Presentation on theme: "Leveraging Technology to Enhance Credit Decisions and Review Processes, Create Good Quality Controls, and Align Policies and Procedures with Company’s."— Presentation transcript:
Leveraging Technology to Enhance Credit Decisions and Review Processes, Create Good Quality Controls, and Align Policies and Procedures with Company’s Business Strategy Kevin Chandler Tesoro Corporation ICTF's Global Credit Professionals Symposium 7 April 2014
Tesoro Corporation Tesoro Corporation, a Fortune 100 company, is a refiner and marketer of petroleum products. Tesoro refines crude oil into gasoline, diesel fuel, jet fuel, heavy fuel oils, liquefied petroleum gas, petroleum coke, calcined coke and asphalt. Commercial Marketing sells products globally. Wholesale Marketing sells products to independent marketers, commercial end-users, and high-volume retailers in the western US. Retail Marketing sells gasoline and diesel fuel directly to consumers under the Tesoro®, Shell®, ARCO®, Exxon®, Mobil® and USA Gasoline™ brands.
My Goals – What Drives Me Create a credit process that incorporates : – Consistency (auditors love that) yet flexibility (not a score card). – Leveraging technology to increase productivity (work smarter – not harder). – Reinvesting department’s time on more high return for investment activities. – More than the financial numbers (piecing it all together). – Forcing people out of their comfort zones (do not rest on our laurels). – Developing credit professionals across all of the company’s markets (no silos). – Challenging everyone to grow (no one stagnates and everyone is engaged). – More experienced helps less experienced (everyone is part teacher and part student). – Challenging established ways of thinking (no same old solutions). – A true “team” environment (we all win when we all win together). – Developing easier resource allocation, career path development, back-filling, and project management capabilities (make being a manager of people easier). – Transparency to drive understanding and alignment, and to demonstrate Credit adds value (gain respect for the credit profession). – Delivering on my promise to teach the next generation of credit managers.
Tesoro Credit Process Eighteen (18) people organized into four teams assigned to global areas. Utilizes Financial Supply Chain Management (FSCM) module of SAP. Not a “score card” approach. Achieves the following: – Ensures reviews are annually initiated after a customer’s fiscal year end. – Facilitates gathering and electronically storing data, using a follow up tickler. – Documents a wide spectrum of financial and non-financial data. – Creates a common process regardless of level of credit experience. – Prompts credit professionals to consider various aspects of a customer. – Delivers transparency across both quantitative and qualitative aspects. – Challenges credit professionals as appropriate to provide additional color. – Converts foreign currencies to USD, but allows for viewing either currency. – Enables reviews to be shared with all personnel to obtain additional perspective. – Unites all entities within a customer family, displaying family exposures and limits. – Captures who and when all actions and entries are made. – Forwards reviews automatically through limits of authority approval levels. – Records approved limits and stores approved reviews in electronic credit files. – Connects Credit activities seamlessly with all of Tesoro by utilizing SAP. – Allows for ease of reporting and data changes as needed. – Next year’s credit review starts this year’s credit review data pre-populated.
Credit review process organized into twelve 12 areas where various credit data is recorded, analyzed, recommended, and approved: Document Checklist Opportunity Questions Financial Analysis Customer Financial Factors Customer Specific Factors International Factors General Market Factors Risk Mitigation Recommendation Family Credit Allocation Recommendation Preview Approvals Credit Review Organization
Document Checklist Tab Tracks documents needed for the review. Documents received are stored directly from the tab to the electronic credit file. Customer contact can be ed, phoned, or faxed from the tab and followed up with a tickler system. Controls Embedded: Stored documents cannot be deleted but by senior managers. Records who and when all actions and entries are made.
Opportunity Questions Tab Captures information related to the potential opportunity available. Asks Credit to interface with Marketing to obtain their perspective. Controls Embedded: A numeric value can only be accepted in the Credit Limit Needed field.
Financial Analysis Tab - 1
Financial Analysis Tab - 2
Financial Analysis Tab - 3 Public company financial data is downloaded directly into credit review from internet. Converts foreign currency financial data into USD. Right sizing percentages and ratios automatically calculated. Meant to be a snap shot and not replicate the entire financial statements. Controls Embedded: Financial data downloaded from internet cannot be changed. Certain fields are calculated versus manually entered (Working Capital, Gross Profit, etc…) Financial statement currency code must be entered. Any non-USD currency must be converted to USD. Financial data cannot be entered if customer’s fiscal year end is not entered in master data. Warning message displayed if the FYE in master data does not match FYE in the review. Total Assets must equal Total Liabilities plus Equity. Warning messages displayed when possible inaccuracies recorded in income statement.
Customer Financial Factors Tab Customer financial data analyzed and commented upon in detail on this tab. Areas include: – General Interpretation – Liquidity – Efficiency – Leverage – Asset Mix – Other
Customer Specific Factors Tab Customer non-financial data analyzed and commented upon in detail on this tab. Areas include: – General Customer Information – Pay History (To Tesoro & Others) – Bank & Trade References – Credit & Agency Ratings – Public Filings – Strength of Management Team – Reputation in the Market – Other
International Factors Tab Customer international factors analyzed and commented upon in detail on this tab. Areas include: – Foreign Currency Risk – Political Risk – International & Local Laws – Feedback from Local Country Bankers, Agents, Distributors, Embassies, etc… – International Payment Terms, Payment Habits, Banking Systems, etc… – Incoterms – Other
General Market Factors Tab Customer general market factors analyzed and commented upon in detail on this tab. Areas include: – Market / Economic Factors Across Countries / Regions – Tesoro Market Position, Competitive Factors, Market Share – Marketing & Field Feedback – Transportation, Environmental, Weather, Seasonal Considerations – Inherent Risk Levels and Inherent Costs to Anticipate Margins – Sell versus Incur Expense – Other
Risk Mitigation Tab Risk Mitigation factors analyzed and commented upon in detail on this tab. Areas include: – Guaranties – Letters of Credit – Net Out Agreements – Perfected Security Interests & UCCs – Deposits, Prepayments, Bonds, etc… – Promissory Notes – Credit Card Receipts
Recommendation Tab Summarizes the Credit Manager’s recommendation for a credit limit, payment method, and payment terms. Controls Embedded: Family credit limit has be entered if the review is on a customer family. Single customer credit limit has to be entered if customer is a single entity. Derivative threshold credit limit cannot exceed family credit limit/individual credit limit. Recommendation tab must be completed before proceeding to approvals. Requires Credit Manager to select a risk classification (excellent, good, fair, poor).
Family Credit Limit Allocation Tab Allocates recommended credit limit across the entire customer family. Records individual credit limits, maximum credit limits, minimum credit limits and derivative threshold credit limits by subsidiary. Controls Embedded: This tab must be completed if the review is on a customer family. Not possible to proceed to approvals if this tab is not completed on a customer family. Individual, maximum, and minimum credit limits (individually and collectively) cannot be higher than family credit limit. Derivative threshold credit limit must equal the derivative threshold credit limit on the recommendation tab. Not possible to have a derivative threshold credit limit on a subsidiary with a no negotiated threshold limit flag. Not possible to enter any type of credit limit on a blocked or archived subsidiary.
Recommendation Preview Tab
Approvals Tab Credit review approval completed on this tab. Reviews can be Approved, Approved With Action Items, Returned for Further Action, or Disapproved. Controls Embedded: Entire review is spell checked for accuracy. All Credit personnel and their credit limit authority amount are stored in FSCM. Credit limit approval is only possible up to the approver’s credit limit authority amount. Approved reviews automatically routed to next level approval and an sent to notify. Next annual review date is set upon completion of review. Also possible to set an interim review date if needed.
After The Review Approved credit limits are updated in FSCM, SAP, and various reporting tools. Approved credit reviews cannot be altered or deleted. Reviews approved with action items are tracked, recorded, communicated, resolved, and approved within FSCM. Approved credit reviews are automatically stored in the customer’s electronic credit file. Auto-leveling of family credit limits is performed automatically by FSCM daily, taking into consideration any maximum and/or minimum specified credit limits. Upon initiation of the next credit review the electronic credit file structure is automatically created. All documents loaded into a customer’s electronic credit file use a specific naming convention and are stored by type in a specific sub-structure of the credit file. All receivable collection activity performed and managed in a separate FSCM module that is fully connected to the credit module.