The looming recession puts a premium on the ability to collect receivables efficiently and aggressively, and Henkel of America Inc. is well positioned to collect that premium, thanks to a program that outsourced nearly all direct collection work to a service center in Manila and automated the process with SunGard's GetPaid receivables solution software. The move has reduced past-due accounts from 13%-14% of Henkel's 30,000 business customers to just 8% currently and shaved about five days off DSO, reports Scott Miller, vice president of finance at the maker of industrial adhesives, home care products and cosmetics. "We're measured by our past-due percentages, and right now we're looking pretty good," he says. Terms are net 30 for about 85% of Henkel's customers, and accounts are classified as past-due on day 31.
If the economy deteriorates, Henkel is positioned to move quickly. "If we decide we need to tighten our credit policies or collection procedures, we can change systems settings in an hour, and they would be effective the next day," he says. Henkel has competition in most markets but often enjoys preferred vendor status that gives the company leverage to "drive the payment behavior of our customers to meet our expectations," he says. Henkel has $6 billion of annual sales in North America alone. Most payments arrive by check.
The combination of automation and offshore outsourcing allowed Henkel to reduce headcount on the collections staff by 45%, Miller says. About 30% of past-due receivables involve disputes, and the new software is effective at identifying who in the customer organization needs to be contacted to resolve the problem and suspends collection efforts until it is fixed, he explains. "The software lets us do root-cause analysis for disputes and introduce process improvements to prevent the mistakes we identify from recurring."
The software precisely maps out the collection workflow for the Manila collectors, prioritizing collections by a formula that includes days past due, amount due and account status. If a wire had been promised for the day before and not sent, that account would likely be called first, he says, but every past-due account will be contacted every business day.
Henkel recently deployed the GetPaid dashboard, which now gives executives like Miller near perfect visibility of the status of collections. Until the project, Henkel suffered from "manual processes and a disjointed view of data that kept us from being able to collect intelligently and efficiently," he says. "The solution enables us to track all account activity, giving us the ability to allocate resources to the accounts that require the most attention and free up time that was being spent on low priority accounts."
All goals for the project have been met, and progress was so quick that the investment was repaid in two months, Miller says. Because of the success in North America, Germany-based Henkel has rolled out the solution globally.