Leveraging SAP to Improve AR Cash Flow Conversion

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Leveraging SAP to Improve AR Cash Flow Conversion
Efficiency Lessons Learned
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Agenda

• Introductions
• Current AR Challenges
• Standard R/3 AR Management
• Best Practice AR Workflows
• Execution of Best Practices
• Go Forward Strategies
• Customer Results
• Q A

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Introductions

• Cforia Software Market leader in AR Automation
  Products
• SAP Certified Interface
• DataXstream SAP integration partner
• SAP Certified connector
• Chris Caparon, Vice President of Professional
  Services at Cforia Software
• 140 customers world-wide
• Napa Auto Parts, Textron, Citizen Watch, etc

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Introductions

• Tim Cooper
• Lead FI/CO consultant for DataXstream
• FI/CO Certified
• Order to cash specialist
• Customers include Bayer Corporation, Cott
  Beverages, Lucent Technologies, Armstrong World
  Industries, Textron, etc

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• Challenges of
• managing accounts receivable
• in todays economy

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Current AR Challenges

• Accounts receivable is a top asset on your
  companys balance sheet
• Its the most at-risk item due to the credit
  crisis
• Cash flow is a top priority
• Decreasing or flat sales
• Tighter credit policies
• Staff reductions the norm
• World-wide DSO will be increasing for the
  foreseeable future
• Companies will hold onto their money longer
• Companies with less access to credit are
  threatened

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Current AR Challenges

• Deductions and charge backs from retailers will
  increase as their margins tighten
• Our customers are reporting that their customers
  are getting more aggressive with deductions
  disputes
• Bad debt is increasing in quantity velocity
• Your customers are financing themselves with your
  AR
• Companies with good long term credit histories
  are quickly becoming insolvent
• The traditional approach of throwing headcount at
  accounts receivable to improve performance simply
  isnt an option

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Standard R/3 AR Management

• AR analysts manage up to three different
  processes
• Credit/Order Management
• Collections
• Deductions and disputes
• Each process requires different workflows
• ERP Systems are designed to process transactions
  and post to the GL
• Not designed to optimize AR workflow
• What tools are being used today to manage this
  strategic asset?

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Standard R/3 AR Management

• Outlook/Notes
• Ticklers
• Collaboration
• Contacts
• SAP
• Notes
• Contacts(?)
• AR Inquiries
• Invoice reprint
• Order hold/release
• Credit limit changes
• Word
• Letters
• Internal collaboration

• Paper
• Aging reports
• Statements
• Notes (?)
• Ticklers (?)
• Deduction folders
• Excel
• Account analysis
• Internal collaboration
• Deductions(?)
• Internet
• PODs
• Banking information
• Customer web sites

• Fax Machines
• Collaboration
• Imaging Systems
• Documentation
• Network Drives
• Store customer information
• Credit
• eRam, etc.
• Others

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Standard SAP AR Management
Managing AR without Workflow is Chaos

• Current State of AR Management
• Majority of time spent analyzing rather than
  executing steps to maximize cash flow and avoid
  bad debt
• Multiple SAP sessions and LCD screens
• Manual report driven
• Constant toggling between multiple systems
  sessions

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Enhanced AR Workflows
AR is Three Separate Workflows

• Advantages
• Majority of time is dedicated to execution
• Segmenting AR workflows reduces flipping between
  screens and systems
• Embedded reporting reduces manual data entry

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Best Practices Discussion

• Lessons learned translated into process workflow

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Account Aging Accuracy
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AR Databases are Complex

• Clean Receivables
• Collectables transactions that are not disputed
  whose receipt can be forecast

• Dirty Receivables
• Disputes transactions that disputed and not paid

• Deductions transactions that are customer debits

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Best Practice 1

• Segregate your clean and dirty receivables to
  optimize collections and deductions efficiency

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All customers are not created equal
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Customer Structures are Challenging
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Best Practice 2

• Establish polices at customer vs. parent levels
• Customers tend to be managed by credit limits and
  held order management
• Deductions are typically not an issue
• Excellent candidates for AR automation via
  letters
• Parent accounts tend to be managed by portfolio
  balances
• Deductions are the norm
• Not good candidates for AR automation

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Best Practice 3

• Segregation of duties to improve performance
• Order hold/collections
• Deductions
• Credit Analysis

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Best Practice 4

• Optimize credit checking logic to minimize the
  number of nuisance order holds
• Align credit checking logic in SAP to your
  optimal credit policy

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Best Practice 5

• Use DBT (Days Beyond Terms) instead of DSO (Days
  Sales Outstanding) to measure performance
• DSOs sales component distorts performance
• Open AR/Sales per day
• DBT isnt arbitrary
• Pay date due date for all clean receivables

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Best Practice 6

• Collectors/Analysts need instant access to AR
  information
• How many windows / screens / sessions of a
  particular application do they have open at any
  one time?

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Best Practice 7

• Prioritize deduction and disputes activities
  based on value and type
• It is essential to mine out discretionary
  deductions from the non-discretionary ones like
  trade fund promotions and rebates
• Discretionary deductions can be re-invoiced if
  resolved within the customers dispute window
• Involve collaborators. Deductions are resolved
  in AR but originate upstream in the business
  process.

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Best Practice 8

• Create a set of KPIs and score card for your
  accounts receivable process
• Collector efficiency
• DBT (discussed earlier)
• Deductions re-invoicing vs. credit rate
• Deduction write off by type and stakeholder
• Number of customer touches per collector

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Execution of Best Practices
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Enhanced AR Workflows

• Deduction Dispute Management Workflows
• Prioritized item list by value/type
• Root cause tracking
• On-line collaboration

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Enhanced AR Workflows

• Credit Management Workflows
• Order release management
• Promise-To-Pay
• Credit limit checking optimization
• DBT trending and consumption of credit limit to
  alert on customer liquidity issues
• Tight integration with Credit Agencies

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Enhanced AR Workflows

• Collection Management Workflows
• Planning engine for accounts receivables
• Appropriate aging calculations
• Account segmentation (all customers are not
  created equal)
• Call list generation
• Letter generation
• Tickler engine and follow system
• Customer self-service EIPP

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Next Steps

• Modify your reports and SAP
• All custom programming
• Requires lots of resources
• FSCM
• Big project
• Product still early in lifecycle
• Flexibility
• Investigate a certified 3rd party add on like
  Cforia

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Cforia AR Management

• Out of the box business rules and functionality
• Short projects requiring few IT resources
• Application flexibility without services
• Hosted option
• We supply streamlined workflows that are
  excellent at avoiding multiple sessions and
  system logins (no alt tab)
• No need for many open SAP screens
• Our implementations are adapted to your business
  rather than forcing your business to adapt to us
• Tight integration with legacy ERP systems in
  multi-ERP environments, plus support systems
  including Fax Servers, Email, POD, Credit
  Reporting Services, and Document Imaging

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Our Customers
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The Value of Optimizing AR

• Improve DSO by 10 20
• Increase the recovery rate of deductions by 4
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• Reduce bad debt as a percent of sales by .01
• Reduce headcount

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Customer Workflow Results

• Napa Auto Parts
• 20 DSO reduction yielding 7 figure annual
  benefit
• Ashley Furniture
• Sales grew from 860 million to 3.5 billion while
  AR headcount was reduced by 20
• Club Car
• Collection efficiency increased 32 yielding a
  first year 500K benefit
• Ferrero Inc. (Tic Tacs, Nutella, Rocher)
• In first six months, while sales increased 25,
  DDO decreased by 20, headcount by 25
• Typical customer sees a minimum DSO reduction of
  10 in first year
• ROIs measured in months

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The Math of AR Improvement
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Questions

• For more information, contact Cforia Software at
• 818-871-9687
• Or email Brad Wentzel at bwentzel_at_cforia.com
• Or visit us at www.cforia.com

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