As we enter 2008, the outlook for most businesses is not as bright as it has been for the past few years. There is a sense that this is going to be a hard year, and efficiencies will be required if growth is to be achieved. Many organizations will be looking to spend as little as possible due to increasing market problems in borrowing money. One way in which to grow is to cut costs. The FSCM suite of products is designed to do just that.

FSCM is not a miracle cure for a cash flow problem, but it does provide a toolset to allow organizations to improve their cash flow and review their business processes. The FSCM suite has been around for a several years. It evolved from the telecommunication sector and is now available through ERP 6.0. There have been many tweaks and changes along the way, the latest of which is seen through Enhancement Package 2.

Throughout this blog I will run through the various products available, and provide you with some simple tips and tricks to ensure successful implementation.

What are the modules in FSCM?

• SAP Biller Direct: for handling web-based payments and account and bill display.
• SAP Dispute Management: for processing customer invoice complaints.
• SAP Collections Management: for proactively collecting outstanding receivables
• SAP Credit Management: for managing customer credit lines.

How can FSCM work for you?

First thing is first, how can FSCM reduce an organisations’s cash flow? The answer in short is ‘efficiency.' By utilising your "cash collectors"to be more pro-active and follow pre-defined work-lists, the right customer will be called at the right time. This solves the problem of repeat calls, or calling a customer too early in the chase cycle. By resolving disputes quicker, this enables the customer to pay their debt faster, which again helps the cash collector. Further to this, by logging and analysing disputes, an organization can quickly see where mistakes are being made, and also follow ‘trends’ from customers who may always dispute a certain type of invoice. Providing certain customers an online view of their account will reduce the need to re-print missing invoices and allow customers to raise and track their own disputes, reducing the time spent by "dispute-resolvers" and the "cash collectors." By allowing internal and external rules to decide the credit limit given to all customers will reduce the amount of bad debt experienced by an organization. This is an area that will become very important over the next 18 months as a higher percentage of a client’s customers will experience cash flow issues.

How can the benefits been seen in simple financial terms?

The Key Performance Indicator for the cash collections process is the DSO (Days Sales Outstanding).
If we take the example of a client who has an annual turnover of 450 million with a DSO of 55 days, this means on average there will be 68 ¾ million outstanding debt every month. By reducing the DSO to 54 days, the average amount outstanding would be 67 ½ million, improving the cash flow by 1.25 million. There is no magic process to reduce the DSO, nor is there a specific amount that a DSO should reduce by, as each client is different and will have different business processes in place. However, a well planned FSCM Implementation will help reduce a client’s DSO and improve their cash flow. It is recommended that achievable targets are set at the start of a project and this can be done by reviewing the current business processes and comparing them to new business processes that will be implemented via FSCM.

How do the modules integrate?

Each of the four core modules in isolation can provide business benefit, however when they work together they enable the client to benefit from a wider range of benefits and substantially better results. We can start by looking at Collections Management. The concept behind this module is to provide a real time facility to record all of the transactions carried out by the user who is chasing the debt. One such enhancement is the "Promise to Pay" functionality. This enables the cash collector to record directly in SAP all of the calls that have been made, and remove from the debt path certain customers who have promised to pay in the future. This in turn works with the new "Worklist" function where rules can be set to assign relevant customers to be called on a single day with some business rules and logic. Collections Management now clearly integrates with Dispute Management, where during the call with a customer, they can dispute an invoice or group of invoices and a workflow can move that around the business for resolution. Further to this, certain levels can be assigned to a dispute, and you can create rules to say if a dispute is at certain levels they are excluded from the "debt path" and for other levels they are included.

 Biller Direct is a product that provides a client’s customers the availability to view their own account online. This integrates with Dispute Management as customers can log and update their own disputes and also they can add notes and make a payment which integrates with the Collections Management module. Lastly there is a new Credit Management piece. It differs from the traditional methods by introducing two new concepts. The first is the fact that you can create your own bespoke rules to score customers for their credit risk, previously this was only available externally through third party tools. Secondly you have the ability to create a credit limit case. This is where a business user can propose a value, use the scoring method to calculate one, and provide real time analysis and data on the customer to make a better informed decision on the correct Credit limit. By making better choices here, a business will be able to increase their revenues, allowing the correct type of customers to trade with them, but also remove the cost associated to writing off bad debts and reducing that amount over a period of time. Credit Management can use the data from Collections Management and Dispute Management for the allocation of a credit score, and Collections Management can use the credit score to affect the output of its work-lists.

If you would like more information on this subject or require some assistance in putting together a business plan for FSCM please contact Bluefin.

Mark Chalfen is a Finance Solution Architect and is currently focusing on FSCM, the new GL and upgrading to ERP 6.0.