CM December DECEMBER 2018

OPINION
AUTHOR – Chris Sanders FCICM
(DDSO) and Terms DSO. It is the Terms DSO
which your sales can influence.
I recall a client once said to me ‘Sales are
only ever allowed to give payment terms
that are listed in the SAP system.’ When
asked ‘how many payment terms do you
have on the system?’ the answer was an
incredible 238, so this credit team failed to
demonstrate any control over the process
of payment terms and so, unsurprisingly,
DSO was exceptionally high. If you can
understand Terms DSO, working with Sales
to reduce the number of terms offered
would be a start. Putting in place escalation
processes for the approval of non-standard
terms will also help.
New Customer Information – there is a
standard credit mantra that ‘Sales don’t do
admin.’ That may or may not be the case,
but what is essential is that they are good at
the necessary admin. It is the responsibility
of the credit manager to educate the
business on the critical elements of their
role that impact debt and cash. During one
CICMQ client assessment I attended a sales
briefing where the credit manager and one
of her team took the sales team through the
credit application form – one of a series of
presentations they had done. Again, this is
not something that is ‘fire and forget’. This
was something that the credit manager
recognised would have to be an ongoing
process at all sales meetings – educating new
and existing sales people in the importance
of clear and correct customer information.
Billing Accuracy – this is a personal
soapbox of mine and as I have said before
‘the bill is another window into your
processes’. One of the most common
problems with billing is the poor processes
leading up to bill production – pricing
is a frequent root cause. Delays in the
loading of prices and slow rebates for bulk
discounts drive debts. There is a hidden
cost in organisations: billing re-work; the
investigation of disputes; raising of credits;
credit and re-billing etc. If you think about
it, the cost of re-work is more than the cost
of the bill. This is a hidden cost because the
resolution of disputes is spread throughout
the organisation – from receiving the call
to the investigation, raising of the credit,
senior management sign-off and the costs
of credit added to the terms for these delays.
The required ‘segregation of duties’
almost demands that these costs are
distributed so they are difficult to measure.
Start with the measurement of credit notes
to bills as a percentage, and if you struggle
to get traction with finance to create a
‘Billing Assurance’ programme use this
tactic. I once asked a FD of a client what the
billing accuracy was. He said ‘pretty good
actually around 95 percent.’ I said ‘So you
are happy with five percent of your revenue
being billed incorrectly?’ As this was a
major international company, five percent
amounted to a few billion dollars. This was
the button I mentioned earlier that changed
behaviour – two years later that 95 percent
was 99 percent and debt performance
improved dramatically.
Measurement – some years ago I
attended a CICM Masterclass in London
where I first heard the concept of ‘DSO
Drivers’. Essentially, by understanding what
a DSO day is worth you can then attribute
these days to the values of the debts on
your ledger. Presenting this at the senior
managers meeting will enable you to
demonstrate that DSO is not just a finance
measure but one which should be owned by
all of the business. You will also be able to
establish how much is outside the control of
the credit management team.
Organisational Capability – what you
are looking for as a credit manager is an
engaged and motivated team, but a team
that is neither of these things will result in
poor collections performance. There is a
soundbite meme that says ‘think of the cost
if the people we train leave?’ and someone
else says ‘but what is the cost of not training
them and they stay?’ It is very difficult to
quantify a benefit for training in value terms;
it is one of those things that is an enabler.
As one credit manager said at a CICM Best
Practice Event ‘training your staff is like
servicing your car. You are making sure that
it is operating at optimum performance.’
The CICMQ network of organisations invest
in training and as a result it clearly enables
higher performance in cash collection and
debt management.
These elements of the Order to Cash
process are something to consider when
you are seeking to improve the standing and
performance of your credit management
function. These elements also form a part
of the CICMQ programme’s six criteria –
Policy and Compliance, Customer Service,
Performance Monitoring, Personal and
Professional Development and Stakeholder
Management. Putting this together into a
plan of action becomes your roadmap for
improvement. All CICMQ organisations
strive for best practice and share this with
others.
Getting better never stops and, as we
know, the credit manager can never take
their foot off the accelerator, but we need
also to recognise that it is not just the credit
team’s responsibility to manage credit and
debt. Looking at what drives debt in your
organisation and sharing that responsibility
is also part of the credit manager’s role.
For more information please contact
cicmq@cicm.com.
Chris Sanders FCICM
Head of Accreditation – CICMQ.
It is true that the sales
ledger is the window
into an organisation’s
processes. To be more
accurate, it is the
window into how good
(or bad!) those processes
are.
The Recognised Standard / www.cicm.com / December 2018 / PAGE 33