More Power for Collections

Feature Article | June 14, 2006 by admin

European Dunning Procedures: Taking Inventory

European Dunning Procedures: Taking Inventory

Sluggish or unpaid receivables are a perennial problem for companies everywhere. Throughout Europe, for example, the average time for payments has increased over the past three years from 56.2 to 57.4 days. That’s the conclusion of the current European Payment Index, as determined in a study of 23 countries by the collections company Intrum Justitia. According to the index, on-time payment has declined primarily in Spain, Cyprus, Greece, the Czech Republic, and Switzerland, while the worst offenders are in Portugal, where companies complain about a payment cycle of approximately 39 days. With some 154.4 points on the index, Germany finds itself in the middle alongside countries like Latvia and Hungary. (An index value of 100 means no payment risk.)

Declining Payment Behavior in the Energy Industry

The problem of outstanding receivables, which is nothing new in such industries as construction and trades, is lately being felt more acutely in the energy industry. In a questionnaire by the German association of communal enterprises (VKU in its German abbreviation) and sent to 20 municipal utilities in Germany, some three-quarters of the respondents complained of a clear degradation of payment behavior – especially among electricity customers. The problem is particularly serious in eastern Germany. Requests for payments in that region have increased by an average of 20 percent in the past few years.
Paul Schreiner is director of the IT department and consumption billing of the municipal utility in Langen, and he knows the situation well. He and his employees used to deal with 500–600 dunning notices a month while today the number is closer to 1,000. In the last two years alone, the number of dunning notices in Langen has increased by more than 10 percent. Schreiner doesn’t expect it to go down; quite the contrary. “Gas and electricity prices will not decline in the foreseeable future, even if regulatory authorities look at charges for grid usage under a microscope and are able to lower them,” says Schreiner. “And that’s why customers make late payments.”

Labor-Intensive Dunning Procedure

Five employees at the municipal utility in Langen are now responsible for dunning, while two handled the work ten years ago. But even with more dedicated employees, the collections department could hardly keep up – not with the manual process of creating, mailing, and monitoring court orders for payments. They would first use lists of open items to determine which customers should receive court orders for payment. Next, they would search for and assemble data from various documents (dunning notices, copies of invoices, and payment documents). Finally, they would complete the form with a typewriter and mail it to the responsible court.
“An employee could handle a maximum of six dunning payment orders a day – not more,” recalls Schreiner. Another disadvantage was the high number of rejections that came back from the court. An average of 10 percent of the manually created orders were returned because of legal errors such as an incorrect address and had to be reissued.

“Even a Late Payer Is a Customer”

TriMahn

TriMahn

The situation is typical for midsize utilities. That’s why some of them outsource their dunning procedures to professional collection services, which can save money and free up resources to focus on the core business. But that’s not what the Langen municipal utility did. As Schreiner says, “A dunning procedure is a very sensitive matter that we don’t want to hand over to a third party. Our philosophy is that a late-paying consumer is still our customer – someone we need to make the effort not to lose.” Instead, Schreiner and his team decided to take a different path: to automate its legal dunning procedures. They opted for TriMahn software for automatic payment management, which they’ve been using since the beginning of this year.
The solution, developed by cormeta ag and Trigon Data GmbH, consists of an interface between the SAP industry offering for utilities, the utility’s settlement system, and the TriMahn software. The solution enables the utility to generate electronic payment orders from within the SAP solution and send them to the court. The business dunning procedure in the SAP for Utilities solution portfolio triggers the legal dunning procedure. Once the last payment date (the third dunning notification) has passed, the system automatically triggers a process that combines, formats, and transmits all the data to TriMahn over an interface. Parameters such as the days between dunning notices and the amount limits can easily be set. TriMahn checks the data for plausibility and generates the payment order. Employees view the completed form on their screens and intervene only if something is unclear.

Electronic Confirmation of the Status of the Procedure

Once the employee releases the form, TriMahn transmits the payment order to the court responsible over an online services computer interface (OSCI), the standard interface for economic activities of German municipalities. OSCI is also the basis for all planned and partially implemented interfaces in electronic, legally binding commerce. In the reverse direction, the court – also working electronically – informs the utility about the status of ongoing dunning notifications and all associated fees. Receivables management functionality in TriMahn processes interest and payments, the basis for automatic execution proceedings. The information is downloaded from a server every day. Confirmations flow automatically from TriMahn into SAP for Utilities, where they are accessible at any time – not only to employees in the collections department, but also to employees in creditor management. Activities and process statuses are redirected to the SAP software over the interface and visualized in customer master data.

Processing Time Cut in Half

Schreiner and his employees profit from electronic processing in many ways. The effort involved is reduced significantly because the data no longer has to be searched out and checked manually. And notifications don’t have to be sent by mail. “Today, creating payment orders takes us half the time it used to,” says Schreiner. And the utility also expects fewer complaints because the plausibility checks integrated into TriMahn clear up any irregularities ahead of time. Errors occur only rarely.
Another consideration is that upstream plausibility checks and the related error avoidance enable the court to process payment orders directly and electronically and then send them to the defaulter. A court officer is not required to check the request for form and consent. That’s how the court guarantees processing with 24 hours – unlike the traditional manner of processing forms, which is more likely to produce errors and requires manual maintenance.
Because creating the invoice for fees is independent of the presence of errors, electronic processing has a decisive advantage. The fees are automatically deducted from the account of the Langen municipal utility and the payment orders undergo further processing immediately. “Today, automation of the flows simply gives us a lot more security that receivables don’t get lost,” says Schreiner.

Carsten Lüdtge

Carsten Lüdtge

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