Credit Strategies to Minimize Risks And Maximize Profitability: Lessons from Global Credit Leaders



Gregory Ottalagano

Manager, AR and Credit,
Church & Dwight

Paul Watters

Director, Worldwide Credit and Treasury,
Mercury Marine

Jason Herrington

Vice President of AR, Credit & Collections – Shared Services,

Beth Petrey

Corporate Credit Manager,
Summit Electric


[0:01] Host :

Hello, Oh, hello. Okay, so first and foremost, I think there are going to be people that trickle in throughout the session. He likes my voice back there, likes to make it loud. So there are going to be people that are trickling in and out, please don’t let that disturb you. But thank you guys so much for joining today’s session on credit strategies to minimize risk and maximize profitability. Servo, the AVP of solutions at HighRadius will be the moderator for this panel. And we also have four great panelists up on stage with me. We have Jason, Paul, Beth, and Greg. We’re so honored to have you guys on this board on this panel. And our audience is looking to hear your guys’ insights on credit transformation in 2020. So I will stop talking because the mic does not like me and I will hand it over to Servo.

[0:58] Moderator:

Thank you so much. I know it’s about time or happy hours have started. We’ll try to keep this short. I love your answers. But we will try to get to a happy hour soon, alright? Okay, so we’ll get going. The first question is for Greg. So, Greg, I wanted to understand, from your perspective, what is the importance of credit and sales partnership in 2020? I know not many people like the sales teams, “credit” being one of them. But yeah, what would be your recommendation to your peers who are still trying to strike the right chord with the sales functions?

[1:35] Gregory Ottalagano:

Yeah, the collaboration between sales and credit is extremely critical. You have to make them understand that you have a job to do and they also have a job to do. And both are just equally as important. I mean, we don’t make any money unless we’re having sales. But we don’t make any money or we don’t make any sales. The credit department is always saying no. So the idea is to try to come to a happy medium, when as to when is the time to say yes and when is the time to say no, and the quicker you get the salespeople to understand your position, the better you’re getting, the more successful you’re going to be. We all have fiscal responsibilities that accompany us.

A lot of people don’t understand what that means, okay? What that means is that you’re gonna do right by the company every time and meeting the fiscal responsibility means, not doing any kind of shady deals because you get some cut and some salesmen out there that will say something to our customer and, which is not true, and then you end up paying in the long run but getting them to understand their fiscal responsibility and where you sit in that is extremely important. We have a lot of sales that happen when they’re out there selling to a customer. And they need to understand the terms they’re going to be selling on, the freight they’re going to be selling on, the pricing, of course, is critical. And they need to be made right by the company every time so that collaboration is going to be strong, and has to be strong enough for you to be successful.

[3:27] Moderator:

Make sense. So continuing, on the same line of thought, Paul, I’d like to gain some insights from your end on how the balance between risk and profitability goals be called out in global credit policy for your company?

[3:44] Paul Watters:

So I think for the policy you need to have, I like to think of it more as a guideline rather than a policy. And I think if you make a policy that is too rigid, what you’ll find is you’ll be making road feedback. So there needs to be a degree of flexibility within the policy, and in terms of looking at how you treat different customers, I think they’re not all created equally, and we make more money from some customers than we do from others.

So we need to look at how much are we making from that customer, because if I’m making 50% on that customer, for example, I think I should be able to take some more risk with that customer than perhaps somebody who I might just be selling oil to. And I might be making three or four points of margin. So at the end of the day, the decision that is right for the business is the one that should be taken. And that’s not always a decision that is in the best interest of the credit department. But I think Greg alluded to the fact we’ve all got fiscal responsibilities to look after, look after the company and to do our part. And sometimes that involves, at least to some extent, sacrificing metrics that you might have near and dear to your heart.

[4:59] Moderator:

Yeah. I agree. So, I know we’ve got a big panel. So my next question is to everyone. We’ll start with that first. So, all of you have been in the credit team or function and the AR industry for a long time. So, if I had to ask you one thing that you could, an initiative or framework besides all automation, I don’t want to talk about automation for some time, but yeah, besides automation and initiative, a framework or a strategy that you undertook, that changed the face of your credit department, what would that one thing be?

[5:37] Beth Petrey:

We have a couple. Our company has established a lien. So while we’re not a manufacturer or distributor, we hate waste. So we implemented our lien task force to prevent waste of time, resources, people, not wasting people but their time and focus more on what was necessary and productive to the company. And besides that, we went paperless and got rid of 27 file cabinets of credit applications and documents that went along with it an array of scanned. Sorry, that’s a little automation.

[6:19] Moderator:


[6:20] Jason Herrington:

Yeah. The establishing and fostering the relationships with the sales leadership and convincing them again and again that credit was created to allow sales to grow. That’s why it exists. Our roles are to mitigate the risk associated with those sales. We are a partner and engaged with allowing sales to grow. So continuing to foster that relationship through frequent interaction and trust-building is really how we’ve partnered with them and reduce that friction which is sort of natural in the dynamic and hopefully, we got a sense of trust when they come to us in advance of a term’s extension or perhaps a prospective client that they already know may have a high-risk profile, that that’s something that’s transformed outside of automation the credit team. It’s great.

[7:17] Gregory Ottalagano:

Yeah, I agree with Jason is that the collaboration between the two is extremely important. I’ll just give you a quick story, we were dealing with a customer that we had sold a couple of different times to and they dragged us through the mud, so to speak with constant deductions and, and just a bad payment habit between us but so the third time we went to sell them the CEO was under pressure from the board of directors to secure some more sales. So again, we don’t make money if I’m saying no all the time. So you see, if my officers say we need to sell, find a way to do it and make sure we keep our risk to a minimum. I spent five hours on the phone between the buyer and a VP of sales to 11 p.m. securely in a documentary LC to secure the sale. But I mean, you’re always going to find a way to do it. It’s just where it is going to be where is that going to be that happy medium between you, the salesman and the customer? And that’s a trick that you had to develop.

[8:38] Moderator:

Thanks. Paul will show you.

[8:41] Paul Watters:

Yeah, so over the last couple of years we’ve intensified cross-training really within the department to give people in cash and understanding of what it’s like to be a collections person and vice versa and I think that does a few things for you. One is that it typically improves morale within the workplace. It gives people jobs that are more meaningful than what they are, what their previous job may have been or their previous role. And I think the other clear advantage as well as that it makes your workforce more flexible.

So if you have people that are out of the office and so on, you have other people who can step into those roles, who have at least a working knowledge of what’s going on. And I think that the third benefit of this too is that you get different perspectives from those different roles. And so I think that leads to a better work output from everyone.

[9:37] Moderator:

Yeah. So the next one is for Jason. Jason, I know you’re a strong advocate of technology for AR and Finance. So what according to you has been the biggest transformation or change that automation has brought in your credit department?

[9:54] Jason Herrington:

Number one, the client onboarding process, we’re able to build out a scoring matrix. That brings in data components from commercial credit agencies, weights those and produces a score that allows us to repel green light or red light creditworthy customers, and only allocate resources or internal resources to those customers that didn’t pass the scoring matrix. And it really can eliminate that credit intervention through the business development managers through that scoring matrix that allows a BDM to greenlight a customer with no intervention with the credit team.

And the second thing is, many of the systems that are out there including HighRadius’s product is configurable to do automated re-evaluations based on the risk category assessment. So, low risk annually, medium risk semi-annually high-risk quarterly. So that’s something that can be done without somebody pushing a button or an analyst, having it conducted in analysis, really enjoy that functionality. And if you’re utilizing a client portal in conjunction with your credit management, we’ve begun leveraging Auto Credit Card and Auto ACH to debit payments to mitigate exposure, where it puts the business process of collecting the payment in our hands.

On a customer we may not otherwise have sold based on just a pure credit evaluation, a concession to sell that client is they agreed to allow us to auto ACH debit their bank account, or credit card, and then we’ll agree to sell them. Those are case by case situations but it’s an example of where automation has allowed us to sell customers we otherwise may not have.

[11:48] Moderator:

Ya, it makes sense. All of those are really good points. So the next one is for Beth. So Beth, as we talk about automation and how credit departments need to balance overall risks and profitability? Could you share some examples from your personal experience around automation and other transformation initiatives that you drove and how you onboarded your team onto a new idea?

[12:19] Beth Petrey:

We must use outside resources to maintain our lien rights to secure our risk while maximizing profitability. So when we did that, we challenged HighRadius to come up with a solution for us when we onboarded. So we have a job sheet that we work through HighRadius, it gathers the customer, their customer information in user information that allows us to protect our lien rights because as a distributor, that’s how we protect a lot of our risk.

Using that we were able to require the information, be completed before the purchase including all the documentation that we would require bond copies, as well as taxability. So that’s been easy based on how HighRadius found a solution. And it was a process that we already did completely manually. So our staff would have to make multiple phone calls and multiple emails to get all the information that is now required in one document that’s uploaded to us one time. So it has made us more efficient and protected our lien rights in a better way than we ever had before.

[13:34] Moderator:

Yeah, I remember that project. I was part of that with Vijay. Yeah, that was good. So how did you onboard your team on to the new idea?

[13:41] Beth Petrey:

Because they didn’t have to do those manual processes it was extremely simple.

[13:48] Moderator:

Makes sense. Okay. And then the last question for all of us. We’ll start with Paul over here. So, before we open the floor for you to know, any questions, my last question would be “So what is the bigger image? Where do you see the credit department going in 2020? And how are you progressing along that road?”

[14:09] Paul Watters:

So I think, ultimately, the nature of what we do is largely data-driven. Where we have more data than we’ve ever had. The question is, how do we utilize that to make good business decisions? And how can that support the structure of the department? And, ultimately, being a data-driven operation that we’re often in, I think this, for 2020 and particularly beyond, we’ll just lead to more automation of some of those functions that today are of reasonably low value and accordingly we will have people doing jobs that are more meaningful and are better for them from a career perspective. So I just think it’s going to be increasingly automated over the next five or 10 years and I suspect most of us to adopt those kinds of technologies will have significant lessons significantly fewer people.

[15:05] Moderator:

Ya, it’s going to be a fun time.

[15:08] Gregory Ottalagano:

I agree with Paul, I mean, using the technology that’s available to us to make our jobs a lot simpler. I’m a big believer in working smarter, not harder. You know, and what the data that’s available to you and the technology to change things within your department, in improving processes, eliminating processes, manual processes, specifically, is important. And that’s what you should be driving for. Because, again, working smarter and not harder, and meeting your fiscal responsibility, to me, that’s one of the main things for the critic for the credit person is, “Hey, if there’s something out there that’s going to make our job a little bit easier, and it’s going to make us more profitable, we’re going to be able to make decisions on time, we should be using it.” And it’s my job to go out there and find that and I found it with HighRadius.

[15:59] Moderator:

Thank you. That brings back the discussion. We want to be spending time on making decisions and making judgments rather than spending time doing manual work. I mean, last night’s fire chat was saying the same thing. Jason, you want to add to that?

[16:16] Jason Herrington:

Sure. The observations in our industry, which is the continued staffing industry, we’re responding to our clients working capital strategies where they’re continuously pushing us and pressuring us to extend terms. And so that is continuing to accelerate our entitlement, DSO, and of course, our actual DSO follows suit. And that has the opposite effect on our working capital strategies.
So partnering with the sales team to recognize how they’re selling the business, and what that means to extend credit limits to accommodate those extended terms must influence the margins they’re selling. To ensure that if something does go south on us and becomes a bad debt, that the financial impact of the organization is somewhat less than it otherwise would have been in the margins were leaner, but just unexpended terms. It’s a cost-recovery strategy, we’re going to extend terms, we’re floating them longer at the rate of our cost of capital. So at the very least, we need to recover that through gross margin.

[17:31] Moderator:

Ya true. Thanks.

[17:32] Beth Petrey:

We’re implementing steps to follow the same suit, how can we reduce the terms and bring out AR closer or tighter, at the same time with larger customers pushing terms further and further. So those are discussions that we’re having now. We’re also implementing autonomous this year, so our credit department will be a little more in training. So we will be more autonomous by the end of the year.

[18:07] Moderator:

Hands off.

[18:07] Beth Petrey:


[18:08] Moderator:


[18:09] Beth Petrey:

Not completely.

[18:11] Moderator:

All right. So with that, I’d like to open the floor for questions. We’ve got a mic if anyone has a question. Okay, we have one.

[18:24] Matt:

Okay, so this is our first time at a conference like this, we are not automated at all. We do mostly manual using our ERP and Excel. What size organization are like, how many invoices a month would you suggest that we would get benefits from the automation you’re talking about?

[18:47] Moderator:

Is your question for someone specific?

[18:49] Matt:

Whoever wants to answer I suppose.

[18:51] Jason Herrington:

Well, this if you’re running the credit system, that’s one piece of automation. It sounds like maybe your question is more centered around the cash application and transaction management. Okay, so the scope of your organization in the transaction volume in the size of your current team. You know, in most cases HighRadius could achieve somewhere in between, you know, 70 and 80% cash application automation. And what do you know what is now what does that do in terms of FTE count? On the collection side, it’s set up to self manage clients based on business rules where you’re warm touching those clients that just need a nudge and allowing your more sophisticated collectors to interface directly with clients that have complex transactional management issues.

And that’s something we’ve seen is that utilize the technology to give those large volume clients the warm nudge they need to pay you and dedicate your resources to the transaction complex clients. So, you know, top-line revenue number that would warrant it. Matt, that’s a difficult question. I think it’s really how, how large is your team for the scope of business you’re managing now?

[20:24] Moderator:

And I’ll just add to what Jason said. So typically, what we try to do is we try to understand, what is it that’s driving your organization? What are the goals that you’ve set for yourself? Try to understand that, see what product would fit well with you or what we could add value.

A lot of times, we come with a problem statement of, okay, I’m trying to automate my cash application. I’ve just got one or two people working on a cash application, but I’ve got 15 people working on collections. What are they trying to do? They’re trying to collect as much as they can. What is your plan for you, you know, collections team? Oh, I’m going to grow that team. Why don’t we automate part of your cash application and use this person in your collections team so we could improve your DSO and working capital and not have to hire additional resources? So depends on what your business objective is and what you’re trying to achieve. We’ll try to tie our products back into what you’d like to get done.

[21:23] Matt:

And then I guess on the credit side, are you seeing a reduction in FTE from using the credit cloud? Or something like that?

[21:34] Jason Herrington:

That wasn’t initially a part of our objective was just to reduce FTEs, we have reallocated resources to more critical tasks. So doing things that the technology doesn’t do but are more critical to the organization, but it could have been allocated towards an FTE reduction if that were part of the main primary objective because it does take repetitive manual tasks. Part of the business process.

[22:02] Moderator:

No, I mean creating capacity is one of the goals you know. A lot of our customers come to us because they do not necessarily want to reduce FTE headcount, but rather create capacity and use them in a more meaningful way. But we could look at it, either way, you know, reduce the FTE headcount or increase your capacity for something more meaningful. Any other questions?

[22:29] Host:

Okay, awesome. Thank you guys so much for spending a happy hour with us. And thank you guys so much for putting on a great panel. So let’s give a round of applause for our panel.

[0:01] Host : Hello, Oh, hello. Okay, so first and foremost, I think there are going to be people that trickle in throughout the session. He likes my voice back there, likes to make it loud. So there are going to be people that are trickling in and out, please don't let that disturb you. But thank you guys so much for joining today's session on credit strategies to minimize risk and maximize profitability. Servo, the AVP of solutions at HighRadius will be the moderator for this panel. And we also have four great panelists up on stage with me. We have Jason, Paul, Beth, and Greg. We're so honored to have you guys on this board on this panel. And our audience is looking to hear your guys’ insights on credit transformation in 2020. So I will stop talking because the mic does not like me and I will hand it over to Servo. [0:58] Moderator: Thank you so much. I know it's about time or happy hours have started. We'll try to keep this short. I love your answers. But we will try to get to a happy hour soon, alright? Okay, so we'll get going. The first…

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    HighRadius Integrated Receivables Software Platform is the world's only end-to-end accounts receivable software platform to lower DSO and bad-debt, automate cash posting, speed-up collections, and dispute resolution, and improve team productivity. It leverages RivanaTM Artificial Intelligence for Accounts Receivable to convert receivables faster and more effectively by using machine learning for accurate decision making across both credit and receivable processes and also enables suppliers to digitally connect with buyers via the radiusOneTM network, closing the loop from the supplier accounts receivable process to the buyer accounts payable process. Integrated Receivables have been divided into 6 distinct applications: Credit Software, EIPP Software, Cash Application Software, Deductions Software, Collections Software, and ERP Payment Gateway - covering the entire gamut of credit-to-cash.