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

1. Leveraging SAP to Improve AR Cash Flow Conversion Efficiency: Lessons Learned

2. 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

3. 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…

4. 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…

5. Challenges of managing accounts receivable in today’s economy

6. Current AR Challenges Accounts receivable is a top asset on your company’s 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

7. 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 isn’t an option

8. 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?

9. 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 • POD’s • Banking information • Customer web sites • Fax Machines • Collaboration • Imaging Systems • Documentation • Network Drives • Store customer information • Credit • eRam, etc. • Others

10. 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

11. 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

12. Best Practices Discussion Lessons learned translated into process workflow

13. Account Aging Accuracy

14. Collectables – Clean receivables Disputes – Dirty receivables Deductions – Dirty receivables 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

15. Best Practice 1 • Segregate your clean and dirty receivables to optimize collections and deductions efficiency

16. All customers are not created equal

17. Headquarters Parent Parent Customer Customer Customer Customer Customer Invoice Deduct Credit Invoice Deduct Invoice Credit Invoice Invoice Customer Structures are Challenging

18. 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

19. Best Practice 3 • Segregation of duties to improve performance • Order hold/collections • Deductions • Credit Analysis

20. 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

21. Best Practice 5 • Use DBT (Days Beyond Terms) instead of DSO (Days Sales Outstanding) to measure performance • DSO’s sales component distorts performance • Open AR/Sales per day • DBT isn’t arbitrary • Pay date – due date for all clean receivables

22. 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?

23. 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 customer’s dispute window • Involve collaborators. Deductions are resolved in AR but originate upstream in the business process.

24. Best Practice 8 • Create a set of KPI’s 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

25. Execution of Best Practices

26. Enhanced AR Workflows • Deduction & Dispute Management Workflows • Prioritized item list by value/type • Root cause tracking • On-line collaboration

27. 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

28. 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

29. 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

30. 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

31. Our Customers

33. The Value of Optimizing AR • Improve DSO by 10 – 20% • Increase the recovery rate of deductions by 4 – 8% • Reduce bad debt as a percent of sales by .01% • Reduce headcount

34. 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 • ROI’s measured in months

35. The Math of AR Improvement

36. Questions For more information, contact Cforia Software at 818-871-9687 Or email Brad Wentzel at bwentzel@cforia.com Or visit us at www.cforia.com