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Credit Management embedded as STRATEGIC PARTNER Results of Credit Management Survey 14/10/2015 Christian Pauwels

Credit Management embedded as STRATEGIC PARTNER · Credit Management embedded as STRATEGIC PARTNER ... SSOA Enterprise wide ... Credit Management embedded as Strategic Partner

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Page 1: Credit Management embedded as STRATEGIC PARTNER · Credit Management embedded as STRATEGIC PARTNER ... SSOA Enterprise wide ... Credit Management embedded as Strategic Partner

Credit Management embedded as STRATEGIC PARTNER

Results of Credit Management Survey

14/10/2015 Christian Pauwels

Page 2: Credit Management embedded as STRATEGIC PARTNER · Credit Management embedded as STRATEGIC PARTNER ... SSOA Enterprise wide ... Credit Management embedded as Strategic Partner

KPMG Management Consulting

Page 3: Credit Management embedded as STRATEGIC PARTNER · Credit Management embedded as STRATEGIC PARTNER ... SSOA Enterprise wide ... Credit Management embedded as Strategic Partner

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

Page 4: Credit Management embedded as STRATEGIC PARTNER · Credit Management embedded as STRATEGIC PARTNER ... SSOA Enterprise wide ... Credit Management embedded as Strategic Partner

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

Page 5: Credit Management embedded as STRATEGIC PARTNER · Credit Management embedded as STRATEGIC PARTNER ... SSOA Enterprise wide ... Credit Management embedded as Strategic Partner

Credit Management embedded as STRATEGIC PARTNER

Results of Credit Management Survey

14/10/2015 Christian Pauwels

Page 6: Credit Management embedded as STRATEGIC PARTNER · Credit Management embedded as STRATEGIC PARTNER ... SSOA Enterprise wide ... Credit Management embedded as Strategic Partner

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

Page 7: Credit Management embedded as STRATEGIC PARTNER · Credit Management embedded as STRATEGIC PARTNER ... SSOA Enterprise wide ... Credit Management embedded as Strategic Partner

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

Page 8: Credit Management embedded as STRATEGIC PARTNER · Credit Management embedded as STRATEGIC PARTNER ... SSOA Enterprise wide ... Credit Management embedded as Strategic Partner

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

Page 9: Credit Management embedded as STRATEGIC PARTNER · Credit Management embedded as STRATEGIC PARTNER ... SSOA Enterprise wide ... Credit Management embedded as Strategic Partner

© 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

Page 10: Credit Management embedded as STRATEGIC PARTNER · Credit Management embedded as STRATEGIC PARTNER ... SSOA Enterprise wide ... Credit Management embedded as Strategic Partner

© 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)

Page 11: Credit Management embedded as STRATEGIC PARTNER · Credit Management embedded as STRATEGIC PARTNER ... SSOA Enterprise wide ... Credit Management embedded as Strategic Partner

© 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

Page 12: Credit Management embedded as STRATEGIC PARTNER · Credit Management embedded as STRATEGIC PARTNER ... SSOA Enterprise wide ... Credit Management embedded as Strategic Partner

© 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 ?

Page 13: Credit Management embedded as STRATEGIC PARTNER · Credit Management embedded as STRATEGIC PARTNER ... SSOA Enterprise wide ... Credit Management embedded as Strategic Partner

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

Page 14: Credit Management embedded as STRATEGIC PARTNER · Credit Management embedded as STRATEGIC PARTNER ... SSOA Enterprise wide ... Credit Management embedded as Strategic Partner

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

Page 15: Credit Management embedded as STRATEGIC PARTNER · Credit Management embedded as STRATEGIC PARTNER ... SSOA Enterprise wide ... Credit Management embedded as Strategic Partner

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

Page 16: Credit Management embedded as STRATEGIC PARTNER · Credit Management embedded as STRATEGIC PARTNER ... SSOA Enterprise wide ... Credit Management embedded as Strategic Partner

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

Page 17: Credit Management embedded as STRATEGIC PARTNER · Credit Management embedded as STRATEGIC PARTNER ... SSOA Enterprise wide ... Credit Management embedded as Strategic Partner

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

Page 18: Credit Management embedded as STRATEGIC PARTNER · Credit Management embedded as STRATEGIC PARTNER ... SSOA Enterprise wide ... Credit Management embedded as Strategic Partner

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

Page 19: Credit Management embedded as STRATEGIC PARTNER · Credit Management embedded as STRATEGIC PARTNER ... SSOA Enterprise wide ... Credit Management embedded as Strategic Partner

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

Page 20: Credit Management embedded as STRATEGIC PARTNER · Credit Management embedded as STRATEGIC PARTNER ... SSOA Enterprise wide ... Credit Management embedded as Strategic Partner

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

Page 21: Credit Management embedded as STRATEGIC PARTNER · Credit Management embedded as STRATEGIC PARTNER ... SSOA Enterprise wide ... Credit Management embedded as Strategic Partner

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

Page 22: Credit Management embedded as STRATEGIC PARTNER · Credit Management embedded as STRATEGIC PARTNER ... SSOA Enterprise wide ... Credit Management embedded as Strategic Partner

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

Page 23: Credit Management embedded as STRATEGIC PARTNER · Credit Management embedded as STRATEGIC PARTNER ... SSOA Enterprise wide ... Credit Management embedded as Strategic Partner

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

Page 24: Credit Management embedded as STRATEGIC PARTNER · Credit Management embedded as STRATEGIC PARTNER ... SSOA Enterprise wide ... Credit Management embedded as Strategic Partner

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

Page 25: Credit Management embedded as STRATEGIC PARTNER · Credit Management embedded as STRATEGIC PARTNER ... SSOA Enterprise wide ... Credit Management embedded as Strategic Partner

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

Page 26: Credit Management embedded as STRATEGIC PARTNER · Credit Management embedded as STRATEGIC PARTNER ... SSOA Enterprise wide ... Credit Management embedded as Strategic Partner

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

Page 27: Credit Management embedded as STRATEGIC PARTNER · Credit Management embedded as STRATEGIC PARTNER ... SSOA Enterprise wide ... Credit Management embedded as Strategic Partner

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

Page 28: Credit Management embedded as STRATEGIC PARTNER · Credit Management embedded as STRATEGIC PARTNER ... SSOA Enterprise wide ... Credit Management embedded as Strategic Partner

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

Page 29: Credit Management embedded as STRATEGIC PARTNER · Credit Management embedded as STRATEGIC PARTNER ... SSOA Enterprise wide ... Credit Management embedded as Strategic Partner

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

Page 30: Credit Management embedded as STRATEGIC PARTNER · Credit Management embedded as STRATEGIC PARTNER ... SSOA Enterprise wide ... Credit Management embedded as Strategic Partner

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

Page 31: Credit Management embedded as STRATEGIC PARTNER · Credit Management embedded as STRATEGIC PARTNER ... SSOA Enterprise wide ... Credit Management embedded as Strategic Partner

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

Page 32: Credit Management embedded as STRATEGIC PARTNER · Credit Management embedded as STRATEGIC PARTNER ... SSOA Enterprise wide ... Credit Management embedded as Strategic Partner

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

Page 33: Credit Management embedded as STRATEGIC PARTNER · Credit Management embedded as STRATEGIC PARTNER ... SSOA Enterprise wide ... Credit Management embedded as Strategic Partner

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

Page 34: Credit Management embedded as STRATEGIC PARTNER · Credit Management embedded as STRATEGIC PARTNER ... SSOA Enterprise wide ... Credit Management embedded as Strategic Partner

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

Page 35: Credit Management embedded as STRATEGIC PARTNER · Credit Management embedded as STRATEGIC PARTNER ... SSOA Enterprise wide ... Credit Management embedded as Strategic Partner

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

Page 36: Credit Management embedded as STRATEGIC PARTNER · Credit Management embedded as STRATEGIC PARTNER ... SSOA Enterprise wide ... Credit Management embedded as Strategic Partner

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

Page 37: Credit Management embedded as STRATEGIC PARTNER · Credit Management embedded as STRATEGIC PARTNER ... SSOA Enterprise wide ... Credit Management embedded as Strategic Partner

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

Page 38: Credit Management embedded as STRATEGIC PARTNER · Credit Management embedded as STRATEGIC PARTNER ... SSOA Enterprise wide ... Credit Management embedded as Strategic Partner

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

Page 39: Credit Management embedded as STRATEGIC PARTNER · Credit Management embedded as STRATEGIC PARTNER ... SSOA Enterprise wide ... Credit Management embedded as Strategic Partner

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

Page 40: Credit Management embedded as STRATEGIC PARTNER · Credit Management embedded as STRATEGIC PARTNER ... SSOA Enterprise wide ... Credit Management embedded as Strategic Partner

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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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Thank you

Presentation by Christian Pauwels

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The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International Cooperative (KPMG International)