• We designed this study to answer three questions about credit management services at the BBC. Are those services delivered:
• to clear standards (quality output); • by the most effective, economic and
efficient means available; and • with a demonstration of continuous
improvement? Private sector practices
• PricewaterhouseCoopers LLP's
Receivables Management Group (RMG) conducted the fieldwork and analysis for this report. RMG are one of the UK's largest credit management practices and they compared BBC performance with: • benchmarking data sourced from the
Credit Management Research Centre, University of Leeds (www.cmrc.co.uk); and
• selected private sector clients. Collection of information, data analysis and comparison
• To assess the performance of various credit management services we collected data from a range of BBC staff and systems. This data included: • documentation of service
standards/policies; • process and performance
management documentation; • agreements with third party service
providers;
• financial data regarding debt management; and
• structural data about the organisation of credit management within the BBC.
• We reviewed the credit management strategy in line with our understanding of the BBC's overall cash generation objectives to identify any gaps and determine the impact on credit management and the business as a whole.
• Process and performance management documentation was supplemented with our fieldwork visits, see below. We used this information to assess management of credit risk, robustness of the performance management regime and the efficiency of BBC credit management. This included consideration of how the BBC uses technology to support credit management services.
• To assess financial performance we analysed trends in volume and value of debt and the age of debts. Relative performance was assessed by
comparison with a sample of UK service companies.
• We used structural information provided by the BBC to determine the cost of credit management services and make comparisons about their relative efficiency. We also assessed attitudes to credit management across parts of the BBC and their possible impact upon credit performance.
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Fieldwork visits
• We visited credit management staff, and in some cases divisional Financial Controllers, across the following: • BBC Worldwide including BBC
Americas and BBC Canada; • BBC World;
• BBC Ventures (BBC Resources and BBC Broadcast);
• BBC Public Service areas, including BBC World Service, Sport
International Unit, BBC Scotland, BBC World Service, Property, Rights and Business Affairs and Radio and Music. We conducted telephone interviews with BBC Nations and Regions, BBC Wales; and
• The credit management processes of the outsourced provider providing the BBC with certain financial accounting, administrative and information
services.
Stakeholder consultation, validation of best practices and emerging findings • We took meeting notes and validated
them;
• We sent feedback questionnaires to Financial Controllers across the BBC asking for their comments on the provision of credit management services. The information gathered was used in the preparation of this report;
• At the mid-point of this review in September 2004 we held a workshop with representatives from across the BBC to consider:
• our definitions of best practices in credit management;
• emerging findings from our fieldwork; and
• Following the above workshop, we met individuals and validated facts and findings.
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GLOSSARY
Account (or customer account)
A tabulation of transactions relating to sales (including invoices, credit notes and cash receipts) made to a specific customer. Accounts receivable
Amounts owed to an organisation. Also referred to as receivables or debts. Accounts receivable ledger
A set of accounts keeping track of debts due from customers. Also known as sales ledger. Collection Effectiveness Index (CEI) Expresses the effectiveness of an
organisation's collection efforts over time. It effectively measures the cash collected as a percentage of the debt that is due and available for payment. The closer the sum is to 100%, the more effective the collection effort.
Best practices
Business processes and work methods typical of those adopted by the most effective, efficient and economic organisations in relation to credit management.
Credica
An electronic application, designed and distributed by Credica Limited, to manage and monitor certain credit management processes.
Credit Controller
A relatively junior member of staff with responsibility for analysing credit risk,
collecting cash from customers, investigating invoice queries and / or other administrative duties in relation to credit management. Credit limit
The maximum value of outstanding debt an organisation is willing to extend to a customer at any one time.
Y
Credit Manager
A manager with day-to-day responsibility for credit management.
Credit management
The management of trade receivables and the credit extended to an organisation's customers.
Credit management service providers External organisations providing credit management services to the BBC, in addition to sales and distribution.
Credit policy
A statement outlining an organisation's credit management objectives together with the actions to be taken in relation to credit risk management, invoicing, collections, query management, accounts receivable maintenance and management reporting. Days Sales Outstanding (DSO)
A calculation that expresses, in days, the value of outstanding accounts receivable in terms of the most recent days' sales. It is an indication of the average number of days it takes an organisation to obtain payment from its customers. Also known as debtor days. Debt
Amounts owed to an organisation. Also referred to as receivables or accounts receivable.
Debtor days
A calculation that expresses, in days, the value of outstanding accounts receivable in terms of the most recent days' sales. It is an indication of the average number of days it takes an organisation to obtain payment from its customers. Also known as Days Sales Outstanding or DSO.
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Dunning letter
A letter reminding a customer that their debt is overdue and should be paid immediately. Dunning letters are normally issued as part of a series of letters of escalating severity, typically ending with a letter threatening legal action.
Fair Trading
The BBC's Fair Trading Guidelines (formerly know as the BBC's Commercial Policy Guidelines) provide a detailed operational framework which build on the BBC's Fair Trading Commitment. The Guidelines are designed to ensure that the BBC's commercial activities support its public purpose, that it trades fairly and lives up to high standards. The Fair Trading
Commitment refers to the Governors' undertaking that the BBC's commercial activities must have the values of quality and integrity, which characterise its wider work. Key performance indicators
Quantifiable measurements that are used to assess an organisation's performance. Overdues
Amounts owed by customers that are overdue for payment.
Old debt
Debt owed to an organisation by its
customers that has been overdue for several months.
Overdue percentage (%)
The proportion of (trade) receivables that are overdue for payment. The closer the sum is to zero, the more effective the collection effort.
Netting
The process of setting customer debts against payments owed to them as suppliers, by agreement.
Outsourced distributors
External organisations providing distribution channels for the BBC, buying goods from the BBC and reselling them.
Query management
The investigation and resolution of queries and disputes in relation to its sales invoices, as raised by an organisation's customers. Receivables
Amounts owed to an organisation. Also referred to as accounts receivable or debts. Sales ledger
A set of accounts keeping track of debts due from customers. Also known as accounts receivable ledger.
Sales to cash
A term applied to the process encompassing setting up a new customer and credit risk, through order capture and fulfilment to invoicing and cash collection.
SAP
A financial ledger and management
information system (sometime known as an Enterprise Resource Planning or ERP system) designed by SAP AG of Germany.
Trade receivables
Amounts owed to an organisation by its customers in relation to the sales of goods and services.
Workflow
Information technology that uses electronic systems to manage and monitor business processes. It allows the flow of work between individuals and/or departments to be defined and tracked.
© 2004 PricewaterhouseCoopers LLP. All rights reserved.
“PricewaterhouseCoopers” refers to PricewaterhouseCoopers LLP (a limited liability partnership in the United Kingdom) or, as the context requires, other member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. Design: DPU0500618(05/05).