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! @ # Business Risk Services Credit Process Enhancement Review A presentation to marketing and finance departments on the future state vision of the credit control processes
| Date post: | 12-Jul-2015 |
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Economy & Finance |
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! @ #
Business Risk Services
Credit Process Enhancement ReviewA presentation to marketing and finance departments on the future state vision of the credit control processes
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Business Risk Services
Contents
Background
Methodology
Major deliverables
Future work processes
Future Procedures Overview
Information system support
Functions of Credit Control Group & Marketing Division
Way forward
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Business Risk Services
Background
•Lack of formal credit policies and procedures
•Limited information to support monitoring and decision making
•Steady cash flows and working capital desired for self financing
•Deteriorating receivables ratios
2003 2002 2001BHDm BHDm BHDm
Trade receivables 114 88 72Receivables as % of revenue 10.9% 9.9% 8.8%
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Business Risk Services
Overdue Debtors
Jan 2004
Dec 2004
0
20
40
60
80
100
BD m
1-30 Days 30-60 Days 60+ Days
Past due
Avg Overdue 65.9 2.55 54.65
Cost of capital at cost of financing of BAPCO = 5m
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Business Risk ServicesMethodologyMethodology
Understand and assess current credit policies and procedures.
Study and accumulate material onbest practice.
Compare best practice with current practices.
Identify opportunities for improvements.
Standardize credit and collection procedures in a corporate-wide strategy In process
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Business Risk Services
Comprehensive credit policy that
addresses
Credit risk management
Streamlined collections
Management approvals
Ongoing credit risk management
Management reports and oversight
Credit controlmanual
Consistent corporate-wide procedures
System based applications and standard forms
MAJOR DELIVERABLESMAJOR DELIVERABLES
Staff training
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Business Risk Services
5 C’s of Credit
Character
Conditions Collateral
Capital
Capacity
Credit Control
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Business Risk Services
Evaluate and recommendcredit limit
Enter customer recordand credit limit
Review customer dataon an ongoing basis
CREDIT DEPARTMENTMARKETING DEPARTMENT
INFORMATIONSYSTEM
Credit application
Approve customer andcredit limit
Notification is sent tocustomer
Re-evaluate and recommendcredit limits
Approve revised creditlimits
Alerts/Exceptionsreported Reminder letters
generated and sentto customers
Take appropriate action
Onlinecustomerpayment history
and terms
Start
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Business Risk Services
Credit Risk Management
• Consistent assessment of the credit risk of prospective customers
• Formal credit checks to be applied to all customers
• Guidelines established for the periodic re-evaluation of credit worthiness and credit limits of existing customers
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Business Risk Services
Management Approvals
Approval matrices set for the following areas:
• Credit limit authorization• Reevaluation of credit limits• Major customer visit schedule• Assigning accounts for initiation of legal
proceedings• Write off of bad debts
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Business Risk Services
Ongoing Credit Risk Management
• Periodic reevaluation of credit limits and credit worthiness of customers
• Credit-alert notification sent automatically by credit rating agency to the Credit Department for customers experiencing financial difficulty or announcing financial results
• Credit alerts generated by the system for customers who have exceeded their credit limits and/or have overdue invoices
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Business Risk Services
• Credit Control Group will receive a list of customers that are scheduled for follow-up each day
• Customer information will be consolidated on one screen
Ongoing Credit Risk Management (contd)
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Business Risk Services
Management Oversight and Monitoring
• Periodic management reports that identify potential credit risks, trends and changes in credit worthiness
• Performance metrics for measuring the effectiveness of collection efforts
• Internal surveys to periodically evaluate Credit and A/R operations
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Business Risk ServicesFunctions of credit control committee
• Monitor effectiveness and application of credit control
procedures.
• Review and recommend actions for exceptions identified
by credit control group.
• Recommend cases of delinquent accounts for legal action.
• Recommend provision for bad debts.
• Update the board on their activities and important matters
concerning credit management.
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Business Risk Services
Approval of customers
& credit limits
Exception reports
Auto flagging of overdue invoices &exceeded
credit
Sales ordersdelivery notes
A/R
Online customer paymenthistory
MIS
Information system support
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Business Risk Services
Assessment ofAssessment of new customersnew customers
initiateinitiatedebt recoverydebt recoveryproceduresprocedures
Reporting Reporting over dues over dues
Monitoring creditMonitoring creditlimitslimits
Credit control group
Order processing
Approve creditlimits
Accept customers
Marketingdivision
Credit control group Marketing division
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Business Risk Services
WAY FORWARD
• Finalization of draft credit control manual
• Submission of credit control manual for comments to stakeholders
• TSRS to review credit control manual for information systems solution
• Final draft credit control manual issued
• IT solution implemented
• Staff trained to operate the new system
