Objective and Scope

The purpose of this document is to have a detailed procedure on how to perform Credit Collection activities.

This operating procedure (OP) applies to customers worldwide.

Roles and Responsibilities


The mission of the Credit Collection team is to contribute to reduce the delay DSO through Outbound communications with 3rd party Customers in their native language (if covered by the Collections team) based on the Standard operating procedures for Dunning, Collections and Dispute management agreed upon with Credit Management.

Credit Collection is responsible for following up all open items mentioned in the customer accounts until payment received, clearing or bad debt or loss.

The main actions are as follows:

  • Perform pre-chasing to confirm that all requirements are fulfilled in order for the customer to pay on time (Pre-chasing);
  • Obtain a commitment from the customer to honor his debts in the shortest time possible (Promise to pay)
  • Detect the reason for payment delay and propose / coordinate action plan with relevant resolution owners to solve disputes to get payment on time (Dispute)
  • Contribute in defining action plan in order to improve issues on their portfolio
  • Coordinate the management of unallocated and unmatched payments in liaison with A/R team.

The main objectives of the Credit Collection process are:

  • To optimize the GBU's working capital in partnership with the Credit Managers and the businesses;
  • To maximize process standardization despite local specificities
  • To mitigate the credit risks that can be incurred by the businesses by closely exchange on customer payment behavior and detect current or potential cash issues
  • Maximize efficiency and optimize resources

The Collection process includes pre-chasing and chasing of overdue items.

The pre-chasing activity focuses on calling customers aiming at obtaining payment confirmation for items not yet due, detecting potential dispute, managing the payment discrepancies and sending copy of invoices to the customers.

The objective of the pre-chasing is to take preventive actions on all customers with recurrent payment delays or prevent high risks before the item becomes overdue. It is essentially targeting to minimize the delay DSO.

The chasing activity is the consequence of an unsuccessful pre-chasing, meaning no dispute or promise to pay were previously created. The level of severity increases according to the dunning level. 

It is expected that these Credit Collection principles support in anticipating collections activities and in bringing effective results in terms of Free Cash-Flow. 

Scope

Credit Collection team is responsible to contact 3rd party customers in the scope of SBS-OtC.http://collections.xls

 

 

1. Credit collection strategy

1.1 Credit Collection Strategy

Nine customer types and four scenarios of pre-chasing have been defined based on three criteria: 

Those scenarios aim at attributing a pre-chasing strategy to each customer and optimizing payment collection by clarifying and prioritizing Credit Collector daily action. 

The riskier the customer is (here riskiest customer = risk class 4, bad payment behavior and key customer in terms of credit exposure) the earlier the customer is be contacted in order to make sure that there is no problem with the upcoming payment 

This way of processing enables to detect potential problem early and move directly to "dispute step" before the due date. This anticipation mitigates the risk of invoices getting overdue. 

The pre-chasing process systematically starts with a Maturity Advice sent to customers in scenarios 1, 2 and 3: 

1.2 Criteria to determine Collections scenario

Each customer is assigned a scenario based on the combination of the three following criteria: 

  • Key customers:

Key customers are automatically selected based on the Customer Credit limit registered in the system.

The threshold for a Key customer is defined at 500K EUR.

Only Credit Manager maintains / updates the field "Key customer" in the system. 

  • Credit Collection payment Index:

Credit Collection Payment index is based on Solvay Payment Index for each customer weighted by the last month payment experience (Collections Payment Index (payment delay of last 6 months (60%) combined with last month's delay (40%)).

The introduction of a customer rating Good / Bad enables to 'rate' customers with good payment experiences and penalize customers with bad payment experiences.

The limit between Good & Bad is set at 3 days (Good payer < 3 ≥ Bad payer). 

  • Rating:


The third criteria is "Rating" (FD33 rating). The rating levels are listed below:

1 = Group > Solvay & No Risk
2 = low risk 
3 = medium risk
4 = high risk
5 = very high risk, dubious customers, payment in advance, LC

Risky customers have the following rating: 4 or 5

Not risky customers have the following rating: 1, 2 or 3 

1.3 Automatic Collections scenario assignment

It is possible to manually force a specific scenario for each customer.

In order to adjust the scenario automatically defined by the SAP program, open transaction BP in PI1, enter the customer number in field "External Number" and click on "Start" to obtain the BP number:

Double-click on the Business Partner number, a new screen will appear on the right. In the option "Display in BP role", choose "BP Collections Management": 

In the last tab "Collection Profile", change to Edit-mode, and modify field "Collection Group" to one of the following scenarios to force it:

ZGROUP_1_Mscenario 1 - Forced Manual
ZGROUP_2_Mscenario 2 - Forced Manual
ZGROUP_3_Mscenario 3 - Forced Manual
ZGROUP_4_Mscenario 4 - Forced Manual 

All scenarios entered manually are not updated by the monthly automatic program. 

1.4 Maturity Advices

A Maturity Advice is an automated letter sent to customers with open items on:

  • Run on 8 of the month (fixed) => selection on Due Date for Net Payment: from 21 of the month (fixed) to last date of the month 
  • Run on 18 of the month (fixed) => selection on Due Date for Net Payment: from 1 of the month (fixed) to 10 of the month (fixed) 
  • Run on 28 of the month (fixed) => selection on Due Date for Net Payment: from 11 of the month (fixed) to 20 of the month (fixed) 

The minimum amount for sending of a maturity advice is 40K EUR. 

Some items are excluded: those with Promise to Pay, disputes and / or dunning blocks, items in doubtful status. 

The objective of the document is to inform the customer that some of his items are due within X days, and to ask confirmation that payment will be executed at the due date. 

The maturity advice is generated in the following languages: English, French, Dutch, German, Italian, Spanish, and Portuguese. When the language of the customer is not available, English is selected by default. 

Note: if no email or fax contacts are available in customer master data, no print is done. 

1.5 Pre-chasing

The pre-chasing activity focuses on contacting customers and obtaining payment confirmation for invoices before their due date.

It is performed for customers under Collection scenarios 1, 2 or 3.

The minimum amount for a pre-chasing call is 40K EUR, according to the timings below:

The objective is to take preventive actions on selected customers with recurrent payment delays or that present higher risks in order to avoid that the invoices become overdue.

The customer must be asked to:

  • confirm the invoices were all received
  • confirm that the approval process is completed
  • confirm that the payment will be done in time to respect the net due date of the invoice 

Once a firm commitment is received from customer to pay on a specific date, a promise to pay must be recorded in FSCM on the selected invoices.

1.6 Dunning Letters

Dunning letters are automatically sent to the customer when invoice due date has been reached and remains unpaid. Each letter has an associated severity level according to its ageing: 

  1. Level 1: applied if item is due for the first time and if no items with higher dunning level
  2. Level 2: applied if item remains due after 1st dunning letters were sent; includes the reference to the first dunning letter that was sent (date of dunning is included)
  3. Level 3: applied if item remains due after 2nd dunning letters were sent; includes the reference to the first and second dunning letters that were sent.

One unique dunning procedure is available in ERP, with the following timings (D = due date + working days):

The dunning letter is generated in the language of the customer available in the system: English, French, Dutch, German, Italian, Spanish, and Portuguese.

If an e-mail/fax is available in the customer master data, the letter will be sent automatically. If not, the letter is printed and needs to be sent by post on a daily basis.

All maturity advices, statement of accounts and dunning letters are automatically archived in the customer master data as PDF documents. 

1.7 Chasing

A global chasing scenario has been defined for customers with overdue invoices which have no dispute registered in the Dispute Management module or a promise to pay. 

The chasing process systematically starts with a Dunning Level 1 sent to customers and is completed by a direct contact between the Credit Collector and the customer by phone or e-mail. 

The dunning process (sending of formal written notice) is fully automated and assigned by default to all payers when the company view of the payer is created. 

It is possible to exclude customers from dunning scope, by inserting a dunning block in Customer Master Data (Company Code view). The decision to exclude a customer must be agreed upon with the Credit Management.

The default company on the logo on each dunning letter sent to the customer is "Solvay Group" and it regroups all items from all invoicing entities to the customer. The letter refers to the bank account to be used for encashment.

2. FSCM collections management

2.1 Worklist: Description and Purpose

FSCM Collections module generates a Worklist, which presents the customers that should be contacted by each Collections specialist.

It is refreshed every hour from 6AM GMT and until 4PM GMT, based on the information registered in PI1. 

Each customer is assigned a priority level, based on the defined Collections Strategy. 

2.2 Worklist: Entering the tool

In PI1, open transaction "UDM_SUPERVISOR - All Worklists".

On the pop-up window, click on the execute (F8) box without inserting any data: 

 

 

Whenever the number of customers exceeds 400 entries, a pop-up asks to confirm how many customers should be displayed. Since it is necessary to display all customers, delete the number and click on  or press Enter: 

By default, the Worklist displays all customers, for all countries and all priorities. 

  • Once the Worklist is open, the correct view must be chosen according to the region(s) assigned to the Collections specialist. Click on the button  and select one among the several layouts:

2.3 Worklist: Analysis of the columns

Several columns are displayed.

The BP Number (Business Partner) is a unique number assigned to each customer (payer) by FSCM. It identifies the customer the way the Customer Number is identified in SAP.

Each line displays information about a single customer: 

2.4 Worklist: Priority

The "Priority" column designates the order of priority of the customer, based on the customer items valuation and the Collections strategy.

2.5 Worklist: Specialist

The "Specialist" tab identifies the Collections specialist responsible for a specific customer. 

2.6 Worklist: Other relevant info

It is also possible to review the overall situation of the customer by checking the remaining columns:

  • Amount overdue: total amount due until today
  • Broken: amount promised and not paid at the promised date
  • Amount Overdue End of Month: total amount due by the customer until the last day of the current month
  • Disputed amount: amount currently under disputes (positive or negative) and being followed in Dispute Management module
  • Last Contact: date of last contact from Credit Collector

Note: all amounts are converted to EUR. 

3. Recording actions and customer feedback

3.1 Resubmissions

A resubmission must be created every time it is not possible to reach the customer or it must only be contacted in another day for any reason such as:

  • sending the customer a copy
  • accountant out of office
  • customer needs to investigate internally
  • Etc.

The resubmission should be used whenever it is not possible to create either a promise or a dispute. 

 

It is also important to provide an accurate description in the resubmission text in order to have all well documented. This will be the basis for the preparation of the next contact a few days later.

To create a resubmission, go to the Resubmission tab and click on "Create Resubmission".

A new box will appear below in order to be filled in with the resubmission details (date, time and reason).There are 8 reason codes that must be chosen according to the information provided by the customer.

Once the resubmission is created, the customer will only reappear again in the Worklist on the Resubmission Date.

When several contacts are unsuccessful, the following guidelines must be applied: 

  • Unsuccessful Outbounds (no reply) can reach a maximum of 2 phone-calls and 2 contacts by e-mail after due date; 

If no reply is received after those contacts, an e-mail should be sent to the responsible Sales Manager and/or Customer Service in order to confirm if contact details are accurate and also to request their support to collect the payment. 

3.2 Promise to pay

A Promise to Pay is created to register a customer's commitment to pay an invoice on a specific date (within the tolerances defined – see below).

It is necessary to have a clear confirmation from the customer before creating a promise in order to avoid any further delays. 

To create a promise to pay select the invoice(s) and click on the "Create Promise to Pay" tab: 

In the pop-up opening below, fill in the date on which payment is expected to arrive on Solvay's bank account ("Promised For"), the person who made the promise at customer's side and contact details. 

The free-text box must be filled in with the details provided by the customer (exact payment date, payment method, reason for delay, or any other relevant information). If the promise to pay was received by e-mail, it must be copy/pasted in this area. 

In the "Promised for" field, the customer's payment date + a tolerance is inserted. The tolerance takes into account the bank processing time, payment reception delay and processing time by SBS-OtC-AR:

  • 3 working days for bank transfers
  • 2 weeks for cheques
  • 2 working days for all payments received between the 21st and the 31st of each month

After filling in the different tabs, click on  in order to save. 

Items with an open promise to pay (i.e. with a "Promised For" date in the future) are not considered by the Worklist. 

However, if the "Promised For" date is reached and the corresponding items are not cleared, the promise will be considered as "broken" and the customer will reappear in the Worklist for follow-up. 

To display a promise: 

In order to check the status of a promise as well as the details entered, go to the "Promise to Pay" tab, select the line of promise and click on the "Promise to Pay" button: 

3.3 Dispute

A dispute is created whenever the customer provides a clear reason for non-payment, partial payment or delay on paying outstanding invoices, and it requires an action from a third-party stakeholder. 

The selection of the appropriate stakeholder is done automatically based on the dispute reason. 

The communication is done either by e-mail for the stakeholders with no access to PI1 (Sales / Customer Service) or by transferring the dispute to the responsible Credit Manager. 

To create a dispute from the Worklist, select the corresponding invoice(s) and click on the "Dispute Case" button: 

Select the appropriate case type (Z00A – Collections Call Output) and the appropriate reason. 

After selecting the reason, a new window will appear: 

The following fields must be filled in:

    • Title: short summary of the issue detected
    • Contact Person: name and contact details at customer's side
    • Long Text: detailed description of the issue

In the "Long Text" field, it is the Collector's responsibility to provide all the information necessary for the resolution of the dispute, as it will be used by another stakeholder (CCS / Sales / CM) who will take the lead. 

If the dispute claim was received by e-mail, it must be copy/pasted in the text area. 

3.4 Recording a Customer Contact

After contacting a customer when clicking on "back" button, a pop-up window appears requesting the creation of a "customer contact".

It is mandatory to record a Customer Contact if an action has been taken. The customer will disappear from the Worklist and go to the Completed Items. These can be consulted from the Worklist by clicking on the "Display Completed Items" button:  

4. Management of Litigation Process

The management of the Litigation Process is manual and launched by the Collections FO in liaison with the Credit Manager/Credit Analyst, GBU and Legal Department. 



On the 30th day, if the payment is not received, a manual notice is signed and sent by the Credit Manager. Whatever the litigation reason, it is Credit Collector's responsibility to propose to the Credit Manager to launch the manual notice. At this stage, pre-contentious process is initiated. 

On the 60th day, if the issue is still not solved, a manual notice is signed and sent by both the Credit Manager and the Legal Department. Sales Manager and Finance Manager of the GBU are also informed by the Credit manager. Regardless the litigation reason, it is Credit Collector's responsibility to propose this action to both Credit Manager and Sales Manager. 

On the 75th day, if the issue is still not solved, Credit Manager in collaboration with Sales Manager and Finance Manager of the GBU decide to either move to a legal action, to transfer the case to a contractor or to cancel internally the debt. 
If it is decided to initiate a legal action it will be done by the GBU Legal Department. However, if it is decided to transfer the case to a contractor, there are 2 possible outputs: 

    • The subcontractor tries to recover the total amount.
    • If it is not possible, he can issue a certificate stating that overdue is uncollectible in order for the Accounting Department to be able to write off the debt.

All legal, manual and final notices are archived by the Credit Manager / Credit Analyst in the customer's masterdata. 

5. Focus on main overdue risks (EMEA specificity)

Important: This specificity applies only to EMEA 

The GBU Cash Collection Coordinator is responsible to identify in advance, on a monthly basis, the main overdue risks to secure before end of month, which will be key to ensure each GBU's cash targets are met. 

The criteria and guidelines for the selection of main customers are documented in the following document:

https://docs.google.com/spreadsheets/d/1F3iRyZnZx62TYcNLnd4OpIlluvP-1OLicCRhwK_CBt8/edit#gid=1373225455 

Following this selection, the EMEA Cash Collection team focuses on securing payments from these customers before month-end.