Effective Credit Control

VIVA Telecom Bahrain – An STC Company

Presented by: Tahir Sohail

Some facts about Bahrain
GENERAL INFORMATION Population: 1.2Million Capital: Manama Area: 717 square kilometers (277 square miles) Language: Arabic, English, Farsi, Urdu Religion: Muslim Currency: Bahraini dinar GDP per Capita: U.S. $15,100 Literacy Percent: 89 Bahrain consists of 33 islands in the Persian Gulf (Arabian Gulf). The islands are mostly desert, and most of the population lives in or near Manama, the capital. It is connected to Saudi Arabia by the 26-kilometer (16-mile) King Fahd Causeway. Since independence from Britain in 1971, there has been conflict between the ruling Sunni tribe and the Shiite majority. A new constitution in 2002 provided for an elected parliament and gave women the right to vote and stand as candidates. Economy is majorly based on Petroleum products.

About VIVA
• • STC Bahrain (VIVA) was established in the Kingdom of Bahrain on February 2009. Saudi Telecom Company owns 100% of its BHD 75 million share capital which is equivalent to approximately $ 198.75 million at the exchange rate as of that date.

The company operates in the field of mobile services, international telecommunications, broadband and other related services in the Bahraini market, and commenced its commercial operations on March 3, 2010.
In 2012, the company made operating revenues of $263 Million which was 21% higher compared to 2011 revenues of $ 207 Million. VIVA Bahrain is regarded as a bench mark in STC companies due to highest ever gross adds and net profit attained in such a short period.

• •

Agenda for Today
• • • • Credit Limit/ Customer Profile Management Financial claim management in relation to Partner fraud Debt management & Factoring How to secure strong cash flows

Credit Limit – The traditional approach

• Customer classification into appropriate segments • Product based credit terms • Range of strict to flexible actions • Defined payment terms • Usage monitoring

* With launch of smart phones, the risk has gone significantly higher for

operators so the traditional checks (focused on service revenues) alone are not sufficient anymore

Customer Profile Management in VIVA
In VIVA, along with the traditional checks, we strive to “profile customers” at point of sale and at back office and associate a risk score for better credit management. Some of the checks implemented are: Point of Sale Checks:
Occupation Check through CPR reader 360 Degree Customer View Delivery note signature for SME

Back Office Checks:
Payment Behavior Monitoring Represents Post-Sales Checks

Represents Presale Checks

ARPU Monitoring

Customer Site Visit for SME

Account Aging

Total Subscriptions
Broken Promise Monitoring Add-on’s Offerings

Payment Methods

Bad Payee List
Account linking on CPR

Near Real time roaming monitoring
No Contact Flagging

No Contact Flagging

Financial Claim Management in relation to Partner Fraud
Consider the below scenario which VIVA faced in 2nd year of operations with launch of Device Plans.
Category 20 LINES ACTIVATED AGAINST ONE CPR ID – Multiple Shops CUSTOMER DENIES OWNERSHIP IN-VALID CPR'S MORE THAN 2 DEVICE LINES (business rule breach) MORE THAN 5 LINES WITH THE DEVICE PLAN (BR breach) NO PAYMENT HISTORY NO UPFRONT PAYMENT PAYMENTS RECEIVED ONLY ON ACTIVATION VOLUME (Hypothetical) Billed Outstanding

Device Exposure (Remaining Commercial Installments)

Commercial Subscription Exposure (Unrealized Revenue)

Sales Commission

Total (Hypothetical)

20 146 106 958 21 7 2

W BHD W BHD W BHD W BHD W BHD W BHD W BHD

X BHD X BHD X BHD X BHD X BHD X BHD X BHD

Y BHD Y BHD Y BHD Y BHD Y BHD Y BHD Y BHD

Z BHD Z BHD Z BHD Z BHD Z BHD Z BHD Z BHD

4,343 27,241 8,659 119,647 327 613 355

474

W BHD

X BHD

Y BHD

Z BHD

12,855

Grand Total

1,734

122,575

232,125

199,620

31,929

174,039

1 BHD = 2.65 US dollars. This case was worth more than $4,61,000.

Financial Claim Management in relation to Partner Fraud
Fundamental Question – If a partner employee commits fraud, is it our problem or the partners? * In outsourced models, there are always people who take advantage of the weak controls specially in a new business or where focus is more on selling.

To determine this, let’s look at the following:

Contract Type Quality Assurance Business Rules Customer Documentation IT Systems Policy/ procedures

• Liabilities are clearly defined • Claw back conditions exists
• Sits with operator • Sits with partner • Agreed and signed • Timelines when communicated •Is readily available •Who is responsible to maintain •Employs controls •If not, whose liability • Defined clearly for all scenarios • Vague

If above are not clear and formally documented, can a counter claim come? Are our losses covered? Some other important elements to look at: 1. Company reputation 2. Engagement model with partner 3. Do we have a replacement if things go south? What will the impact be on sales? 4. Is partner a sister concern?

VIVA’s Debt Management Framework – 3 Phase Approach
Manages and automates credit and collection operations (front and back office).

Phase 1
Credit Approval
Payments History Large, Medium and Individual accounts Capability to pay Income/ occupation analysis Risk Analysis Credit and Payment Behaviour Scoring Decision about credit limit Credit specialist analysis

Phase 2
Credit Control

Phase 3
Debt Collection
Bad debt Recovery

Detection of possible non-payment signs Debt follow-up via In-house for early delinquency buckets Prevent new customer bad debt occurrences Initiate preventive credit control actions

Demand payment Initiate bad debt collection & legal actions

Prevent conflict situations Debt negotiation
Update and maintain credit scoring Centralized system so that consistent information is available to front liners

Write off

Payment of the debt

Debt Management & Factoring
Conflict of interest (Commercial vs. Finance):
From purely financial perspective, DSO and inventory days are targeted to be as low as possible. From commercial perspective though, simply cutting down on your DSO (debtor days) or increasing your DPO (creditor days) are not necessarily good long-term solutions. Smart management of cash flow cycle, including tighter business processes and better credit management, is essential. Therefore in order for any organization to be effective, great care must be taken to balance the financial and commercial needs and businesses should target to move the relationship with suppliers from being just suppliers to partners and ultimately to being promoters of the business.

Factoring @ VIVA
1. 2. 3. 4. Early Payment Discounts – Encouraging customers to pay early. Discounts up to 5% of billed amount Selling Portfolio – Majorly being employed for older debt where the portfolio is sold to a collections agency and commission is agreed on 50% of collected value. Credit Analysis for SME’s & Corporate clients – Trade references, background check is performed by collection agencies [Tamkeen, other operators, MOI] Invoice discounting – Being used for “not so old debt, only recent year” where portfolio is given to an outside agency on 50% advance receipt and payment is done on 30% of collected value. Portfolio remains VIVA’s property.

How to secure strong Cash Flows – 4 Principles
• Has to be chased & tracked • Does not come willingly • Always room for improvement and process refining

Cash is not given

Integral to business

• As important as producing products & services • Can live without products, but not cash

Data Analytics & behavior

• Know your customer • Check credit worthiness, payment pattern • Company’s debt capacity, maturity of facilities • Supplier receipts etc.

Skilled Application

• Recognize cash management as a skill • Only a firm grip will yield results.

Cash Flow Management @ VIVA
VIVA employs a 6 step approach towards managing its cash flow:
Getting Control of Your Cash Flow Collecting receivables

Tightening credit requirements

Ask yourself the following two questions to get a sense about whether you have your business' cash flow situation under control:
1. What is my cash balance right now? 2. Where do I expect my cash balance to be six months from now?
Securing loans Increasing sales

Pricing discounts

"If you can't answer these two questions, then strap yourself in for a wild ride”.

THANK YOU!
Tahir Sohail Manager – Billing, Collections & Credit Control TSOHAIL@VIVA.COM.BH +973 33011557

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