTF Prague 20th October 2014 16

17. Four types of software • Your businesses/EDP systems Bus. Bus. Credit management team Bus. Credit risk software Collections software Bus. Data cleanse software Cash Allocation software ICTF Prague 20th October 2014 17

18. Real time credit management • Your businesses/EDP systems Bus. Bus. Credit management team Bus. Credit risk software Collections software Bus. Global credit bureaux Data cleanse software Cash Allocation software ICTF Prague 20th October 2014 18

19. Real time credit management • Your businesses/EDP systems Bus. Bus. Credit management team Bus. Identity & fraud checks Credit risk software Collections software Bus. Global credit bureaux Data cleanse software Cash Allocation software ICTF Prague 20th October 2014 19

20. Real time credit management • Your businesses/EDP systems Bus. Bus. Credit management team Analytical tools Bus. Identity & fraud checks Credit risk software Collections software Bus. Global credit bureaux Data cleanse software Cash Allocation software ICTF Prague 20th October 2014 20

21. Real time credit management • Your businesses/EDP systems Bus. Sanctions & PEPs Checks Bus. Credit management team Analytical tools Bus. Identity & fraud checks Credit risk software Collections software Bus. Global credit bureaux Data cleanse software Cash Allocation software ICTF Prague 20th October 2014 21

22. Real time credit management Credit insurance or finance • Your businesses/EDP systems Bus. Sanctions & PEPs Checks Bus. Credit management team Analytical tools Bus. Identity & fraud checks Credit risk software Collections software Bus. Global credit bureaux Data cleanse software Cash Allocation software ICTF Prague 20th October 2014 22

23. How you can support sales with real-time credit limit decisioning and monitoring • New customers • Better identification of good/bad new risks permits: • higher credit limits • better prospecting • point-of-sale decisioning Existing customers • Ability systematically to pre-authorise increased credit limits for good/improving existing customers: • Automated or manual • Insured or house • Essential for seasonal trade • A better customer experience Competitive edge • Ability to adapt risk strategies quickly ICTF Prague 20th October 2014 23

24. Credibility and professionalism ICTF Prague 20th October 2014 24

25. Credibility and professionalism Two examples: ICTF Prague 20th October 2014 25

26. The CFO phone call • “Our Global Key Account, “Acme Distribution” has just issued a profits warning - sales are down 10%. What is the impact upon us?” • Four possible answers: • I’ll get back to you • I’m sending you a pdf now – it shows you our global position at close of play last night • All outstanding global balances, payment history, payment behaviour, risk profile and history, credit limit history, decisioning audit trail, etc • I’m sending you the pdf and, as we speak, I am running the new numbers through my risk analysis tool – it shows me that the impact upon Acme’s financial health is xxx • You have already sent the pdf, the analysis and your recommended action because your credit risk management software picked up the profits warning as it happened and actioned appropriate work flows. And this is what the CFO is phoning to consult you on How many credit managers were monitoring Tesco? ICTF Prague 20th October 2014 26

27. PDF – example page xxxxxxxxxxxxxx ICTF Prague 20th October 2014 27

28. The Sales Director phone call • “Why won’t you give me a bigger credit limit on International Widgets?” • Answer: I’m sending you a Delinquency Report now. • It shows that they regularly pay 45 days beyond terms and it shows you how much this is costing us. • Our margin on this business is x% • If you want a bigger limit you need to negotiate a higher price, or get them to pay sooner The opportunity for risk/reward based limit capacity allocation? ICTF Prague 20th October 2014 28

29. Develop functionality within your ERP system? • Don’t go there! • Credit people explaining what they want to IT people • Things get missed or misunderstood • Time-consuming internal project with other demands • Huge costs • Changes require another project – future-proofing is critical • There will always be things you didn’t think of – because you didn’t know what you didn’t know • Specialist credit management software is: • Able to work with multiple ERP systems • Better • Quicker to implement • Cheaper • Future-proof ICTF Prague 20th October 2014 29

30. In conclusion • Some credit managers will see and seize the opportunity • In doing so they will grow as individuals and enhance their professional standing and their career prospects • And, something I have not yet mentioned: • They will enhance their team’s job satisfaction and better protect the team’s job security It’s a question of manage or be managed ICTF Prague 20th October 2014 30