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Speeding Up Payments By Streamlining Internal Processes
How would you like to improve collections by 20% without making one call or writing one letter? You may be able to do it--like this company did -- by identifying and changing internal processes that slow up customer payments. And, like this company, you might reap some major cost savings in the bargain. About a year ago, Valerie Venable, CCE, looked at her delinquency rate and compared it with the number of financially distressed customers the company had. (In theory, of course, the majority of delinquencies should be the result of customers' having financial hardships, creating an inability to pay.)
"I wanted to see what percentage of delinquencies were the result of customer financial hardship and what percentage were the result of 'self-inflicted wounds,'" explains Venable, corporate credit manager and manager of Reengineering for Wyman Gordon Co. (North Grafton, Massachusetts), which manufacturers forgings and castings for the aerospace industry.
Her findings -- that large percentages of delinquencies were the result of problems in supplying invoice documentation to the criteria specified by the customer -- prompted her to take action. "I realized," she recalls, "that if we got our own house in order by streamlining our order processing, certification, and documentation and our shipping processes, we could eliminate errors and improve our cash flow."
Adding Value
Furthermore, this streamlining would substantially improve the productivity of employees in her department. "Having collectors pick up the phone to ask customers to pay invoices is of no added value to us or to the customer. The impact is fourfold: We have to identify the problem with the customer, undo the documentation created the first time, create new documentation, and resubmit to our customers. The customer then has to go through the document review process a second time prior to scheduling our invoices for payment."
 We didn't want to just engage in 'dialing for dollars' and correct mistakes on the documentation. These activities are non-value-added to us and irritants to the customer. 
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-- Val Venable
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So the goal was to improve the value added within the total process. "We didn't want to just engage in 'dialing for dollars' and correct mistakes on the documentation," she says. "These activities are non-value-added to us and irritants to the customer."
The effort would not be easy, though. Given the technical nature of the business and stringent requirements that vary with each customer, each shipment often contains numerous documents both for certification and quality and for shipping and invoicing. "Recently, for example, I noticed a shipment that required 32 pages of quality and certification documents," she says. "A single error on any of the pages could delay our payment."
Process Redesign
Wyman Gordon's manufacturing facilities in North Grafton and Houston, Texas, both serve the same customer base, and Venable decided to begin her project in North Grafton with the idea that she could transfer some of her findings to the Houston location at a later date. She organized a team composed of representatives from all functions in the company that in any way come in contact with the paperwork associated with orders and shipments. These included Credit and Collections, Customer Support (Order Entry), Sales, Systems, Accounting, Manufacturing, Quality, Certified Reports, Shipping, Logistics, and Engineering.
"We began by examining in microscopic detail every function and activity within the process," she continues. "We looked at every person who touched any piece of paper within the process and asked whether they added value. We found that a lot of people who handled paper along the way did nothing but verify that what the person ahead of them in the process did was correct. Because there were so many handoffs, the process was very time consuming and burdensome, and it was therefore difficult to accommodate customer changes."
The effort began at the beginning--with the customer's purchase order and subsequent order entry by Wyman Gordon customer support employees. "Since we were working in a manufacturing environment and so much documentation is required for every forging we make, we approached the project from a manufacturing mind-set," Venable explains. "We set out to 'manufacture' invoicing and quality documentation accurately--to customer specifications--and to be ready when the forging was ready to ship."
"Raw Materials"
The team considered the customer's purchase order document to be the first "raw material" that is ultimately used in manufacturing the product, and the order entry process to be the first "assembly" operation. "If anything is incorrect with the purchase order and the order entry process, the final documents will also be incorrect," notes Venable. Errors can be as simple as a transposed digit or a delivery date that varies from the one on the quote and is not identified as a change in the documents process by Order Entry.
"We designed a system to make sure the information we enter the first time is correct and complete," she says. "The system should be so streamlined that changes can be incorporated quickly and easily."
The team was able to identify another problem: Because of long lead times in acquiring some raw material, salespeople would try to "get a jump" on the system by accepting an order without all the necessary information specified. While their goal was to improve the service to the customer, it often did not turn out that way.
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"A salesperson might call Customer Support and tell them Customer X would be placing an order for 400 pieces of part number 123, and ask Customer Support to enter the order right away so that we could get the raw material on order, thereby supporting their customer's perceived needs," notes Venable. However, when the purchase order finally comes in, the 400 pieces may have staggered delivery times. This would require someone in the process to go back and change not only the internal paperwork but also the request to the raw material supplier, and production scheduling as well.
Again, by creating criteria and standards for entering orders correctly the first time, this problem was eliminated. "We received an added benefit of helping our raw material suppliers by reducing the number of changes we imposed on them," Venable says.
Next, the team trained all employees who were involved in the process on
- what the person who handled the paperwork before them did with it and why, and
- what the person who handled the paperwork after them did with it and why.
"This enabled us to determine which activities were helping the process and which ones were hindering the process," she continues.
Eliminating Steps
Some employees, for example, found that if they made some small changes on how they handled their part of the process, entire steps involving many other individuals could be eliminated. Similarly, some employees found that if the person before them did some things differently, they (the employee who received it next) wouldn't need to receive it at all.
Each hand-off from one employee to another was identified as an area where errors could be made, or where time in the "manufacturing" process could be lost while the paperwork sat waiting for the next step. The team also found that a number of employees had created their own personal "subsystems and processes" to supplement information they didn't have readily available to them. "Since they didn't feel comfortable with the information they had," Venable says, "they'd created their own steps to acquire new or verify existing information."
The problem with this was that since the employee did not have a vision of the entire process, some information was entered in a manner that required someone else to enter it again in a different order. By having everyone involved in designing the "manufacturing" steps in the new process, everyone understood the ramifications of other departments' actions. So now they could suggest improvements that would not cause hardship at another point in the process.
To further streamline and improve the process, the team looked at where each activity took place and how much communication was required between departments. They moved the invoicing activity from a room in the accounting department to a location near the shipping and certification departments.
"Having the person performing the final assembly operation in our 'manufacturing' process located out where the 'raw material' was gathered eliminated delays while shipping information was being transmitted to Accounting, and it eliminated errors caused by incomplete information. The parts and the paperwork went out the door at the same time."
Implementation
Once the team redesigned the process, it met with all the department managers to explain the new process in detail, to answer any concerns, and to be sure all elements of the process had been examined. Implementation was aided by the representatives from each department that participated on the reengineering team.
While I have some interest in what happened last year, I'm much more interested in what I will be asked to do next year. I want to anticipate what my company will need from my department next year and begin to prepare for it now.
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-- Val Venable
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"They designed it, so they obviously embraced it," says Venable. "Because they know the workload of their department and where the rough spots are, we made sure these concerns were addressed in the improvements we provided to them. Team members helped sell the idea to their departments."
Paperwork handling within the process was reduced by between 40% and 50%, and the reduction in the collections workload was just as dramatic. "Our people spend less time trying to find out why invoices are not being paid," explains Venable. "We have a strong comfort level that invoices on the books are accurate and represent accurate and timely shipments."
Collection employees are now customer support people. "They're trained in the documentation process, the shipping process, and, to some degree the manufacturing process" explains Venable. If there are any invoicing problems, or if the customer just calls with a question, Venable's employees are familiar enough with the process to quickly tackle resolution of any problems without handing the customer off to another department.
The team's goal was to reduce delinquent receivables and DSO by 20%. "We not only achieved that goal, but the improvements are still continuing," she reports.
Finally, the number of "churning transactions" (in which documentation must be canceled because of inaccuracies and then subsequently be re-created) has dropped by over 50%.
The Future
Venable is not done--not by a long shot. In fact, she considers being a part of the order process reengineering activity to be only one step in a series that will involve the credit department.
"One thing that holds a lot of credit professionals back is that they tend to be reactive," she contends. "Their bosses asked for something last year, so they plan to incorporate it into what they do this year. While I have some interest in what happened last year, I'm much more interested in what I will be asked to do next year. I want to anticipate what my company will need from my department next year and begin to prepare for it now."
Projects that Venable has participated in relate to asset-based securitization, cross-divisional teamwork to eliminate process duplication, and customer and vendor liaison to develop mutually beneficial business process improvements.
"I like to get my department involved as much as possible in the operational side of the business," she explains. "This is really where the control lies for what will be required of my department and where the growth opportunity is for my employees now and in the future."
Editor's Note: The above article originally appeared in the Credit & Collection Manager's Letter, a newsletter purchased by Credit Today in 2006. This article originally appeared prior to 2000.
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Credit Groups 2012
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- How data is submitted
- What percentage of credit groups reveal terms
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