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Originally published:
Feb-18-2004
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A Checklist for Enhancing the Value of Credit and Receivables Management
by Lyle Paul Wallis
Vice President of Research
Credit Research Foundation
The key to attaining market leadership is to raise the bar within the organization through the creation of value at all levels. This requires an ongoing search for dramatic improvement. Each business process must be thoroughly assessed and structured to achieve maximum performance and efficiency.
Value Added
Value added, as a concept, is rooted in investment in business processes. Process enhancement, therefore, needs to be recognized as a tool essential to increasing organizational worth.
As we have learned through experience, eliminating waste, streamlining processes and cutting staff size does not necessarily lend to value added for the organization over the long haul. While immediate benefits are often realized, efforts to sustain these benefits commonly fail because the organization has inadvertently handicapped itself. As a result, the demands placed upon the business by future incremental revenue growth cannot be met, since the resources required to meet this growth have been pared back or completely eliminated.
A less radical approach to process enhancement should be embraced by the organization. Such an approach could be implemented by using a framework of options that can be applied to overall process improvement. By using a carefully developed checklist, process managers can continuously assess process performance and determine its value to the organization.
The Receivable Management Process
Adding worth to the receivable management process through continuous incremental improvement has the potential of becoming a key factor in enhancing the firm's economic value.
To assist in adding value in the receivable management process, a checklist of enhancement measures should be developed and referred to routinely. The checklist can contain options that are basic and limit investment, change, or risk. Options might also address more complex issues that require radical implementation. In the end, the checklist, developed after careful consideration, should identify those components that are most likely to lend value when applied to improving the process and in getting the process right.
Value Enhancement Menu Items
The following menu identifies typical options for value enhancement in the management of the receivable portfolio. Using this menu, the receivable manager can tailor a framework of process enhancement measures - adopting those that meet their organization's unique requirements, and adding additional items based on perceived need.
Examine payment terms: Do early payment or cash discount incentives add to shareholder value? Frequently they don't. (A reduction in cash discount of 1/2 % has the potential of adding 6% annually to the bottom line on those transactions in which cash discount is taken.)
Focus on what you do best: Identify those functions which you are most proficient at, and outsource the rest. Don't squander resources on fringe activities that lend minimum value to the firm. (If 85% of your receivable portfolio is focused in your top 125 accounts, surrender the other 2,500 accounts to a third party. Better you as the process manager identify this as a value added initiative for the firm, than having to comply with a directive to outsource, coming from upper management.)
Carefully scrutinize each step in the process: Ask yourself if individual procedures employed lend to efficiency. If a procedure can be eliminated with minimum impact on proficiency, eliminate it.
Use what you know to find out what you don't know: Focus on the present. Identify the assets that are currently utilized in process attainment. Organize these assets. Having accomplished this you can quickly decide what is being overlooked and move towards implementation of those items that may lend process value.
Do it yourself: Take total ownership of the process. Segregating the process between various process groups lends to inefficiency, as workflow becomes interdependent. Center the entire process at a single customer contact point. (Orders that are taken by order entry, passed to customer service for processing, credit for approval, distribution for fulfillment, then billing for invoicing, tend to get waylaid along the way.)
Have your customers do it: Shifting the burden of processes to your customer can lend tremendous value to the organization if it is done without jeopardy to customer relations. (Shipping goods to a centralized shipping point and having the customer bear the burden of distribution to individual store sights can frequently be negotiated with your customer. A price concession in the form of discount could be offered at a fraction of the cost incurred in freight, distribution expense, administration, and losses resulting from deductions for lost shipments, misdirected paperwork, etc.)
Streamline the process: Analyze all components of the process with the intent of eliminating waste, extra steps, delays, and cost. Re-engineer the process employing best practice methodology and latest technologies. (The practice of retaining paper files or microfilmed libraries should give way to automated online record retrieval.)
Don't hesitate to borrow from another industry: Identify the industry that has the most experience with a specific process, and seek suggestions for process improvement. (For hints on improving the cash application process, ask your banker to arrange a meeting with his lockbox department. Help from the bank's credit card department may be sought in effecting improvement to the processing of credit applications.)
Establish an internal web: Create an internal Internet site (Intranet). This facilitates a communications infrastructure that enables interdependent individuals to interface interactively from their respective workstations. It can serve as a vehicle for training, and tied to the Internet, and external process related sites, it provides an information reference point for process team members.
Cultivate a culture of cooperation: Foster an environment of smooth and effective interaction between interdependent process team workers. (An alliance between sales/marketing, and customer financial services, lends to solid customer relationships, and serves to streamline the order to cash process).
Exercise creativity and vision: Pursue methods designed to create process efficiency by breaking from traditional techniques and adopting procedures designed to exploit current technology and system process theory.
Understand that the firm's single largest investment is in its people: Remembering that the organization's key asset is its workers, managers must be prepared to treat them as such. Encourage an environment that promotes interpersonal development in education and skill sets. Provide process team members with ownership to the overall process. Empower them to make decisions. Make people feel good about their accomplishments. (Remember that praise for a job well done is the cheapest form of compensation.)
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©1999-2004 by Credit Research Foundation, Inc. Columbia, Maryland. All rights to this material are reserved. No part of the material may be reproduced in any manner whatsoever without written permission from CRF.
Credit-to-Cash Advisor is sponsored by ABC-Amega Inc. - providing effective accounts receivable management and commercial debt collection services since 1929.
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