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Credit Management embedded as STRATEGIC PARTNER
Results of Credit Management Survey
14/10/2015 Christian Pauwels
KPMG Management Consulting
2© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
Effective decision support
Finance transformation
CFO
Procurement
Supply chain
Customer
COO
HR optimization
Talent management
Workforce optimization
HRO
Operational strategy
SSOA
Enterprise wide cost
Optimization
CEO
Making KPMG more relevant to our clients
IT function efficiency
IT sourcing
CIO
Relevance of management consulting
3© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
Transformational program management & Post merger Integration
Financial Management & Accounting Advisory Services
Physical Asset Management
Procurement , Supply Chain & Operational Improvement
Operations Improvement and Lean Sigma
Customer
EPM & CAM
People & Change
Management consulting: service lines
Credit Management embedded as STRATEGIC PARTNER
Results of Credit Management Survey
14/10/2015 Christian Pauwels
5© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
Agenda
Working Capital & Credit Management Credit Management embedded as Strategic Partner
Survey Questions
Survey Sample
Survey Executive Summary
Survey Results
Benchmark yourself
6© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
Content
Working Capital & Credit Management Credit Management embedded as Strategic Partner
Survey Questions
Survey Sample
Survey Executive Summary
Survey Results
Benchmark yourself
7© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
Finance
Tax Manager
Legal
Order intake/processing
Sales
Treasury
Accounting
CreditControl
02C
Billing
Internal stakeholders within Credit Management
© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium. 8
The Cash Conversion Cycle and Credit Management
Raw material
purchase
Receive raw material
and invoicePurchase invoice
payment
Customer order
Production start
Production ready
Delivery and sales Invoicing
Expected date customer payment
Customer payment
DPO
DIH
DWC = CASH CONVERSION CYCLE
DSO
time
WORKING CAPITAL CASH CONVERSION CYCLE
+ Inventories (F2D) + Days Inventory Held (DIH) InventoryTurnover X 360 days=
+ Accounts Receivable (O2C) + Days Sales Outstanding (DSO) Accounts ReceivableTurnover X 360 days=
- Accounts payable (P2P) - Days Payables Outstanding (DPO) Accounts PayableTurnover X 360 days=
= Working Capital = Cash conversion cycle Inventories + AR - APTurnover X 360 days=
GOAL
© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium. 9
Key Performance Indicators are a vital part of an integrated Cash Conversion Management Cycle
Purchase to Pay
Days Payables Outstanding (DPO)
Best possible DPO
Percent early payment and percent payment to terms
Percent spend via corporate agreements/contracts
Spend by category
Spend by customer type/segment
Spend per functional FTE
Transactions per functional FTE
Transactions per supplier
Spend/Sales ratio
Forecast to Deliver
Days Inventory Held (DIH)
Inventory turns
Delivery service levels
Service levels
Cash-to-cash cycle times
Lead times
Response times
Fill rates
Inventory management costs
Rate/productivity of value add
Returns rate and costs
Order to Cash
Days Sales Outstanding (DSO)
Best possible DSO
Credit note - invoice ratio
Percent of invoices in dispute by category
Dispute resolution time
Aging and AR rollover rate
O2C functional headcount
Pareto analysis of customer base
Number of transactions by customer
Transaction type per FTE
Inventory DebtorsCreditors
Liquidity generation(Cash Conversion Cycle)
© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
Cash leaks identification within cash Conversion cycle
Sales and ordermanagement
Invoicing
Collection and disputemanagement
Cash application
Customer acquisition
Credit checkOrder
processing
Supply
Invoice productionand printing
Collection of additional
information
Send invoice
Collections process
Dispute management
process
Customer payment
Cash allocation
Credit vetting performed, however,
no credit limit assigned and reviewed
No formal dunning process in place,
no customer contact, and no coordination between
sales teams and collections
No automaticcash allocation system
in place
High levels of rework dueto incomplete/inaccurate
masterfile data
High levels ofunbilled due to missing
approved orders
No standard SalesTerms and Conditions
Delays in sendinginvoice to customer
due to mail roominefficiency
Poorly defined tracking and escalation structure
leads to significant resolution delays
Supply chainmanagement + 5 Days
+ 2 Days
+ 12 Days
+ 3 Days
+ X Days DSO reduction
RiskCost
+ 4 Days
10
© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium. 11
Credit Management Policies – procedures
Structure of debtors Terms and conditions of payment Overdue debtors
Domestic/ export
Countries
Divisions
Customers
Age structure
Sales responsibilities
Credit risk
Margins
What Terms/ Conditions ?
Who defines Terms/Conditions ?
What are the avg paym terms ?
How are prepayments handled ?
Which payment methods exist ?
Are dunning letters being used ?
How often are customers dunned ?
What happens after the pre-collection
letters are sent out ?
Are claims enforced by legal action ?
How is sales department involved ?
Root Cause analysis for over dues ?
Which are the largest debtors ?
How is credit ranking determined ?
12© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
Agenda
Working Capital & Credit Management
Credit Management embedded as Strategic Partner Survey Questions Survey Sample Survey Executive Summary Survey Results Benchmark yourself
13© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
Survey Questions
Topic Question / Statement
Policies & procedures A written Credit Management Policy is defined in the company
The Credit Management Policy is supported by the Board of Directors The Credit Management Policy updated on a regular basis
The Credit Management Policy is available to all stakeholders
The Credit Management Policy is embedded in our Customer Relationship (CRM) applicationThe credit Management policy is integrated in our ERP application
14© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
Survey Questions
Topic Question / Statement
Screening of customers Is only applicable for orders above a specific amount eg. € 10,000
Is based on financial ratios
Is based on a cash flow analysis of the customer
Is based on reports from external information providers
uses other than financial information
Cash payment for first order is mandatory
For existing customers the credit policy prescribes - a periodic update of customer credit limitsFor existing customers the credit policy prescribes - a periodic update of customer payment conditionsFor existing customers the credit policy prescribes - a periodic risk analysis of the complete customer baseFor existing customers the credit policy prescribes - an ad-hoc risk analysis of specific customers
15© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
Survey Questions
Topic Question / Statement
Role of Credit Management credit management has an advisory role
credit management has a decisive role
credit management has a co-decisive role - 4 eyes principle
Sales bonuses are influenced by customer payments
Credit Management Tasks Customer risk assessment
Personal contact with new customers to discuss credit limits
Personal contact with existing customers
Collaboration with external collection agencies
Dispute management
Initiate legal procedure
Credit Management Reporting
16© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
Survey Questions
Topic Question / Statement
Credit Management is involved in Offering cash discounts
Dispute management
Provisions for doubtful debtors
Amortization of bad debt
Approval of credit notes
Credit hold – delivery stop
Credit risk evaluation in proposal process
Credit Management & Authority Who can overrule the decisions taken based on credit policy ?
Who decides on credit hold / stop of delivery of goods or services ?
Who can overrule credit hold decision ?
Credit Management & Organization
The credit management department is organized centrally at HQ.
The credit management is decentralized per subsidiary or country
The credit management department has full access to sales visit reports
17© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
Survey Questions
Topic Question / Statement
Reporting Lines Credit Management direct report
Credit Management ‘dotted line’ report
Techniques used by Credit Management :
Credit Insurance , Retention of title , L/C , Guarantees (parent company, bank , personal) , Factoring
Performance Indicators used DSO , BDSO , CEI , ADL , Aging balance , % bad debt / TO , Frequency of credit limit overruling's
Education
Competences Financial statement analysis on credit risk
Collection process
Legal aspects related to credit management
Tax aspects related to credit management
Accounting
IFRS
Operational Cash flow modelling
Global picture
18© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
Survey Questions
Topic Question / Statement
Competences Languages
Bank instruments to limit credit risk
Knowledge of customer industry
Payment techniques
Credit Insurance , VAT , Technical skills
Soft Skills :communication , presentation , …
Credit Management Practices Cash discount , interest charged , collection cost charged
Career Path & Sourcing
19© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
Survey Sample
Companies Number
Turnover > 250 mio
41
Turnover < 250 mio
44
Stock Quoted 34Non-Stock
Quoted 52
Belong to International
Group
75
Non-International Group
12 All sectors represented with predominant companies from
Industry sector
First Release
60
11
8
7
Number of Credit Managers
< 5 < 10 < 20 > 20
20© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
Survey SamplePerformance in Credit Management
DSO Bad debt / turnover % export
Coverage by credit
insurance Average 53 4% 38% 27%
Min 0 0,00% 0,00% 0,00%Max 100 75% 100% 95%
53
0
100
0
20
40
60
80
100
120
DSO
Sample Performance DSO
Average Min Max
21© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
Survey SamplePractices applied in Credit Management
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Cash discount for promptpayment is offered -Local
Cash discount for promptpayment is offered - Export
Interest charged for latepayment
Interest charged for latepayment - Belgium
Interest charged for latepayment - Export
Collection cost charged forlate payment - Belgium
Credit Management Practices applied
Never Seldom Sometimes Mostly Always
22© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
Survey Questions
Topic Question / Statement
Policies & procedures A written Credit Management Policy is defined in the company
The Credit Management Policy is supported by the Board of Directors The Credit Management Policy updated on a regular basis
The Credit Management Policy is available to all stakeholders
The Credit Management Policy is embedded in our Customer Relationship (CRM) applicationThe credit Management policy is integrated in our ERP application
23© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
Executive Summary on Credit Management Policies
In most companies a WRITTEN Credit Management Policy is defined and supported by directors or the board but room for improvement
The Credit Management Policy needs to be updated on a regular basis
In the current situation we observe that the Policy is not available for all stakeholders
The Credit Management Policy is not sufficiently embedded in our systems, although more in ERP then in CRM
24© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
0%2%
10%
0%
12%
7%
42%40%
36%
51%
0%
10%
20%
30%
40%
50%
60%
AS - IS TO - BE
A written Credit Management Policy is defined in the company
stronly disagree disagree neutral agree strongly agree
25© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
0%
10%
20%
30%
40%
50%
60%
AS IS TO BEstronly disagree 0% 0%disagree 7% 2%neutral 16% 8%agree 47% 51%strongly agree 30% 36%
The Credit Management Policy is supported by the Board of Directors
stronly disagree disagree neutral agree strongly agree
26© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
3%
18%
25%
40%
13%
1%
3%
15%
59%
22%
0% 20% 40% 60% 80% 100% 120%
stronly disagree
disagree
neutral
agree
strongly agree
The Credit Management Policy is updated on a regular basis
AS IS TO BE
27© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
3% 3%
17%
3%
24%
13%
35%
55%
20%
25%
0%
10%
20%
30%
40%
50%
60%
AS IS TO BE
The Credit Management Policy is available to all stakeholders
stronly disagree disagree neutral agree strongly agree
28© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
5% 3%
38%
13%15%
17%
33%
50%
10%
16%
0%
10%
20%
30%
40%
50%
60%
AS IS TO BE
The Credit Management Policy is embedded in our Customer Relationship (CRM) application
stronly disagree disagree neutral agree strongly agree
29© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
4% 3%
16%
4%
18%
13%
42%
52%
20%
27%
0%
10%
20%
30%
40%
50%
60%
AS IS TO BE
The credit Management policy is integrated in our ERP application
stronly disagree disagree neutral agree strongly agree
30© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
Survey Questions
Topic Question / Statement
Screening of customers Is only applicable for orders above a specific amount eg. € 10,000
Is based on financial ratios
Is based on a cash flow analysis of the customer
Is based on reports from external information providers
uses other than financial information
Cash payment for first order is mandatory
For existing customers the credit policy prescribes - a periodic update of customer credit limitsFor existing customers the credit policy prescribes - a periodic update of customer payment conditionsFor existing customers the credit policy prescribes - a periodic risk analysis of the complete customer baseFor existing customers the credit policy prescribes - an ad-hoc risk analysis of specific customers
31© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
Executive Summary on Screening of customers
Screening of new customers is not limited to an amount of order intake
Screening is based on financial ratio’s from reports of external companies, but we want to move to more insight in the cash flow
Screening is also based on non-financial information Cash payment for first order is not dominantly practiced For existing customers an update of credit limits is common
practice, an update of payment conditions and risk analysis is currently exercised on an ad-hoc basis, but a trend towards common practice exists
32© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
23%25%
56%
48%
7%8%
11%
15%
3%4%
0%
10%
20%
30%
40%
50%
60%
AS IS TO BE
Screening of new customers - only applicabele for orders above a specific amount e.g. € 10,000
stronly disagree disagree neutral agree strongly agree
33© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
2% 1%
16%
7%
12% 12%
60%
66%
10%
13%
0%
10%
20%
30%
40%
50%
60%
70%
AS IS TO BE
Screening of new customers - based on financial ratios
stronly disagree disagree neutral agree strongly agree
34© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
3%1%
28%
15%
26%
20%
37%
52%
7%
12%
0%
10%
20%
30%
40%
50%
60%
AS IS TO BE
Screening of new customers - based on a cash flow analysis of the customer
stronly disagree disagree neutral agree strongly agree
35© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
1% 1%
8%
3%
11%9%
56%
60%
24%27%
0%
10%
20%
30%
40%
50%
60%
70%
AS IS TO BE
Screening of new customers - based on reports from external information providers
stronly disagree disagree neutral agree strongly agree
36© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
3%1%
14%
6%
21%22%
54%
62%
7%9%
0%
10%
20%
30%
40%
50%
60%
70%
AS IS TO BE
Screening of new customers - uses other than financial information
stronly disagree disagree neutral agree strongly agree
37© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
12%
9%
34%
28%
26%
33%
22%
26%
6%4%
0%
5%
10%
15%
20%
25%
30%
35%
40%
AS IS TO BE
Screening of new customers - Cash payment for first order is mandatory
stronly disagree disagree neutral agree strongly agree
38© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
4%2%
13%
3%
20%
13%
41%
52%
21%
29%
0%
10%
20%
30%
40%
50%
60%
AS IS TO BE
For existing customers the credit policy prescribes - a periodic update of customer credit limits
stronly disagree disagree neutral agree strongly agree
39© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
6%3%
31%
16%
30%28%
30%
44%
3%
9%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
AS IS TO BE
For existing customers the credit policy prescribes - a periodic update of customer payment conditions
stronly disagree disagree neutral agree strongly agree
40© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
7%4%
24%
11%
20%
13%
38%
51%
11%
20%
0%
10%
20%
30%
40%
50%
60%
AS IS TO BE
For existing customers the credit policy prescribes - a periodic risk analysis of the complete customer base
stronly disagree disagree neutral agree strongly agree
41© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
3% 3%
8%
3%
12% 13%
61%58%
16%
21%
0%
10%
20%
30%
40%
50%
60%
70%
AS IS TO BE
For existing customers the credit policy prescribes - an ad-hoc risk analysis of specific customers
stronly disagree disagree neutral agree strongly agry
42© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
Survey Questions
Topic Question / Statement
Role of Credit Management credit management has an advisory role
credit management has a decisive role
credit management has a co-decisive role - 4 eyes principle
Sales bonuses are influenced by customer payments
43© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
Executive Summary on the role of Credit Management
Credit management has a decisive advisory role in the company, the 4 eye principles is liked
Sales bonuses are not yet based on customer payments
44© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
4%
9%
29%
24%
10%
14%
38% 38%
18%16%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
AS IS TO BE
Credit Management Role - credit management has an advisory role
stronly disagree disagree neutral agree strongly agree
45© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
5%
1%
14%
8%
30%
24%
41%
51%
11%
16%
0%
10%
20%
30%
40%
50%
60%
AS IS TO BE
Credit Management Role - credit management has a decisive role
stronly disagree disagree neutral agree strongly agree
46© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
2%0%
11%
3%
21%22%
54%
58%
11%
16%
0%
10%
20%
30%
40%
50%
60%
70%
AS IS TO BE
Credit Management Role - credit management has a co-decisive role - 4 eyes principle
stronly disagree disagree neutral agree strongly agree
47© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
21%
7%
25%
7%
21% 20%
26%
49%
7%
17%
0%
10%
20%
30%
40%
50%
60%
AS IS TO BE
Credit Management Role - Sales bonuses are influenced by customer payments
stronly disagree disagree neutral agree strongly agree
48© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
Survey Questions
Topic Question / Statement
Credit Management Tasks Customer risk assessment
Personal contact with new customers to discuss credit limits
Personal contact with existing customers
Collaboration with external collection agencies
Dispute management
Initiate legal procedure
Credit Management Reporting
49© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
Survey Questions
Topic Question / Statement
Credit Management is involved in Offering cash discounts
Dispute management
Provisions for doubtful debtors
Amortization of bad debt
Approval of credit notes
Credit hold – delivery stop
Credit risk evaluation in proposal process
Credit Management & Organization
The credit management department is organized centrally at HQ.
The credit management is decentralized per subsidiary or country
The credit management department has full access to sales visit reports
Reporting Lines Credit Management direct report
Credit Management ‘dotted line’ report
50© 2015 KPMG Advisory, a Belgian CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.
Executive Summary on Credit Management Tasks, involvement and organization
Dispute Management, legal procedure, reporting, risk assessment and collaboration with external agencies are most common tasks. Contact with the customer is perceived as less important
The credit manager is less involved in issuing credit notes and approval of cash discounts, but he has an important role in the delivery stop, credit risk evaluation in proposal process, amortization of bad debt, provisions for doubtful debtors and dispute management
Decentralized organization Credit Management (CM) in HQ or local has no clear transparency to
sales information Currently, the CM reports to the CFO, but there is a trend for reporting
towards the CEO, at the expense of the CFO
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0%
10%
20%
30%
40%
50%
60%
70%
Customer Risk Assement Personal contact with newcustomers to discuss credit
limits
Collaboration with externalcollection agencies
Dispute management Initiate legal procedure Credit ManagementReporting
Credit Management Tasks
Strongly disagree Disagree Neutral Agree Strongly agree Linear (Strongly agree )
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Offering cashdiscounts
Disputemanagement
Provisions fordoubtful debtors
Amortization of baddebt
Approval of creditnotes
Credit hold –delivery stop
Credit risk evaluationin proposal process
Strongly Disagree 13% 1% 0% 2% 12% 4% 2%Disagree 27% 8% 1% 2% 33% 3% 3%Neutral 22% 21% 6% 8% 27% 6% 11%Agree 26% 59% 53% 58% 21% 42% 51%Strongly Agree 12% 11% 40% 30% 7% 44% 32%
0%
10%
20%
30%
40%
50%
60%
70%
The Credit Manager is involved in :
Strongly Disagree Disagree Neutral Agree Strongly Agree
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36%
11%
43%
32%
75%
21%18%
4%
14%14%
4%
14%
0%
7% 7%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Overrule decisions ofC.Policy
Who decides on credit hold /stop of delivery of goods or
services
Who can overrule credit holddecision
Credit Management Authority AS IS
CFO CM CEO SALES Other
43%
11%
46%
29%
75%
21%18%
4%
18%
11%
4%7%
0%
7% 7%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Overrule decisions ofC.Policy
Who decides on credit hold /stop of delivery of goods or
services
Who can overrule credithold decision
Credit Management Authority TO BE
CFO CM CEO SALES Other
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33%
51%
37%
0%
10%
20%
30%
40%
50%
60%
The credit management department is organizedcentrally at HQ
The credit management is decentralised per subsidiaryor country
The credit management department has full access tosales visit reports
Credit Management Organization
Strongly disagree disagree neutral agree stronly agree
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0%
8%
71%
48%
11% 12%
7% 8%
4%
8%7%
16%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Credit Management direct report Credit Management ‘dotted line’ report
Credit Management Reporting Lines
AS IS
BU Manager CFO Head of accounting Controller Risk Management CEO
0%
8%
68%
44%
7%
12%
7% 8%
4%
8%
14%
20%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Credit Management direct report Credit Management ‘dotted line’ report
Credit Management Reporting Lines
TO BE
BU Manager CFO Head of accounting Controller Risk Management CEO
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Survey Questions
Topic Question / Statement
Techniques used by Credit Management :
Credit Insurance , Retention of title , L/C , Guarantees (parent company, bank , personal) , Factoring
Performance Indicators used DSO , BDSO , CEI , ADL , Aging balance , % bad debt / TO , Frequency of credit limit overruling's
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Executive Summary on Techniques, Performance measurement
In practice, we observe the CM uses less factoring, bank and personal guarantees to protect the outstanding debts
L/C, credit insurance , retention of title and parent company guarantees are most used
For the CM, the DSO, Aging Balance and % of bad debt / TO are the most used performance measurements
BDSO, frequency of credit limits overruns, CEI are not common yet
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Definitions
Collection Effectiveness Index (CEI): a measure of the ability of the collections staff to collect funds from customers. The CEI compares the amount that was collected in a given time period to the amount of receivables that were available for collection in that time period.
Weighted Days Sales Outstanding (DSO): measures the average time that receivables are outstanding. It attempts to smooth out the bias of credit sales and terms of sale.
Best Possible DSO (BDSO): utilizes only your current (non delinquent) receivables to calculate the best length of time you can achieve in turning over receivables. The closer your DSO is to your BDSO, the closer your receivables are to your optimal level.
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Credit Insurance Retention of title L/C Guarantees byparental company Bank guarantees Personal guarantees
by the owners Factoring
Never 18% 14% 10% 7% 8% 17% 39%Seldom 22% 18% 26% 23% 29% 41% 32%Sometimes 13% 18% 38% 32% 21% 23% 15%Mostly 28% 33% 22% 35% 35% 17% 11%Always 18% 17% 5% 3% 7% 2% 3%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Credti Management Technicques Used
Never Seldom Sometimes Mostly Always
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0%
20%
40%
60%
80%
100%
120%
DSO Count back DSO BDSO ADL Sales weightedDSO
CEI Aging Balance % bad debts / totalturnover
Frequency ofcredit limitoverrulings
Credit Management Performance Measurement
Never Seldom Sometimes Mostly Always
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DSO Count back DSO BDSO ADL Sales weightedDSO CEI Aging Balance % bad debts /
total turnover
Frequency ofcredit limitoverrulings
Never 4% 14% 18% 8% 20% 17% 0% 1% 16%Seldom 1% 14% 21% 20% 19% 25% 1% 9% 24%Sometimes 9% 38% 29% 14% 25% 36% 2% 22% 29%Mostly 42% 17% 19% 41% 21% 12% 39% 35% 22%Always 44% 17% 13% 17% 15% 11% 58% 33% 8%
0%
10%
20%
30%
40%
50%
60%
70%
Credit Management Performance Measurement
Never Seldom Sometimes Mostly Always
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Survey Questions
Topic Question / Statement
Education
Competences Financial statement analysis on credit risk
Collection process
Legal aspects related to credit management
Tax aspects related to credit management
Accounting
IFRS
Operational Cash flow modelling
Global picture
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Survey Questions
Topic Question / Statement
Competences Languages
Bank instruments to limit credit risk
Knowledge of customer industry
Payment techniques
Credit Insurance , VAT , Technical skills
Soft Skills :communication , presentation , …
Credit Management Practices Cash discount , interest charged , collection cost charged
Career Path & Sourcing
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Executive Summary on Education, Competences, Career and Sourcing
By preference the CM has a university degree, but experience is more important
According to the importance of experience, payment techniques and knowledge of the customer industry are recognized as high-valued competences in order to understand the Order to Cash process
IFRS, VAT and credit insurance are less important! Soft skills are very important The CM is not an interim manager but externally hired and
on payroll No clear career path is observed
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0%
5%
10%
15%
20%
25%
30%
35%
40%
Academic Master in (applied)Economics
Professional Master in BusinessEconomics
Bachelor in Management or similar By experience
Credit Management Education
Strongly disagree disagree neutral agree strongly agree
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0% 0% 0%5%4% 5% 6%
19%
41%33% 34%
49%
36% 35%42%
19%19%27%
18%8%
0%10%20%30%40%50%60%
Financial statementanalysis on credit
risk
Collection process - Legal aspectsrelated to creditmanagement
Tax aspects relatedto credit
management
Credit Management Competences
Not important slightly important important very important mandatory
1%
14%4% 0%
17%
30%19%
5%
55%
42% 42% 37%
19%
7%
29%36%
8% 8% 6%
23%
0%10%20%30%40%50%60%
Accounting IFRS Operational cashflow modelling
Understanding theglobal picture onOrder to Cash
process
Credit Management Comeptences
Not important slightly important important very important mandatory
0%6% 7%
2%5%12% 12% 8%
37%
48%
36% 37%35%28%
39% 43%
24%
6% 6% 10%
0%
10%
20%
30%
40%
50%
60%
Languages Bank instruments tolimit credit risk
Knowledge ofcustomer industry
Paymenttechniques
Credit Management Competences
Not important slightly important important very important mandatory
2%
16%7%
2%8% 11%
26%
12%
37% 33%42%
55%
43%37%
18% 21%
10%3%
7% 9%
0%
10%
20%
30%
40%
50%
60%
Paymenttechniques
Credit insurance VAT Technical skills
Credit Management Competences
Not important slightly important important very important mandatory
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0%2%
9% 10%
1%
28%
19% 19%19%
49%
40%
28%
50%
17%20%
33%
30%
3%
13%
9%
0%
10%
20%
30%
40%
50%
60%
Communication skills Presentation skills Leadership skills Empathy
Credit Management Soft skills
Not important slightly important important very important mandatory
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3%1%
30%
33%
16%
55%
38%
47%
14%
25%
29%
0%0%
7%
1%
0%
10%
20%
30%
40%
50%
60%
InternalDepartments ExternalSelection Interim
Credit Managers Sourcing
Strongly disagree Disagree Neutral Agree Strongly agree
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3%
33%
53%
13%
0%1%
32%
62%
4%1%
0%
10%
20%
30%
40%
50%
60%
70%
Strongly disagree Disagree Neutral Agree Strongly agree
Credit Management Career Development
CareertoCFO Careertootherdepartments
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Conclusion
The Credit Management policy need to be available for a all stakeholders and updated on a regular basis .
The policy should be embedded in a system. Customer payment analysis should be done on regular basis to update
sales conditions and credit limits and not ad – hoc . The tasks of the credit manager are known and can be maintained. The credit manager need to have a full recognition as advisor in
acceptance of new clients and related credit limits and payment conditions
Performance should be measured by other KPI’s then DSO as CEI , ADL , BDSO
Communication skills are important Career path development need to be taken into consideration
Thank you
Presentation by Christian Pauwels
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