Table of content
Scope
Wise
ERP
References
Attachments
1. Introduction
This document was created in the context of the WISE project for integration of Solvay and Rhodia processes. It describes the requirements and expectations regarding the Key Performance Indicators and the Reporting processes.
1.1 Objectives
The objective of this document is to establish a common understanding of the Key Performance Indicators (KPI) of Invoice to Cash (ITC) and to report them in a standardized process for all streams part of the WISE project.
In the frame of this project, the ITC process has established a set of KPI to monitor and improve the efficiency and quality of the process.
The major mission of the Reporting process is to report the CM performance of GBU on core and guardian KPI but as well to help CM, CC and AR teams to determine their internal efficiency with quality indicators. Another important mission of the Reporting process is to give tools to these teams to manage and pilot their operational activity.
1.2 Scope
In line with the Solvay Credit Policy, those definitions are applicable to all 100% owned companies of the Solvay Group. Sine qua non condition, those affiliates should work at least in the PF1, RCS, RHO and/or PI1 (CICC) systems. Information is collected and managed in BW from where we obtain the necessary figures for KPI and Reporting.
Pending point: Non-consolidated invoicing companies perimeter. This perimeter will be determine in accordance with BFC perimeter and SBS project.
A list of all the affiliates' part of the scope is available at the following link
2. Definitions
Term | Definition |
Invoices | All the third party invoices, credit notes, debit notes issued by the Solvay Affiliates part of the scope |
Customers | All third party customers of the affiliates part of the scope |
Active customers | All customers having an AR posting in the last 12 months. |
Receivables | All the account receivables and following terms:
Refers to receivables available in SAP systems. |
Outstanding | Sum of the open documents in the customer's account at the report date. Receivables in doubtful state and advanced payments are excluded |
Not yet due | Amount of outstanding in the customer's account, not yet due at the report date |
On account | AR posting for discrepancies between amount paid and document cleared |
Overdue | Amount of outstanding due and not yet paid at the date of the report. In a monthly report, the overdue amount at the end of the month is the sum of amounts with due date lower or equal to the last day of the month and not yet paid nor cleared at that date |
Turnover | Total of sales (products and services) in the period of reference. This amount is taken from the total amount of the invoices, VAT included |
Bad debt | Amount of Receivables recorded as doubtful in accounting statement. Refer to Bad debt and provision process SOP for in-depth definition. |
Write down | Write down provisions for customers in doubtful situation |
Undue discounts | Amount of discounts taken by the customers while don't respecting the agreed delay |
Interests for late payment | Interests collected and chargeable to the customers to recover the financing cost of late payments |
Advance payments | Payment received before to send products sold |
Unallocated cash | Payment on bank account not yet assigned to a customer |
|
|
Acronym | Definition |
ITC | Invoice to Cash process |
KPI | Key performance indicators |
DSO | Days of sales outstanding |
Best DSO | Best days of sales outstanding |
Late DSO / Delay DSO | Late delay in days of sales outstanding |
AR | Accounts Receivables (Management of customers accounts – cash allocation) |
CM | Credit Management |
PF1/RCS/RHO | SAP ERP system for the Solvay Invoicing entities |
PI1 | SAP ERP system for the Factoring company (Solvay CICC) |
BW | Business Warehouse |
3. Key performance indicators
The selected KPI included in this document have been divided in Credit Management KPI, Account Receivables KPI and Cash Collections KPI. Nevertheless, it is also the purpose of these KPI to have more focused monitoring such as per Global Business Unit, per Credit Manager, per Factoring Company, etc. Therefore, the KPI will be adapted to lower level analysis whenever it would be required.
3.1 Basics
CM Network is responsible of the customers' portfolio. Their main responsibilities are the customer credit evaluation, the follow up of the customers' accounts and the management of the reminders and collection actions in close collaboration with Account Receivables and Cash Collections teams.
We have selected several KPI for Credit Management and we have divided them into CORE KPI and Guardian KPI.
Core KPI, are the KPI selected for measuring the CM performances of the GBU.
Guardian KPI, are the KPI selected for improving the performance of the core KPI and those on which the role of the Credit Manager could be considered as guardian of the business interests.
3.2 Core KPI
We have selected these KPI as the most representatives of the performance of our Credit Management responsibilities:
DSO (Days of Sales Outstanding): Evaluation in terms of days of sales of the Outstanding amount at the report date.
Description: It is a measure of efficiency on how quickly receivables are collected. It shows the age, in terms of days, of an organization's accounts receivable and the average time it takes to turn receivables into cash.
Note
DSO is one of the main core KPI reported to the GBU. This core KPI is not calculated in BFC, only figures from BW are authentic. Consistency checking will be done between BFC and BW.
Source: BW
Periodicity: Monthly
Method of calculation: We adopt the Back-track DSO method.
Consider the variables:
Days = number of the days in the month. (Month premise: 30 days)
Outstanding = Sum of the open documents in the customer's account at the report date. Receivables in doubtful state and advanced payments are excluded.
The timeframe reference for the invoices must be the document date of BW.
Turnover = Sales (VAT included) in a specific month
m = Current month (Month premise: 30 days)
If 
then
If 
then
If 
then
The general rule, if 
then
DSO back track formula for Excel and/ or BW:
DSO =SI(OUTSTANDING M=0;0, SI(OUTSTANDING M<=TURNOVER M;OUTSTANDING M/TURNOVER M*30;SI(OUTSTANDING M<=(TURNOVER M+TURNOVER M-1);(OUTSTANDING M-TURNOVER M)/TURNOVER M-1*30+30;SI(OUTSTANDING M<=(TURNOVER M+TURNOVER M-1+TURNOVER M-2);(OUTSTANDING M-TURNOVER M-TURNOVER M-1)/TURNOVER M-2*30+60;SI(OUTSTANDING M<=(TURNOVER M+TURNOVER M-1+TURNOVER M-2+TURNOVER M-3);(OUTSTANDING M-TURNOVER M-TURNOVER M-1-TURNOVER M-2)/TURNOVER M-3*30+90;SI(OUTSTANDING M<=(TURNOVER M+TURNOVER M-1+TURNOVER M-2+TURNOVER M-3+TURNOVER M-4);(OUTSTANDING M-TURNOVER M-TURNOVER M-1-TURNOVER M-2-TURNOVER M-3)/TURNOVER M-4*30+120)))))
Best DSO (Best Possible DSO): Evaluation in terms of days of sales of the Not yet due amount at the report date
Description: Best DSO is a measure to calculate the time needed to transform in cash the receivables if all customers will respect the granted payment terms. In the case that the customers do not have any overdue document at the report date, the Best DSO is equal to the DSO.
Source: BW
Periodicity: Monthly
Method of calculation: Same Backtrack formula of DSO, but replacing the "outstanding" by the "not yet due".
Late DSO : This ratio give us the overdue amount in terms of days of sales.
Description: A measure of the average number of days that a company takes to collect overdue revenues. Difference between DSO and Best DSO. The goal is to minimize the Late DSO.
In the case of all customers pay the overdue documents before the end of the month, the Late DSO would be 0.
Source: BW
Periodicity: Monthly
Method of calculation: 
Overdue in amount and as percentage of Outstanding
Description: Amount of outstanding due and not yet paid at the date of the report. In a monthly report, the overdue amount at the end of the month is the sum of amounts with due dates lower or equal to the last day of the month and not yet paid nor cleared at that date.
Source: BW
Periodicity: Monthly
Method of calculation: Amount of overdue outstanding divided by the total outstanding, both at the end of period. The goal is to minimize the overdue ratio.
Absolute terms:
Percentage terms:
Note for BW or Excel formulas: for Overdue 0, consider 0 as value of the ratio; Idem for Outstanding 0.
Bad debt level in amount and as percentage of outstanding receivables
Description: Amount of receivables recorded as doubtful in accountings statements at the end of the period divided by the total outstanding at the end of the period. The goal is to reduce the bad debt percentage.
Source: BW
Periodicity: Monthly
Method of calculation:
Consider:
Write down in amount and as percentage of turnover
Description: Net write down in the period compared with the turnover of the same period..
Net write down is the difference between new trade receivables provisions in the period less recoveries form doubtful customers previously provisioned. It can be a negative amount if recoveries from doubtful customers are higher than new provisions. The goal is to minimize the write down.
It is difficult to obtain these figures by difference between provisions at the end of the period minus beginning of the period because the provisions could be influenced by the cancellation of them when the case is closed and the provision is taken in loss. For this reason, we propose to obtain the Write Down amount directly from the profit and loss accounts related to customers' write-downs:
In PI1 (CICC) these are the involved accounts:
- 6330000000 Trade receivables-write downs,
- 6330000100 Trade receivables-write downs o/With recours
- 6331000000 Trade receivables-revers write downs,
- 6310000100 Trade rec-revers write downs o/With recourse
Source: from PI1 for the trade receivable without recourse, from affiliate SAP system for trade receivables with recourse
Periodicity: Year to Date amounts of the current exercise
Method of calculation:
Consider:
YTD = sum of amounts starting from the beginning of the current year, and continuing up to the current period
Focus on Write down core KPI calculation:
An allowance of 5M€ for doubtful debtors is set up in September 2012 for a customer, 3M€ are recovered in December 2012 and 1M€ in January 2013. A new amount of 2M€ is set up in March 2013 and 0,5M€ are recovered in April 2013.
- What is the amount of Write down as of 31/12/2012 (considering 12M€ turnover)?
Write down in € = 5M€ - 3M€ = 2M€
KPI in % = 2M€ / 12M€ = 17%
- What is the amount of Write down as of 30/04/2013 (considering 5M€ turnover)?
Write down in € = 2M€ - 1M€ - 0,5M€ = 0,5M€
KPI in % = 0,5M€ / 5M€ = 10%
Risk Mapping
Description: Distribution of the trade receivables outstanding balance by risk category.
The goal is to minimize the percentage of the outstanding in the high level of risk category: 4 and 5.
Source: BW
Periodicity: Monthly
Method of calculation:
Consider:
Outstanding = Sum of the open documents in the customer's account at the report date. Receivables in doubtful state and advanced payments are excluded.
Risk rating = Financial evaluation of the customer risk (from 1 (low risk) to 5 (very high risk)
Remark: sum of percentage of each outstanding by risk category must be equal to 100%.
3.3 Other KPI (Guardian KPI)
We propose these KPI as the most appropriate indicators for improving the performance of the core KPI / CM organization. The role of the Credit Manager could be considered as a role of guardian of the business interests.
Payment performance
Description: This ratio is a measure of the payment behavior of the customer's portfolio. It could be considered as a 2nd version of the Late DSO ratio but this is a more "real" one because it is a measure of the payment performance in all the cleared documents in the month while the Late DSO is only related to the month end situation.
Source: BW (not yet available).
Periodicity: Monthly
Method of calculation:
Consider the cleared documents in the month and classify them by their delay from the due date. Take also into account the partial payments, each one compared with the due date of its related invoice.
The sum of the cleared documents in the month will be divided in the following sections: < =0 days (delay < or = to 0); from1 to 4; from 5 to 10; from 11 to 30 and >30 days
The goal of this KPI is to maximize the % of cleared documents with performance level 0.
This indicator could also be expressed in terms of days of delay from the due date. In that case, it would have to be calculated as a weighted average delay:
Percentage of Blocked orders for credit reasons
Description : It is the % of blocked orders compared to the total orders created during the period and pending orders from previous periods. The goal is to reduce the number of blocked orders and improve process efficiency
Periodicity: Monthly
Source: BW
Method of Calculation :
- Total Number of orders blocked during the period divided by the total number of orders
- Total number of blocked orders for limit reason / total number of blocked orders
- Total number of blocked orders for overdue reason / total number of blocked orders
- Total number of blocked orders for old financial information (expired validity date)/total number of blocked orders
- Total number of blocked orders for different payment condition/ total number of blocked orders
- Total number of blocked orders for mix reason / total number of blocked orders
Amount and percentage of Undue Discount
Description: Amount of discounts taken directly from customers without respecting the discount condition in more than the agreed tolerance delay (4 days). In such cases, it is required the approval from the Account Manager prior to the acceptance of these undue discounts. The goal is to avoid customers benefiting from undue discounts.
Source: BW
Periodicity: Monthly
Method of calculation: Amount of undue discounts divided by the amount of related turnover, both at end of period.
Absolut terms:
Percentage terms:
Interests for late payments
Description: These are the interests collected and chargeable to the customers to recover the financing cost of late payments. The goal is to minimize the interest chargeable and to maximize the amount of interest effectively recovered from customers.
Source: PF1 + PI1 + RCS + RHO; G/L Account in PI1 7510040000 Interests on customers
Periodicity: Monthly
Method of calculation:
Consider:
- The amount of cleared documents in the month,
- The payment performance KPI, in days of delay (see previous definition in Guardian KPI indicator 3.1.3.1)
- The rate to use is the rate the European Central Bank applied in the most recent main refinancing operation it carried out before the first calendar day of the half-year in question plus seven percentage points. See transaction SAPLZ3F_RATE (PI1)
Interest late payment collected in absolute terms:
Interest late payment chargeable in absolute terms:
4. Quality Indicators
The selected Quality indicators included in this document have been divided by stream or sub-stream of the WISE project. Purposes of these indicators are to enable managers to check if processes are respected and measure the internal efficiency of their operational teams.
4.1 Country Risk stream
Payment terms deviation
Description: Number and % of customers with payment duration higher than recommended or acceptable duration versus total of customer
Source: SAP systems
Periodicity: Monthly
Format: Excel
Scope: Global, Zone and CM portfolio
4.2 Scoring stream
Rating discrepancy
Description: Number of customers of which rating confirmed is higher by 0,5 than calculated rating.
Source: SAP systems
Periodicity: Monthly and last 12 m average
Format: Excel
Scope: Global, Zone and CM portfolio
Bad debt rating
Description: Number and % of doubtful customers of which the rating was 1, 2 or 3 vs. total of last year doubtful customers.
Source: SAP systems
Periodicity: Yearly
Format: Excel
Scope: Global, Zone and CM portfolio
4.3 Credit settings stream
Individual volumetry
Description: Number of customers and sum of account receivables by Credit Manager
Source: SAP systems / BW
Periodicity: Quarterly
Format: Excel
Scope: CM portfolio
Dynamic volumetry
Description: Number of new customers created during the last month by Credit Manager
Source: SAP systems
Periodicity: Monthly
Format: Excel
Scope: CM portfolio
Review date exceeded
Description: Number and % of customers with review date exceeded compared to total active customers - a review date is exceeded when current date is higher than next review date
Source: SAP / BW
Periodicity: Monthly
Format: Excel
Scope: CM portfolio
Distribution of customer renewed
Description: Number and % of customers renewed over total of customers renewed according to the maturity: at the review date or before, between 1 and 30 days after the review date or more than 30 days after the review date, and to the type of renewal: automatic, semi-automatic or manual.
Source: SAP / BW (to be developed)
Periodicity: Monthly
Format: Excel
Scope: CM portfolio
UPDATE JBL 01/07
Please see below a short description of our requirement:
Advance payment exposure
Description: Number and % of Advance payment customers with exposure > 1€ vs total of advance payment customers
Source: SAP systems
Periodicity: Monthly
Format: Excel
Scope: CM portfolio
Credit line exceeded
Description: Number and % of customers with credit line exceeded by 5% compared to total active customers - Credit Line is exceeded when the gobal exposure (outstanding + commercial value) is higher than the credit line granted.
Source: SAP / BW
Periodicity: Monthly
Format: Excel
Scope: CM portfolio
GBU Credit line exceeded
Description: Number and % of customers with a GBU credit line exceeded by 5% compared to active customers having a GBU credit line – GBU Credit Line is exceeded when the gobal exposure (outstanding + commercial value) of each GBU is higher than the GBU credit line granted.
Source: SAP
Periodicity: Monthly
Format: Excel
Scope: CM portfolio
New customer validation
Description: Number and % of customers not validated within 48h after their creation compared to total of new customers
Source: SAP
Periodicity: Monthly
Format: Excel
Scope: CM portfolio
Inactive customer exposure
Description: Number and % of inactive customers with exposure different than 0€ compared to total of inactive customers
Source: SAP
Periodicity: Monthly
Format: Excel
Scope: CM portfolio
4.4 Credit Control stream
Average duration to release a blocked order by blocking reason
Description: Average time in hours to release an order blocked by blocking reason
Source: SAP / BW
Periodicity: Monthly
Format: Excel file
Scope: Global, zone and CM portfolio
Average nbr of orders released in a day
Description: Number of orders in average released in a day
Source:
Periodicity: monthly
Format:
Scope: Global, zone and CM portfolio
Delayed delivery due to credit blockage
Description: Number and % of orders delayed at customer site because of late credit unblocking compared to total of orders delayed at customer site due to internal issue.
Source: SAP / BW
Periodicity: Monthly
Format: Excel
Scope: Zone
Orders reblocked
Description: Number and % of reblocked orders compared to total of orders blocked
Source: SAP /BW
Periodicity: Monthly
Format: Excel
Scope: Global, zone and CM portfolio
4.5 Credit Collection stream
Dispute pending time
Description: Average aged of pending dispute
Source: SAP
Periodicity: Monthly
Format: Excel
Scope: Global, Zone and Credit Collector portfolio
Calculation method: UDM_DISPUTE
Number and % of customers with overdue invoices vs. active customer
Description: Total number of customers with overdue(s) divided by total of active customers
Source: SAP
Periodicity: Monthly
Format: BW/ Excel / Excelsius or Clickview?
Scope: Global, Zone and Credit Collector portfolio
Calculation method: To be developed
Number and % of broken promises vs. total promises
Description: Total number of broken promises divided by total promises to pay
Source: SAP
Periodicity: Monthly
Format: Excel
Scope: Global, Zone and Credit Collector portfolio
Calculation method: To be developed
Number and % of customers in the worklist contacted the same day
Description: Total number of contacts made divided by total number of customers in worklist
Source: SAP
Periodicity: Monthly
Format: Excel
Scope: Global, Zone and Credit Collector portfolio
Calculation method: To be developed in BW
Number and % of overdue no reason vs overdue invoice
Description: Total of overdue invoices without reason over overdue invoices.
Source: SAP
Periodicity: Monthly
Format: Excel
Scope: Global, Zone and Credit Collector portfolio
Calculation method: To be developed
Total AR Amounts collected vs AR to be collected
Description: Amount and % of AR collected vs total amount to be collected per day
Source: SAP
Periodicity: Monthly
Format: BW/ Excel / Excelsius or Clickview?
Scope: Global, Zone and Credit Collector portfolio
Calculation method: to be developed
4.6 Account Receivables stream
% Automatic matching
Description: Percentage of payments received which are allocated automatically by SAP to invoices at end of period
Source: SAP
Periodicity: Monthly
Format: BW/ Excel / Excelsius or Clickview?
Scope: Zone
Calculation method: ZKPIs transaction
Total Unmatched cash
Description: All payments posted on customer accounts, but which cannot be matched with any invoice
Source: SAP
Periodicity: Monthly
Format: BW/ Excel / Excelsius or Clickview?
Scope: Zone
Calculation method: Aged balance
Manual receipt matched on first time
Description: Total of manual payments posted on customer accounts and fully matched with invoice(s) by A/R with no intervention/clarification from other parties.
Source: SAP
Periodicity: Monthly
Format: BW/ Excel / Excelsius or Clickview?
Scope: Zone
Calculation method: Extraction of payments cleared on the same day of payment receipt ( no dispute)
Average cycle time
Description: Average number of days/ hours between the payment file integration in SAP and the payment allocation on customer accounts
Source: SAP
Periodicity: Monthly
Format: BW/ Excel / Excelsius or Clickview?
Scope: Zone
Calculation method: Transaction ZKPIs. To be developed
% corrections
Description: Total number of payments clearings / postings reversed due to wrong instruction or error.
Source: SAP
Periodicity: Monthly
Format: BW/ Excel / Excelsius or Clickview?
Scope: Zone
Calculation method: Transaction in SAP (different by zone?) - To be developed
Total number of manual payments per FTE
Description: Number of manual payments processed yearly per 3S FTE
Source: SAP
Periodicity: Yearly
Format: BW/ Excel / Excelsius or Clickview?
Scope: Zone
Calculation method: Transaction ZKPIs. To be developed
5. Reporting
The Reporting process is composed of three sub-processes in which we define the nature and frequency of the report, the KPI or indicators analysed, the format, the people responsible of the consistency and sending, as well as the receivers of those reports. Each of this sub-process has a different goal defined in the Introduction of this document.
In the WISE implementation contest, reports classified below need to be ready as defined by the prioritization below:
- *** reports : need to be ready from
- Solvay Go live Credit collection
- *** reports* : need to be ready from
- Solvay Go live Credit management
- ** reports* : need to be ready from (GBU are responsible for credit limit and overdue – date could be modified in the meantime)
- Rhodia Go live Credit Management (Country Risk, Credit Settings, Scoring, Credit Control and bad Debt sub-streams)
- Rhodia Go live Credit Collection
- No star : need to be ready from
- Rhodia Go live Account Receivables
5.1 External performance reporting
This section describes the sub process related specifically to the CM reporting process. It reports the GBU CM performance thanks to the analysis of core and guardian KPI of the Group at different levels. These two different indicators are defined as the following:
- Core KPI: they are selected for measuring the CM performance of the GBU; DSO, Best DSO, Delay DSO, Overdue, Bad Debt, Write Down,
- Guardian KPI: are the other CM indicators helping to improve the core KPI performance ; Payment performance, Blocked orders, Undue discount, Interests for late payment
CM reporting level
The reporting process is composed of three different levels:
Remarks :
- The external reporting process must give the opportunity to Credit Managers to reports core KPI and guardian KPI at a geographical local level (i.e: spot report on Southern European countries).
- Customer level detail with core and guardian KPI must be available in each report.
- each GBU of the Group will define independently people receiving the reports.
CM core and guardian KPI by reporting level
- Percentage of bad debt over Outstanding excludes doubtful and advance payment
- Risk Mapping is considered as a core KPI because it represents the risk profile of a GBU. The risk profile is the sum of customer outstanding distributed by risk category (1 to 5, 1: the safest category).
5.2 Internal control reporting
This section describes the sub process related to the CM, CC and AR reporting. It reports the internal efficiency of each department and will help managers to improve the operational performance of each team. It reports also the respect of process from the operational teams.
This section aims at defining people involved in this process, final goals and responsibilities.
Reports presented in this section are only for internal usage of CM, CC or AR departments.
5.2.1 Credit Management
The CM internal reporting is composed of three different reports:
- The performance report: it enables managers to compare the intrinsic performance of the operational teams with the size of their portfolio.
- The process respect report: it enables managers to check the respect of process procedures by operational teams.
- The process improvement report: it gathers indicators that enable to improve the process efficiency or the external performance.
Remark: details needed at global, zone and credit manager level for each internal report
CM team remains responsible for the consistency of indicators provided and for the sending of reports.
5.2.2 Credit Collection and Account Receivables
The CC internal reporting is composed of the performance report.
Concerning the AR internal reporting, only the process respect report is applicable.
Remark: details needed at global, zone and CC/AR operator level for each internal report
CC and AR teams remain responsible for the consistency of indicators provided and for sending of reports.
5.3 Internal follow-up reporting
This section describes the sub process related to the CM, CC and AR reporting. It reports all the indicators of each department that help operational teams to manage their duties.
This section aims at defining people involved in this process, final goals and responsibilities.
Reports presented in this section are only for internal usage of CM, CC or AR departments.
Country Risk
5.3.1 Credit Settings
5.3.2 Credit Control
5.3.3 Credit Collection
5.3.4 Account Receivables
UPDATE : 19/06/2013 JB
Total number of manual payments per 3S FTE is not an AR follow up indicator (only an AR quality indicator).
5.3.5 Bad debt
6. Roles and responsibilities
- Sales Team: is responsible for using reports sent by Credit Management Team in order to reach its DSO and overdue targets, give support to Credit Collection and Management Teams with recurrent bad payers.
- Credit Management Team: is responsible for defining type of report sent to GBU and CM managers, keep consistency of Core KPI, guardian KPI, indicators and other analysis presented in the reports. Their responsibilities include as well the communication of those reports to GBU people and give explanation on request.
- Credit Collection Team: is responsible for defining quality indicators, following them up and communicating them to appropriated people.
- Account Receivables Team: is responsible for defining quality indicators, following them up and communicating them to appropriated people.
For more information, please refer to Solvay credit policy here.
7. Development needs identified
To be defined.
8. Output documents
The current reports presented here are only for information purpose. They do not represent the To Be documents.
8.1 External performance reporting
8.1.1 Current reports CM
Global dashboard: here
Global balance: here
8.2 Internal control reporting
8.2.1 Current report payment terms deviation
8.3 Internal follow-up reporting
8.3.1 Current reports Credit control
Two options:
