Customer Profitability: Hidden A/R Costs That Eat Away Your Bottom-Line And How To Avoid Them

[0:00] Anchor:

Hi everyone. I’m having Tim Walker over here. He’s with over 20 years of experience in the field of finance, he’s worked for Pepsi for over 13 years and is currently the financial products systems manager at Brightstar. He’s a key person responsible for setting up HighRadius Collections Deductions EIPP solutions of the company. Tim, you got the stage.

[0:26] Tim Walker:

Welcome. How’s everyone? Good. I’m very nervous, just so you know. Okay, so customer profitability hidden A/R costs that eat away your bottom line. I work for a company called Brightstar. So a little bit about Brightstar. We are the world’s leading mobile services company managing devices worldwide. I work for our US and Canada division and which is where we have HighRadius running. We don’t have it in the rest of the company yet. But we are a subsidiary of the SoftBank group founded in ’97. Approximately 9000 employees, and we process over 100 million devices a year. If you’ve ever liked this little story, but if you ever go to like Best Buy or somewhere and trading your phone and they give you a card or whatever, most likely we get that device and so, we will take that wipe it data wipe it, resell it or scrap it or whatever, you know the outcome.

[1:46] Tim Walker:

So our digital transformation as we mentioned earlier, we installed the deductions module, collections module, and EIPP. The reason we needed to do that was to improve efficiency and cut costs. So we had a big problem with deductions specifically when the company started getting heavily into retail. That was probably around 2009 2010, something like that. And we had a huge staff trying to keep up with these deductions and processing everything manual. So very high full-time employee costs, high deduction write-offs. Everything was very manually processed, manual via the mail, email. Very poor efficiency, limited visibility, because at the time when they were posting cash, they would lump sum the deduction dollars from a payment from that customer’s payment, and then not even keep it in there, so they would move it to, you know, off the air sub-ledger. And then you lose all visibility to those deductions. And we were very heavily dependent on IT and any kind of report you needed changing direction, we’re waiting on IT to get that done for us. So some of the outcomes after once the roadblocks were eliminated through automation, we got a 50% reduction in our shortage. Write-offs went from 28 full-time employees down to 10. Some of those were temporary employees, but that reduction was mostly in our returns deduction area. 97% increase in collection account coverage per day and a 30% increase in collector’s efficiency.

[3:58] Tim Walker:

So efficiencies approved check. But what about cutting costs? It was still a concern.

[4:10] Tim Walker:

So projects primarily fail, simply because the need itself is not fully understood. So they come, they get too big, too complex. They’re managed without focus for definition. So if you kind of takes the time to do this analysis upfront you can avoid all those issues. So I’m going to walk you through kind of a case study, I guess, to better explain the hidden costs in different A/R processes. And we’ll take an imaginary company ABC for our calculations.

[4:52] Tim Walker:

So as you can see, Yes? (Audience Question Inaudible)

[5:20] Tim Walker:

How big was the Department of the company? Well, the US business definitely is not big enough to have that many people. We had to throw a lot of people at those deductions because there were just so many. And the company was not in a place that they had no experience. So we hired a bunch of temporary people to just gather paperwork mostly is what they were doing. So once we were automated, it’s the systems and pulling all that information for you. So we’re able to get rid of all those people like I said mostly returns deductions. Some, I think there was maybe one collector. So it’s confidential to share any company data. So we’ve got some made up numbers here. Total Cost of collections $800,000. Total cost reductions, million total costs of invoicing $130,000 for a year.

[6:37] Tim Walker:

So our collections, we’ll talk about that one first collection management before as I mentioned, was all very manual. So the inputs coming from our ERP, we use JD Edwards. Basically, that input was a collector running and aging and exporting that to Excel, that’s where they kept all their notes and they would just do that every week and then have to copy over, copy-paste, copy-paste. Their contacts were in their own Outlook or in a, you know, paper somewhere the collectors themselves were manually prioritizing. So it’s kind of up to the employee on how well the company was performing based on all this manual work that they had to do. So the challenges as I mentioned, some of them had no ability to enter account notes other than in spreadsheets, so no system to do that. No standard Dunning was done through email, fax, mail, regular mail. And then that made it very difficult to do any tracking or auditing of what work was being done. And also for our auditors to come in and take a look at our accounts. They had to go to each individual collector to get information on their customers. And there’s no effective way to manage track reminder calls and all that.

[8:17] Tim Walker:

So some of the challenges with the outbound process, difficulty in finding all the customer-related data in one place, because each collector was keeping their own multiple files. There was no way to prioritize and it was very cumbersome to manage and track tasks through all those spreadsheets. This slide talks about the traditional collections approach reactive correspondence, manual reminders that were sent only after the due date was over. So if you see from the slide, you have an invoice that’s due date is April 15. April 18 is when the first, the first contact to that customer happened. And then, you know, if they didn’t pay you all the way up through the 23rd they would continue to get reminders if the employee was doing their job and then the customer pays you and then it takes a few days for that payment to land in the system. So the collector has remained inactive you know prior to that due date. And then a lot of Dunning would happen after that and so not good for DSO. So with the collection module, we have the ability to do what we could do before but it wasn’t done but anyway, proactive correspondence so we start our Dunning process before the invoice comes due. Just a quick reminder to the customer – “Hey, you have invoices coming up”. Automated reminders are sent before the due date starts as I mentioned. The customer then also has complete invoice information and payment options as well in that email, so very positive DSO impact there.

[10:18] Tim Walker:

The collection landscape at Brightstar after the automation along with the percentage of dollars saved in each of the processes – So, averaging here we got a 63% automation percentage. So that multiplying that by our cost, we had an average savings of $500,000 in one year, that’s the one year mark.

[10:55] Tim Walker:

Some of the HighRadius collections solution information is on here. So as I mentioned prioritizing work lists, auto-generating reports recommended action to take for the collector, and then everything centralized in one place. Moving on to deductions, this is the second cost to serve element deductions recovery and write-offs. So our landscape before automation was again, like I mentioned in all manuals, the short pay gets identified. The collector then would or the analysts would then start their work of collecting the PODs, invoices, whatever they needed as a backup. Do the research internally working with various departments and that was very difficult without having any kind of workflow solution. Just trying to get people to answer email. So that added a lot of time to the work. Then the deduction would be disputed with the AP teams either. If they had a portal on their portal, do that manually, or print and mail; some customers want an actual snail mail and also email and then that deduction would get closed.

[12:35] Tim Walker:

So the transformed landscape after automation shows the percentages of automation in each of the different processes. And here we got an average of 38% automation, that zero write-offs were a little bit misleading. We still do have write-offs. However, we eliminated write-offs that were caused by missing customer dispute windows. And also some improvements in vendor compliance deductions.

[13:23] Tim Walker:

So taking that average and the costs we had an average savings of $380,000 there in a year. Using the structured workflow collaboration engine for inter-department communication was really helpful. Actually the salespeople started almost complaining like they were getting too much information. When before they were hardly getting anything about, you know what they needed to look at to resolve the deduction. So they enjoy that as well. And also the system has the ability to automatically post the denial correspondence onto customers’ web portals, which is very slick. It will just go as it does for the polling acclaims it’ll just go out there and fill in whatever information is required. You just tell the system what attributes of the deduction you need, and it will complete the dispute for you.

[14:36] Tim Walker:

Moving on to invoice costs, the third cost to serve element. So challenges – invoice creation. That was mostly done. I mean, we had some customers that were on EDI, but most of it was emailed invoices out of JD Edwards. We did do some printing and mailing but not a lot but I wanted to include this in the slide just to show that it can be very costly to do that in snail mail. Many different, you know customer preferences. There’s a couple mentioned here monthly versus weekly, summary versus detail, header versus line level. So that made it difficult to manage and you have no guarantee of receipt when you send that in the mail. Email kind of I mean, you might get a receipt back but most often not. So the EIPP module is what we chose to help with this process. Simple customer onboarding and management. You can onboard your customer with a simple online registration link. This can be sent via email, we actually use a single sign-on from one of our ordering portals. So the customer goes to the portal, then they can look at their invoice history and that puts them right over into HighRadius and HighRadius then will automatically add that user to the system. Intuitive user interfaces and very easy to administrate, easily navigate through the various menus, multiple actions without really much training at all, which is very nice. single click collaboration between AP and A/R teams. So performing actions such as disputing invoices, as I mentioned, attaching backup making payments, just a single click on the portal. Supply and A/R teams can share invoices and resolve or deny disputes through the same. A central repository of all invoice related activity, including invoice detail, any claims, payment details payment history is present all within the portal.

[17:21] Tim Walker:

The reason we chose to go to the EIPP route was not necessary for the payment side. We chose it so our customers could self-service. So it saved us a lot of time not having to mail statements or email, missing invoices, whatever. So our customers, since we did this single sign-on, they really have adopted the system Well, they get their statements, you know themselves, get all their invoices. We do have some customers that pay us through there but not too many.

[17:58] Tim Walker:

So the collection landscape after automation along with all the percent savings here, sorry the EIPP module. ERP data coming in full integration, really no need to change anything. And actually when we implemented the EIPP all we had to do was alter one of our extract jobs to add some additional criteria. And then we started getting all the invoices for these customers. Prior to that, we were just sending invoices for the deductions, the deduction model. So that was very quick. Just kind of plugged right in. The system allows multiple delivery methods. The customer can choose the frequency, how often they want to get that. And then also, as I mentioned the header in-line item level detail is all in the system. And also you get a receipt from the system, so easier for the customer to track and retain their invoices. So overall there was an 85% automation there with EIPP. So going back to our savings number an average of $126,000. Some of the features of EIPP which I kind of already went through but provides the buyer and supplier access to previous and current invoices they can see their complete history. Be they offer direct debit, for recurring payments, so ACH payments, also credit cards, we take. And it just enables the customer to share details and supporting documents for whatever they need from you. So-net profit overall was $1,500,000 in collections, $380,000 in deductions and about 120 in invoicing. So, customer profitability is the major roadblock in cost-cutting. To achieve higher cost savings. You need to focus on the cost to serve those customers across all of your HR processes.

[20:28] Tim Walker:

Thank you