Credit management operations -...

Credit management operationsPricewaterhouseCoopers LLP review presented to the BBC Governors’ Audit Committee,March 2005, and a response to the review from the BBC

British Broadcasting CorporationBroadcasting HouseLondon W1A 1AA

This report is available online atbbcgovernors.co.uk

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The BBC’s credit management operationshave been subject to a value for moneystudy to assess whether the function isachieving best value for licence fee payersand making the optimal contribution tothe organisation’s overall effectiveness.

This study by PricewaterhouseCoopersLLP (PwC) is part of a programmecommissioned by the Governors’ AuditCommittee that is assessing value formoney across the BBC. A key constituentof the overall programme is theappointment of external agencies toundertake independent reviews ofselected topics.

PwC has evaluated the BBC’s in-housecredit management operations, which areprimarily responsible for the arrangementsrelating to the collection of the moneythat the BBC is owed.The study includedan assessment of the BBC’s capabilitiesbenchmarked against external bestpractice, as well as the identification ofopportunities for improvement in both the short and long term. PwC carried outthe fieldwork for this study betweenAugust and November 2004.

The Board of Governors thanks PwC forundertaking this study and accepts thereport’s conclusions and recommendations.

The Board welcomes the conclusion that the BBC has demonstratedcontinuous improvement in creditmanagement operations over the past two years. However, Governors recognisethat there are savings and improvementswhich can be made to the creditmanagement process.

Although the average amount ofoutstanding debt at any one time is a small proportion of total revenues for the BBC, Governors are aware that an efficient credit management operation is an essential component of robust financial management.

As PwC has stated in the report, theBBC’s core source of income is generatedfrom the licence fee, which in 2003/2004amounted to £2,798million.The Board of Governors has made a commitment to keep the financial burden on licence feepayers as low as possible and to ensurethat all income is used efficiently andeffectively. Governors are thereforepleased that BBC management’sconsideration of the report’s conclusionshas found some scope for additionaladministrative efficiencies, which shouldensure that credit management operationswithin the BBC are at least in line withindustry best practice.

The Board has considered the changes to the credit management operationsproposed by BBC management and hasapproved their implementation.Webelieve that the changes will help toachieve the BBC’s overall objective toincrease the amount of money available to spend on the its public services.Governors will assess the implementationof the changes through the Board’s regularmonitoring of value for money reforms.

The attached statement from BBCmanagement outlines what actions arebeing taken to address the report’srecommendations and responds to thespecific conclusions made by PwC.

Board of GovernorsJune 2005

Credit management operationsBBC response to the PricewaterhouseCoopers LLP Value for Money study

Overall, the BBC recognises that there aresavings and improvements which can bemade to the credit management processand therefore welcomes PwC’sconclusions and recommendations.

For the period reviewed by PwC, theBBC’s in-house collection teams managed£77million of debt and some 28% of thisdebt (£21million) was overdue.

In the period under review, the non-commercial activities of the BBC (referredto in the report and this response as BBC public service) performed lesseffectively than the BBC’s commercialoperations, running with overdue debts of47%. However, as at March 2005, the publicservice operation had made significantprogress in the collection of overdue debt,with an average overdue debt of 21%.This improvement has been achieved bythe actions taken by the BBC since the PwC review.

Response to the report’s key findings

1. The BBC has clear standards in asignificant part of its credit managementoperations but they are not consistentacross the organisation.

The BBC recognises that the policies in its commercial operations are moredeveloped than in its public serviceoperations, where the value of externaldebt is far smaller.The BBC will ensurethat these policies are reviewed and that a consistent standard isdocumented and published across allparts of the public service.

The differences in effectiveness notedby the PwC study, between the creditmanagement operations in the BBC’scommercial and public serviceoperations, are recognised andaccepted by the BBC.These differencesshould, however, be seen in the contextof the overall scale of the individual

operations, with the value of debtmanaged by the credit managementteams across the commercialoperations accounting for 92% of thetotal BBC debt.The variance in the scaleof the operations and the differences inthe operational requirements thereforedrive the approach taken by the creditmanagement teams within the BBC’spublic service and commercial functions.

2. Current operations are reasonablyeffective. However, there are significantopportunities for the BBC to furtherenhance the value for money derivedfrom its credit management operations.

The effectiveness of the BBC’s creditmanagement function is included aspart of the BBC’s internal efficiencyreviews, which are looking to increasethe value that the Corporation derivesfrom this function.

3. The BBC has demonstrated continuousimprovement over the past two years.However, this trend will be difficult tomaintain without a step-change inworking practices.

The BBC recognises that the improvementsmade over the past two years will onlycontinue if a further review of theoperations across the BBC isundertaken. New targets for cashcollection and levels of outstanding debtare already being set for each division.

Continuing to improve the BBC’s credit management operations

As part of the BBC’s internal efficiency and value for money reviews – beingundertaken throughout 2005 – the BBC is looking at the way in which it manages end-to-end sales and cash collectionprocesses.The review aims to bring allprocesses in line with industry bestpractice and will focus on the policyapproach to credit management as well

as its implementation across theorganisation.The BBC will use therecommendations set out in the PwCreport to underpin this work.

Responding to therecommendations and conclusions

PwC has made valuable observations andrecommendations within the report whichthe BBC is actively taking steps to address.

1. Structure and accountabilityPwC has recommended that refocusingoperational accountability on oneindividual and establishing centralcontrol of credit management wouldbenefit the BBC. In advance of BBCFinance’s value for money programme,which aims to achieve significant savingsby restructuring the finance communityacross the BBC, we have formalised theCredit Control Forum, which currentlyshares information on an informal basis.This forum includes representativesfrom each of the credit controldepartments across the BBC and ischaired by the Group Credit ControlManager. It meets monthly to ensurethat issues and information are shared.A further purpose of the forum is toraise the profile of the credit controldepartments across the BBC.

2. Credit policy and use of technologyPwC has recommended that a mastercredit policy be produced.This iscurrently being produced and will bereviewed across the BBC beforeimplementation in July 2005.

PwC has also recommended that theBBC review the technology leversavailable to it and consider the use ofthe credit control system currently in use in BBC Worldwide in addition to the BBC’s standard system, SAP.Once the credit policy has beenproduced, the technology for creditmanagement will be subject to a cost

Credit management operationsBBC management response

benefit analysis, to identify whether itwould be efficient for the BBC toimplement any further technology or system modules.

3. Knowledge sharingThe Credit Control Forum, as notedabove, is now set up on a formal basis.This will encourage the sharing of goodpractice and credit intelligence across the BBC.

4. Performance monitoring and measurementPwC highlights that there areopportunities to improve performance of the credit management functions.However, PwC does not think that thiscan be achieved unless the annualperformance objectives (relating tobusiness, teams and individuals) reflectthis potential. PwC recommends thatthese objectives should include monthlycash collection and overdue debt targets.

The BBC is addressing thisrecommendation to improve reportingagainst key performance measuresacross the BBC, including the writing of additional reports within the currentaccounting systems.These will be inplace for the second quarter of2005/2006.

Specific performance measures andtargets for levels of outstanding debtordays will be incorporated into the2005/2006 annual objectives of theBBC’s divisional finance directors.

Review of the BBC CreditManagement OperationsPricewaterhouseCoopers LLP review presented to theBBC Governors’ Audit Committee, March 2005

Contents

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1 Preface 1

2 Summary and conclusion 2

3 Introduction and background 6

3.1 Background for this value for money study3.2 Placing credit management in the context of the BBC's overall operations3.3 Credit management organisation within the BBC3.4 Scope of review

4 The BBC has clear standards in a significant part of its creditmanagement operations but they are not consistent across the organisation 10

4.1 A significant element of the BBC delivers credit management services to clear and consistent policies and relevant agreements are in place with third party service providers

4.2 Accountability and responsibility for credit management differs from business to business

4.3 Credit risk management processes are in place in each business but in certain instances are not being enforced

4.4 Target setting practices are inconsistent across the BBC4.5 Whilst there is good credit management reporting in place in some

businesses, there is no BBC-wide consolidation or overview

5 Current operations are reasonably effective however there are significant opportunities for the BBC to further enhance the value for money derived from its credit management operations 16

5.1 Whilst the BBC's collections performance is broadly in line with the median for the UK Services sector, there is still scope for improvement

5.2 There is an opportunity to improve overdue debt performance in the range of £7 million to £15 million

5.3 Central control of credit management would further improve performance and could help reduce the overall cost of the service

5.4 Whilst good in parts of the BBC, there remain opportunities to improve existing credit policies

5.5 Standardising processes based on best practice, demonstrated in part byBBC Worldwide, will help to drive performance improvement across the corporation

5.6 BBC Worldwide demonstrates good practice by using a purpose built workflow management system to ensure that collections and query management adhere to predefined standards

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6 The BBC has demonstrated continuous improvement over the past two years, however this trend will be difficult to maintain without a step change in working practices and targets 28

6.1 The BBC has made significant reductions in overdue debt sinceJuly 2002

6.2 Continuing to improve BBC performance in credit management to levels in line with the best commercial organisations could reduce overduedebt by a further £7 million to £15 million

6.3 Continued performance improvement will require the BBC to setsignificantly more ambitious targets

7 Recommendations 34

7.1 Structure and accountability7.2 Credit policy7.3 Processes, work practices and technology7.4 Sharing knowledge7.5 Performance monitoring and measurement7.6 Working with third party service providers

8 Appendix 36

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Preface1This report is one of a series of studies thatassess value for money across the BritishBroadcasting Corporation (BBC). Theprogramme of reviews was selected by theBBC Governors' Audit Committee indiscussion with the Comptroller and AuditorGeneral of the National Audit Office in thecontext of Parliament's consideration of theCommunications Bill.

This report was prepared byPricewaterhouseCoopers LLP ("PwC") for theGovernors of the BBC. In the report weexamine whether the BBC's creditmanagement operations are achieving bestvalue for Licence Fee payers.

This report has been prepared for and onlyfor the Governors of the BBC in accordancewith the terms of our engagement letterdated 9 August 2004 and for no otherpurpose. We do not accept or assume anyliability or duty of care for any other purposeor to any other person to whom this report isshown or into whose hands it may come,save where expressly agreed by our priorconsent in writing. Whilst we haveconsented to allow this report to be madepublic by presentation to Parliament as partof / an appendix to a report presented by theGovernors of the BBC, we have not in sodoing agreed to extend any liability or duty ofcare that we may have beyond that referredto above.

We have not carried out an audit of theBBC's financial statements. Our work hasbeen based primarily on internalmanagement information, collated duringAugust and September 2004, which we havenot verified or corroborated.

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2 Summary

The BBC's primary function is public servicebroadcasting. In support of this activity, itsells goods and services to otherorganisations. As a result, the BBC extendscredit to its customers and is owed moneyby them.

In this review we have evaluated the BBC'scredit management operations, which areprimarily responsible for the arrangementsrelating to the management (i.e. collection) ofthe money that the BBC is owed. In line withthis, the aim of this review was to:

• consider whether the BBC is achievingbest value for Licence Fee payers from itscredit management and debt collectionprocess;

• benchmark the BBC's capabilities withexternal best practice;

• identify and quantify opportunities forimprovement; and

• identify means to ensure continuousimprovement in the short and long term.

Credit management teams across the BBCprovide advice on setting credit limits for newcustomers, review credit limits whererequired, pursue overdue debt, undertakequery management, to the extent that it isundertaken, and escalate old debt to thirdparty collection agencies. The teams areorganised within BBC Worldwide, BBCVentures (BBC Resources and BBCBroadcast) and BBC Public Service andcomprise approximately 23.75 full timeequivalent (FTE) staff across the BBC.

The amount of outstanding debt at any onetime needs to be placed in the overallfinancial context for the BBC. The majority of the BBC's income comesfrom the Licence Fee, which in 2003/04generated £2,798 million of revenue for thecorporation (See Figure 1).

Total BBC income for 2003/04 was £3,706m

Figure 1: Source BBC AnnualReport and Accounts 2003/2004

BBC World Service£243m (Majority from Grant in Aid Funding)

Commercial Businesses £646mComprises:• BBC Worldwide• BBC World• BBC Ventures (includes BBC

Resources and BBC Broadcast)

UK Public ServiceBroadcasting Group(non-Licence Fee)£19m

UK Public ServiceBroadcasting Group(Licence Fee)£2,798m

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2 Summary

The average amount of debt which the BBCwas owed for the periods of June, July andAugust 2004 was £116 million, representinga small fraction of total revenues. Whilst,prima facie, this would make a review ofcredit management at the BBC different toone in a wholly commercial organisation,where the proportionate amount of tradedebt to revenue is much higher, the need toenhance cash generation is still very much apriority for the BBC. This can be evidencedin the BBC Governors having a statedobjective in the 2003/04 annual report to:

"Continue to increase the amount of moneyavailable to spend on the BBC's publicservices by enhancing the efficiency andeffectiveness of the way the BBC operates."

In this context, we have assessed the BBC'sin-house credit management operations tosee whether they make the optimalcontribution to the BBC's effectivenessoverall. We have adopted the BBCGovernors' own definition of value for moneywhich means they require the BBC's creditmanagement operations to:• deliver services to clear standards (quality

output);• be the most effective, economic and

efficient means available (cost effective);and

• demonstrate continuous improvement inthe way in which functions are exercised.

Conclusion

Against the above criteria, our review notedthe follow key findings:

The BBC's credit management operationshave clear standards within the largest part ofthe organisation (i.e. BBC Worldwide),however they are not consistent across thecorporation.

Indeed, the standards in some of the otherbusinesses fell short of those employedwithin BBC Worldwide and when comparedwith external best practice.

Opportunities were identified for enhancedstandards in terms of:• clearer accountability and responsibility;• documented policies and procedures

which are aligned to overall BBC cashgeneration objectives;

• enhanced operational and managementreporting including Key PerformanceIndicators;

• formal target setting; and• enforcement of credit risk procedures.

A key theme identified was the diversity ofstandards (i.e. organisation structure,policies, practices, target setting andreporting) employed across all the differentcredit management teams within thebusinesses. Consistency in standardsprovides a platform for improvedperformance through sharing of practicesand skills, internal benchmarking, andefficiencies derived from standardisedprocesses.

The Governors' requirement to deliver againstclear and consistent standards is supportedby one of the BBC's core values:

"We are one BBC: great things happen whenwe work together."

The BBC's credit management operationsare reasonable in terms of cost, efficiencyand effectiveness when compared with"average" UK Service sector benchmarks,however there are significant opportunities forfurther improvement.

Of the £116 million that the BBC is owed,£77 million is managed by in-house collectionteams. The receivables relating to third partyservice providers have been deemed to beout of scope for the purposes of this review.Of the £77 million, £21 million, some 28%was overdue. 28% is below the medianperformance level for the UK Services sector.These benchmarks and our experience ofworking with world-class organisationsindicate that the best organisations arerunning with overdue debts of 10% or less,

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2 Summary

representing some scope for improvementfor the corporation (see quantification inSection 5). Performance varies considerablyamongst the BBC businesses with thecommercial subsidiary, BBC Worldwide, bothhaving the bulk of the debt and performingmost effectively. BBC Public Service, on theother hand, performs less effectively, runningwith overdue debts of 47% (average for theperiods June to August 2004).

We have compared the workload of theBBC's credit management teams with recentstaff workload benchmarks relating to asample of large UK based Serviceorganisations. These benchmarks indicatethat, whilst the BBC is operating moreeconomically than the sector median, it stillhas scope to reduce costs by increasing thenumber of accounts handled by each CreditController. Based on these benchmarks, webelieve that a reduction in head count ofbetween 3 to 4 staff is achievable byattaining a ratio in excess of 1 CreditController for every 350 accounts. Thiswould equate to an annual cost saving ofapproximately £116,000 to £155,000.

The above improvements in effectivenessand efficiency will be crystallised through theimplementation of some of therecommendations below, including: thestandardisation of processes and theutilisation of technology, as currentlyemployed by BBC Worldwide, across theorganisation.

The BBC's in-house credit managementoperations have demonstrated continuousimprovement over the last two years;however, enhanced targets and practices willbe required to maintain this trend.

We analysed the performance of the BBC'sin-house credit management operation,excluding BBC Americas, over the last twoyears and found that it has improved fromover £43 million overdue in January 2003 tothe £20 million outstanding at the time of ourfieldwork. We have found evidence of

management action to tackle overdue debtthat has been effective. Lifting creditmanagement performance to a level thatcompares with best practice could furtherreduce overdues to 10% of total accountsreceivable. This represents an opportunityfor the BBC to generate a potential one-offcash flow benefit of up to £15 million.However, we found that not all existingperformance targets provide for continuousimprovement. We also believe that new workpractices, as noted below, in terms ofstandardisation and improved efficiency,based on best practice processes andtechnology as employed in BBC Worldwide,will be required to achieve furtherimprovement.

Key Recommendations

The following key recommendations weremade based on our review:

Structure and accountability

The BBC is most likely to realise the availablebenefits by refocusing operationalaccountability on one individual andestablishing central control over its creditmanagement functions. There are threeprincipal options to consider:

• Appoint a Group Credit Manager andestablish a centre of excellence to providecredit management services to all BBCbusinesses. Given the BBC's devolvedstructure, we would envisage thisoperating along the lines of a sharedservice centre;

• Maintain a decentralised approach butestablish reporting lines to a Group CreditManager, with overall functionalresponsibility for credit management. Thisapproach would be unlikely to deliver thefull extent of potential cost savings as itwould not maximise economies of scale;and

• Focus responsibility for creditmanagement across the BBC on BBCWorldwide, the best performing business.

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2 Summary

We understand that this would need to beconducted within the BBC's Fair Tradingguidelines and Fair Trading advice should besought.

As an alternative, the BBC may wish toconsider outsourcing the collection of furtherelements of its receivables to a specialistthird party service provider. The potentialbenefits of this approach may combineimproved performance (in line with servicelevel targets) together with reductions inoperating costs in the longer term. Thiswould require a detailed cost benefit analysisto establish whether this approach is viable.

Credit policy

Whilst the BBC has credit policies at abusiness level, there is an opportunity to bothextend their scope (to cover the broadersales-to-cash process) and publish a mastercredit policy, providing an overall creditframework and ensuring consistency with theBBC's broader cash generation objectives.

Processes, work practices and technology

Implementing best practice creditmanagement consistently across the BBCwill help to maximise performance. The firststep would be to define best practice as itrelates to the BBC. Our experience hasshown that, within an organisation as diverseas the BBC, processes may need to beadapted to the needs and dynamics of itsvarious businesses.

A key element of standardising processes willinvolve an understanding of the extent towhich technology can be best leveraged.The Credica system, currently used by BBCWorldwide, provides evidence that suchtechnology can deliver tangible benefits.Accordingly, we consider that the BBC wouldderive considerable benefit from extendingthe use of such a system to BBC PublicService. Other future uses of technologycould include the use of e-mail collectionletters, automated credit risk score cards,

uploading third party customer information toSAP, electronic invoice presentation andpayment, and document imaging.

Sharing knowledge

We observed many good practices within theBBC and there is clearly a wealth ofknowledge and experience within the creditmanagement teams. These teams should beactively encouraged to share both theirknowledge of good practice but also thecredit intelligence that they gather oncustomers. We acknowledge that this wouldneed to take place subject to the BBC's FairTrading Guidelines.

Performance monitoring andmeasurement

As outlined in this report, there is aconsiderable opportunity to improveperformance. However, this is unlikely to beachieved unless the annual performanceobjectives (relating to businesses, teams andindividuals) reflect this potential. Theseobjectives should include monthly cashcollection and overdue debt targets.

Implementing a consistent set of keyperformance indicators across the BBCwould provide greater control and alsoenable comparison of performance acrossthe businesses.

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3 Introduction and background

3.1 Background for this value for moneystudy

The BBC's Royal Charter states that ensuringvalue for money is a core responsibility of theBBC Governors and that, for the BBC, thismeans:

• delivering services to clear standards(quality outputs);

• doing this in the most effective, economicand efficient means available (costeffective); and

• with continuous improvement in the wayin which functions are exercised.

In the context of the Communications Act2003, the Government and the BBC agreeda development in the BBC Governors'oversight of value for money studies toensure that there is sufficient scrutiny overLicence Fee expenditure. A key componentof the programme was the appointment ofexternal agencies, to include the NationalAudit Office ("NAO"), to undertake certaintopics identified for review. The keyobjectives of the studies are to reviewwhether the BBC is achieving best value forits Licence Fee payers. PwC was appointedin August 2004 to undertake a review of theBBC's credit management operations. Ourfieldwork was carried out during August andSeptember 2004.

The BBC has a strategic objective to improveits cash flow generation. This was evidencedby the BBC Governors' stated objective inthe 2003/04 annual report to:

"Continue to increase the amount of moneyavailable to spend on the BBC's publicservices by enhancing the efficiency andeffectiveness of the way the BBC operates."

In line with this, the aim of this review is to:

• evaluate whether the BBC is achievingbest value for Licence Fee payers from itscredit management and debt collectionprocess;

• benchmark the BBC's capabilities withexternal best practice;

• identify and scale opportunities forimprovement; and

• identify means to ensure continuousimprovement in the short and long term.

3.2 Placing credit management in thecontext of BBC's overall operations

The majority of the BBC's income comesfrom the Licence Fee, which in 2003/04generated £2,798 million (see Figure 1 onpage 2).

Whilst the Licence Fee represented 75% oftotal income, commercial activities, such asthe sale of BBC programmes andpublications and the leasing of productionfacilities, generated £908 million.

The BBC's primary function is public servicebroadcasting. It operates around the worldand has its main offices in White City andCentral London. They are augmented byoffices in other key locations, including NewYork for BBC Americas and regional capitalsin the UK.

BBC Public Service fulfils the corporation'sprimary purpose of public servicebroadcasting. In general, the BBC'scommercial activities are undertaken bywholly owned subsidiaries set up for thisspecific purpose, they include:

• BBC Worldwide ("BBC Worldwide"); • BBC World ("BBC World"); and• BBC Ventures ("BBC Ventures (BBC

Resources and BBC Broadcast)").

BBC Ventures consists of four businesses,BBC Resources ("BBC Resources"), BBCBroadcast ("BBC Broadcast"), BBCTechnology and BBC Vecta. At the time ofthe fieldwork for this review, the latter twowere in the process of being sold and,consequently, were not covered by thisreview.

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BBC Worldwide is the main commercial armof the BBC and, as such, it is responsible forselling a large proportion of the BBC'sproducts in the UK and around the world.BBC Worldwide is assisted in this in the UKby an outsourced credit management serviceprovider which is responsible for magazinesales, distribution and associated creditmanagement activities and an outsourceddistributor that produces and distributesaudio and visual media (e.g. CDs and DVDs).BBC Worldwide also has a significantbusiness, BBC Worldwide Americas ("BBCAmericas") based in New York, coveringsales in North America, Canada and SouthAmerica. It is supported by a creditmanagement service provider thatundertakes collections, in addition toadvertising and affiliate sales, and anoutsourced distributor that undertakes themanufacture and sale of videos and DVDs.

3.3 Credit management organisationwithin the BBC

Credit management teams across the BBCprovide advice on setting credit limits for newcustomers, review credit limits whererequired, pursue overdue debt, undertakequery management, to the extent that it isundertaken, and escalate old debt to thirdparty collection agencies. All of the creditteams produce reports for review bymanagement. The teams are organisedwithin BBC Worldwide (including BBC World),BBC Americas, BBC Ventures (BBCResources and BBC Broadcast) and BBCPublic Service and comprise 23.75 full timeequivalent (FTE) staff including 17 in BBCWorldwide (excluding BBC Americas).

BBC Worldwide has a further 12 FTE inAccounts Receivable. The AccountsReceivable function for the other divisions isprovided by a third party service provider.BBC Americas, part of BBC Worldwide, hasits own credit management team responsiblefor the USA, Canada and Latin America.BBC Ventures (BBC Resources and BBCBroadcast) has a credit managementdepartment of two, whilst BBC Public Servicehas a central credit management team of twoand part of an FTE in both Scotland and theSport International Unit.

BBC World Service is, effectively,independent of the other businesses from acredit management perspective, as a resultof its unique funding structure and remit. Itdoes not have a credit managementdepartment and uses other staff to undertakeany such work.


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The commercial divisions have the highestshare of total debt, due to the fact that theirincome is predominantly from credit sales.BBC Public Service debt only makes up asmall element, 8%, of total BBC receivables,its prime source of funding being the LicenceFee. The difference in funding between BBCPublic Service and the commercial divisionsinfluences their approach to creditmanagement.

Use of third party service providers

BBC Public Service and BBC Ventures (BBCResources and BBC Broadcast) haveengaged an outsourced service provider toobtain credit risk reports from third partycredit reference agencies, maintain customermaster data, undertake cash application and

despatch invoices, statements and dunningletters. BBC Worldwide undertakes thesetasks in-house.

Approximately 16% of BBC Worldwide'sreceivables relate either to an outsourceddistributor or credit management serviceprovider. Both are subject to formaldistribution / service levels agreements andare managed directly by the business. Asthey do not involve the BBC's creditmanagement teams, they have beenexcluded from the scope of this review. A similar situation exists for BBC Americaswhere 66% of its receivables relate tooutsourced service providers. We have,however, undertaken a desktop review ofrecent performance of the creditmanagement service providers.


The combined BBC accounts receivable ledger was an average of £116 million for the periods ofJune, July and August 2004.

Total debt £116mAverage for the period June to August 2004

Figure 3: Source BBC

BBC PublicService8%

BBCWorldwide89%

BBC Broadcast1%

BBC Resources2%

BBCVentures

BBC Worldwidein-house

creditmanagement

50%

Outsourceddistributorsand credit

managementservice providers

33%

BBCAmericas

6%

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3.4 Scope of review

As agreed with the BBC, the scope of thisreview covered the following business areas:

• Central credit management for BBCPublic Service - this included separateteams within 2 areas of BBC PublicService:• Sport International Unit; and• BBC Scotland;

• BBC World Service;• Outsourced provider supporting credit

management processes only; • BBC Worldwide (including BBC

Amercias);• BBC World; and• BBC Ventures: BBC Broadcast and

BBC Resources (excluding BBCTechnology and BBC Vecta).

It was agreed with BBC Management thatthe external service providers within BBCWorldwide and BBC Americas would not besubject to review. In addition, the sales ordermanagement and cash allocation processeswere deemed to be out of scope. Theoperational scope of the review is illustratedin Figure 4.

In summary, the following areas werespecifically not included within the scope ofthis review:

• collection of the Licence Fee;• outsourced distributors and credit

management service providers (otherthan a desktop review of recentperformance of the latter);

• transactions between BBC Divisionsand the commercial subsidiaries;

• the sales order management; and• cash allocation process.

Scope of credit management process reviewed

Figure 4

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This part of the review examines thestandards in place at the BBC in relation tocredit management. In particular, it covers:

• the nature and level of the standards inplace; and

• the consistency with which the standardsare applied.

4.1 A significant element of the BBCdelivers credit managementservices to clear and consistentpolicies

4.1.1 BBC Worldwide and BBCResources have well developedcredit policies and documentedprocesses

BBC Worldwide represents over 50% of theBBC's accounts receivable and has asignificant focus on credit management.

Our review established that both BBCWorldwide and BBC Resources operate toclear, visible and robust credit managementstandards. They have published creditpolicies comprising the areas that we wouldexpect to see. They also have documentedcredit and collection processes, whichcomplement the credit policies. We have notfound any evidence to suggest that the staffin BBC Worldwide or BBC Resources do notwork within the parameters set out in theirpolicies and process documentation.

4.1.2 Other businesses have anopportunity to better articulate theircredit policy and work practices.This will make them more clearlyaligned with the BBC's broaderobjective of improving cash flowgeneration

BBC Broadcast does not have the same levelof sophistication as BBC Worldwide andBBC Resources, relying on a much smallerscale of operation and the experience of itsCredit Managers, rather than a publishedcredit policy and set of processes.

BBC Public Service has published a verybrief credit policy document, lacking thedetail of that prepared by BBC Worldwide.Furthermore, whilst it has a set ofdocumented credit and collection processes,these are not in wide circulation and do nottend to reflect day-to-day working practices.

Currently, there are no credit policies ordocumented processes in place for BBCBroadcast or BBC World. However,management in both organisations didarticulate a clear vision of what a credit policyshould comprise.

4.1.3 The BBC does not have aconsistent credit managementpolicy framework across all of itsbusinesses

We noted from our review that no overallcredit management policy framework existsacross the organisation. Our experience hasshown that, even in the most diverse oforganisations, there is a need for a mastercorporate credit policy from which divisionalvariations can be derived. The result is aseries of interlinked polices that have sharedvalues and objectives and, consequently, areable to sustain a greater profile andconsistency within the organisation.

We would recommend that the BBC developsa common policy framework upon whichdivisional variations can be developed, whilstsharing a common strategy and objectives.

4.1.4 Service level agreements are inplace with the BBC's principaloutsourced distributors and creditmanagement service providers

The BBC has service level agreements inplace with its main third party distributors andcredit management service providers. Wefound that the service level agreements makeprovision for the services in question and theBBC regularly monitors performance againstagreed standards.

4The BBC has clear standards in a significant partof its credit management operations but they are notconsistent across the organisation

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4.2 Accountability and responsibility forcredit management differs frombusiness to business

4.2.1 The BBC has a devolved,decentralised approach to creditmanagement

Responsibility for credit management isdevolved to each of the main businesses.Whilst a decentralised approach can beeffective, it often means (as is the case withthe BBC) that no one Credit Manager hasoverall responsibility for the BBC's credit andcollections performance, organisation, policy,process or reporting. Our experience hasshown that some measure of centralcoordination and accountability helps world-class organisations to improve performance,provide greater visibility of key issues, shareknowledge, establish uniform policies andwork practices, provide economies of scaleand reduce costs. We recommend the BBCconsiders the following options:


• Maintain a decentralised approach butestablish reporting lines to a Group CreditManager, with overall functionalresponsibility for credit management. Thisapproach would, however, be unlikely todeliver the full extent of potential costsavings, as it would not maximiseeconomies of scale; and

• Given the relative performance of thedifferent businesses, the BBC may wishto consider the potential benefits ofplacing responsibility for all receivableswith BBC Worldwide.


As an alternative, the BBC may wish toconsider outsourcing the collection of furtherelements of its receivables to a specialistthird party service provider. The potentialbenefits of this approach may combineimproved performance (in line with servicelevel targets) together with reductions inoperating costs in the longer term. Thiswould require a detailed cost benefit analysisto establish whether this approach is viable.

In order to engender cooperation andassistance from each of the divisions insupport of implementing good creditmanagement practice, we recommend thatthe BBC also considers levying an internalcost of capital charge proportionate to thelevel of receivables outstanding.

4.2.2 BBC Worldwide (including BBCAmericas and BBC World), BBCResources and BBC Broadcasthave well defined organisationalstructures for credit management

The credit management operations in BBCWorldwide, including BBC Americas, aredriven by commercial imperative and stronglocal management. Receivables performancehas, therefore, a high priority. There is a clearunderstanding of the importance of promptpayment, reinforced by publishedprocedures, targets and management reviewof performance. Credit management has akey role to play in BBC Worldwide's sales-to-cash process and this was clearlyunderstood by those interviewed. This isparticularly important given the relative size ofthe organisation.

BBC Worldwide has a formal structure for itscredit management team comprising 17 staff(excluding Accounts Receivable), with clearlydefined responsibilities supported by asophisticated performance measurementprocess (see section 4.5.1). Each member ofstaff has a set of personal objectives and issubject to a regular performance appraisalprocess.


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Although BBC Worldwide's Finance Directoris ultimately accountable for creditmanagement, day-to-day responsibility isdelegated to an experienced Credit Manager.The Credit Manager, in turn, reports to theHead of Financial Accounting Services.

In BBC Americas, the Vice President Financeis accountable for credit management andhas a dedicated team of three staff.

BBC Ventures (BBC Resources and BBCBroadcast) has a small team of twoexperienced Credit Controllers, with clearaccountability, reporting to the Head ofPurchasing for BBC Resources.

4.2.3 The credit management structure inBBC Public Service is morecomplex and not as clear

Currently, BBC Public Service has adecentralised approach to creditmanagement with different lines ofaccountability.

For historical reasons only, Sport InternationalUnit and BBC Scotland each have staff withpart-time responsibility for creditmanagement. We do not consider that thereis benefit in maintaining a decentralisedapproach within BBC Public Service andrecommend that the BBC focusesresponsibility on one central team.

For the remainder of BBC Public Service asmall dedicated team, comprising a CreditManager and Credit Controller, wasappointed approximately two years ago. Ourreview highlighted that the role of this team isnot yet fully understood by all of its divisionalFinancial Controllers, as a number noted thatthey still undertook some collections activitiesthemselves because they were not awarethat a central credit management team hadthis responsibility.

The Credit Manager is in the process ofstaging a series of "road shows" for individualdivisions to introduce them to the principles

of good credit management and reinforce theavailability of specialist resource. At the timeof our review, a number of the FinancialControllers continued to take an active role inday-to-day credit and collection activities.We consider that there is an opportunity forthese divisions to delegate responsibility tothe specialist credit management team.

4.3 Credit risk management processesare in place in each business but incertain instances are not beingenforced

4.3.1 Credit management teams acrossthe BBC understand the need forcredit risk management

Processes for managing credit risk are inplace across the BBC, although the extent towhich these are fully documented is variable.

Credit management staff in BBC Worldwidehave been trained to assess the informationprovided to them from recognised third partycredit reference agencies and evaluate thelevel of credit risk. BBC Americas staff arealso trained to assess information providedvia third party agencies. In line with bestpractice, other information (including tradereferences) is also used by these teams todetermine customer credit limits. Otherareas of the BBC obtain similar third partyreports on potential new customers but tendto use the credit limits recommended by thecredit reference agency. This may lead to theadoption of inappropriately high or low limitsand could either restrict sales unnecessarilyor expose the BBC to a high credit risk.

4.3.2 There is scope to improve creditrisk management in BBC PublicService

We found that the BBC Public Servicedivisions do not often follow theirdocumented credit risk process until afterthey have provided goods or services to thecustomer. It is only at this point that thecredit management team receives a request


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to undertake the normal credit riskprocedure, thereby significantly devaluing itspurpose.

From our interviews, we understand thatthere are instances where BBC PublicService divisions raise both sales orders andinvoices at period end after the customer'spayment has been received. Furthermore,we found that BBC Public Service has nomeans of establishing the value of theservices performed but not yet invoiced. Weunderstand that uninvoiced amounts of thisnature could be substantial, resulting indelays in cash collection. Whilst we have notfound evidence of this risk materialising, theBBC should consider undertaking a review toquantify the impact of this and the need forchanges in operating procedures.

4.3.3 There is currently no mechanism toaggregate credit limits across theBBC

The BBC currently runs two separate SAPaccounting systems, one for BBC Worldwideand another for BBC Public Service, BBCWorld Service and BBC Ventures (BBCResources and BBC Broadcast).Accordingly, customer credit limits can onlybe aggregated for different accounts relatingto the same customer if they are held on thesame SAP system. In effect this means thatcross-BBC credit risk management is difficultto achieve and, as a result, the BBC doesnot currently set limits or monitor totalcustomer credit exposure for the wholecorporation. Similarly there is no efficientmeans of sharing information relating tocustomer payment problems.

This may leave the BBC open to bad debtlosses. However, we encountered noevidence that such losses have occurred todate.

4.3.4 In BBC Public Service, BBC WorldService and BBC Ventures (BBCResources and BBC Broadcast), the'credit hold' feature within SAPdoes not automatically stop ordersif a credit limit has been exceeded

Some BBC Public Service, BBC WorldService and BBC Ventures (BBC Resourcesand BBC Broadcast) customers are classifiedas "key" accounts within the SAP accountingsystem, whereas the remainder are flaggedas "standard", or non-key accounts. SAPtreats the two classes differently whenapplying credit limits. If a key customerexceeds its credit limit, the system providesonly a warning and will allow the order toprogress regardless. Alternatively, wherecredit limits are breached on standardaccounts, the Credit Manager mustspecifically 'release' the order for it toprogress. Whilst this is a standard feature ofthe SAP sales order processing module, iteffectively places responsibility for credit riskmanagement with the business rather thanthe credit management team. Werecommend that all breaches of credit limitsshould be referred to the Credit Managementfunction.

4.4 Target setting practices areinconsistent across the BBC

BBC Worldwide applies good practice andsets monthly cash collection targets for eachteam and, until recently, set targets for eachindividual. The use of individual targets hasnow been suspended to engender a moreteam focussed approach. Whilst we wouldnormally expect targets to be set at individuallevel, the effectiveness of the team basedtargeting, as now adopted, should beevaluated over a period of time. BBCWorldwide also sets annual overdue debttargets for teams, and each individual is setobjectives to improve the aged debt profilefor which they are responsible.


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BBC Ventures (BBC Resources and BBCBroadcast) does not set monthly cashcollection targets and, furthermore, does notmonitor the individual performance of theirtwo Credit Controllers. Likewise, BBC PublicService and BBC Americas do not setmonthly credit management targets. In2003, however, BBC Public Service did settargets for a specific debt reduction exercise,which coincided with a reduction in overduedebt. We consider that the absence ofmonthly targets in these areas hinders theBBC's aspiration to achieve continuousimprovement.

This lack of consistency means that theopportunity to share good practices that arealready present within parts of the BBC isbeing missed and makes comparison ofcredit management performance across theorganisation more difficult.

4.5 Whilst there is good creditmanagement reporting in place insome businesses, there is no BBC-wide consolidation or overview

4.5.1 BBC Worldwide (including BBCWorld) and BBC Resources publishgood quality management reports

Each month BBC Worldwide and BBCResources publish clear, one-page summary reports in respect of the previousperiod's performance. These reportscomprise a number of meaningful keyperformance indicators and are supported bymore detailed analysis. BBC Worldwide'sreporting capability is enhanced through itsuse of Credica, a specialist creditmanagement workflow and reportingapplication. This system provides a goodlevel of operational reporting, enabling theCredit Manager to monitor creditmanagement activity and make adjustmentsto daily priorities.

4.5.2 Reports prepared by otherbusinesses are not ascomprehensive

In contrast, the BBC Public Service report isnot as comprehensive and does not providea trend analysis or detailed set ofperformance measurements. Certaindivisions publish their own reports, typicallymonitoring the overdue debt profile andsetting out details of the largest slow payers.

Similarly, reports published by BBC Americasdo not provide a full analysis of overduereceivables (distinguishing only betweendebts under and over 90 days past due),thus limiting the value of the informationprovided. In its one-page report, issuedmonthly to BBC Worldwide, it lists the top 12debts and provides an aged ledger summaryfor the remainder. However, the lack ofmonitoring of the profile of debt less than 90days overdue presents an opportunity forimprovement.

We recommend that management reportsprepared by the businesses should includereference to at least the following keyperformance indicators:

• Percentages of each overdue age band inrelation to total accounts receivable;

• Percentage overdue, with historic trends;• Debtor Days, also known as Days Sales

Outstanding ("DSO") and Best PossibleDSO, with historic trends;

• Value and percentage of accountsreceivable in dispute, with historic trends;

• Value and percentage of disputes bydispute type;

• Cash collected against cash target; and• Value of unbilled revenue.


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4.5.3 The BBC businesses use differentkey performance indicators and thecalculations underpinning some ofthese in certain businesses areinconsistent and inaccurate

Each business uses a different set of keyperformance indicators. Furthermore, thesource data used for calculating BBCWorldwide's DSO measurement isinconsistent (with the other BBC businessesand external best practice), as accountsreceivable figures include VAT, whilst salesfigures do not. This results in DSO beinggenerally overstated and subject toanomalous fluctuations in response tosignificant changes in the proportion ofexport sales. In addition, BBC Worldwide'scalculation routinely overstates DSO by 30days. Whilst this does not prevent internaltrend analysis, it does preclude a validcomparison with external benchmarks. Weunderstand that BBC Worldwide has sincechanged its method of calculating DSO inline with best practice. We also found thatBBC Ventures (BBC Resources and BBCBroadcast) bases its DSO calculation oncalendar days, whereas the source datarelates to days within a BBC accountingperiod. Whilst the effect of this will vary, theconsequence is that the data is inaccuratelyreported.

4.5.4 BBC Public Service reports includereceivables for which the BBC isnot responsible and others that arenot true trade receivables

BBC Public Service receivables information,as reported via the Executive Committeereport, includes non-trade receivables in theform of property transactions. The reportalso includes data in relation to the BBCWorld Service Trust. These receivables arethe responsibility of the Trust, which is notpart of the BBC. The value of Trustreceivables accounted for approximately 24%of the total BBC Public Service ledger,distorting its performance. For purposes ofcomparison in this report, we have adjustedthe data provided to us by the BBC toremove receivables relating to either propertytransactions or the Trust.

4.5.5 The BBC does not publish anoverview report providing aconsolidated picture of creditmanagement performance acrossits different businesses

We found that there is no consolidatedreporting of receivables performance acrossthe various BBC businesses, leading to alack of visibility at top management level. Inorder to provide sufficient oversight of creditmanagement issues across all the BBC'sbusinesses, we recommend that a top-levelmanagement report is prepared andcirculated to senior management on amonthly basis.


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This section of the report examines whethercredit management at the BBC is undertakenin the most efficient, effective and economicmanner. It covers:• Whether its credit and collection

performance is effective;• How the BBC's credit management

operations compare with external bestpractice; and

• How the economies of the creditmanagement function compare with otherworld-class organisations.

5.1 Whilst the BBC's collectionsperformance is broadly in line withthe median for the UK Servicessector, there is still scope forimprovement

5.1.1 Of the £77 million of accountsreceivable managed internally, £21million was overdue

For the purposes of our review we havefocused only on trade receivables generatedfrom the BBC's core broadcasting andcommercial activities. We have, therefore,excluded balances relating to the BBC WorldService Trust and property transactions.

Accordingly, the BBC's average tradereceivables balance (excluding the BBCWorld Service Trust and property relatedtransactions) over the three months toAugust 2004 totalled £116 million.

We have also excluded balances relating tooutsourced service providers (which havebeen deemed out of scope) giving anadjusted total ledger balance of £77 million,of which, £21 million (or 28%) was overdue,with £5 million (or 7%) greater than 90 dayspast due.

5Current operations are reasonably effectivehowever there are significant opportunities for the BBCto further enhance the value for money derived from itscredit management operations

Total debt £116mAverage for the period June to August 2004


BBC PublicService8%

Debt managedby in-housecollection team£77m, 67%

BBC Broadcast1%

BBC Resources2%

BBCVentures

BBC Worldwide 50%

Outsourceddistributorsand credit

managementservice providers

33%

BBCAmericas

6%

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We have compared the BBC's performancewith recently collated external benchmarks1.The data provided to us related to a sampleof large UK based organisations operating inthe Services sector, including media,broadcasting and publishing businesses.

With overdues of 28% and over 90 day pastdues at 7%, the BBC's performance ranksbetween the sector median and the lowerquartile. In our experience, world-class creditmanagement teams (with a significantelement of overseas debt in their portfolio)maintain overdues at below 10% of totalaccounts receivable.

BBC Worldwide has the highest level ofreceivables but the lowest percentageoverdue

The chart below shows the overdueperformance of the BBC businesses that wereviewed.

Figure 6: Source Credit Management Research Centre

Upper quartile Median Lower quartile

Overdues as a % of total accounts receivable 13.0 22.0 38.7

Over 90 day overdues as a % of total accounts receivable 0.1 1.4 11.6

Overdue debt by businessAverage for the period June to August 2004


Note 1: Data provided by the Credit Management Research Centre at Leeds University Business School


0%

20%

40%

60%

80%

100%

10%

30%

50%

70%

90%

47%

9%6% 7%

28%

4%7%

24%

18%

39%

82%

28%

% Overdue % Over 90 days past due

Per

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BBC Ventures

ConsolidatedBBC BroadcastBBC ResourcesBBC AmericasBBC Worldwide & BBC World

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BBC Worldwide is the most significantbusiness in terms of annual sales and totalaccounts receivable. Furthermore, a materialelement of its receivables relates to overseascustomers. In our experience, not only arepayment terms for overseas accounts longer,but also payment is generally slower.Relative to total receivables of £58 million,overdues of £14 million accounted for 24%and balances greater than 90 day past duesrepresented 6%.

The aged debtor information provided by theBBC in relation to the outsourced creditmanagement service provider's collectionperformance does not allow a meaningfulanalysis of overdues. The average overduefigure for June 2004 to August 2004 was acredit balance and has been distorted by thefollowing factors:

• The aged debt reports do not correctlyclassify invoices that fall due on the lastday of the month as overdue; and

• The ledger comprises a significant valueof credit notes raised as a result of billingerrors or returned stock. Credit notes areclassified as overdue with immediateeffect and if left unmatched, significantlydistort the overall aged profile.

BBC Resources overdues have beendistorted by a £400,000 doubtful debt

On face value, 39% of the BBC Resourcesledger was overdue, with 28% more than 90days past due. However, these figures weredistorted by a large doubtful debt of£400,000. We understand an agreementhas been reached with this customer for thedebt to be paid in instalments. If the balancewere removed, BBC Resources overdueswould represent 27% of its total accountsreceivable.

BBC Broadcast overdues have also beendistorted

BBC Broadcast's absolute level of overduesis relatively low at £934,000, of which 82% isoverdue. On closer analysis, we found thatBBC Broadcast often invoices its customersup to 50% of the contract value in advance.These invoices are due immediately and are,therefore, classified as overdue as soon asthey are raised. In practice, customers takeat least seven days to make payment. This,in turn, impacts the BBC Broadcast overdueposition, which in recent months hasaveraged 82% of total accounts receivable.In this respect, although BBC Broadcastledger is relatively small, the BBC may wishto consider applying more realistic paymentterms to these invoices.

BBC Public Service has made goodprogress in reducing overdue balances,but still has significant scope forimproving its collections performance

Since early 2003, BBC Public Service hasmade progress in reducing its overduebalance. However, with overdues nowaveraging 47% of its total accountsreceivable (and over 90 day past dues at9%), there is still considerable scope forimprovement when compared to industrysector average.


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BBC Americas' recent collectionperformance is broadly in line with that ofBBC Worldwide

BBC Americas' recent overdues haveaveraged £1 million, representing 18% of itsaccounts receivable balance, with over 90day past dues at 7%.

The outsourced credit management serviceprovider for BBC Americas shows anaverage overdue debt position of £4 million(57%).

Overdue debt profileAverage for the period June to August 2004


Note 1: At the time of our review, a full aged debt profile was not available for BBC Americas. As a result, its consolidatedfigures are shown above


0

3

6

9

12

15

91 days plus61-90 days31-60 days0-30 days

BBC BroadcastBBC ResourcesBBC AmericasBBC Worldwide & BBC World

BBC Public Service BBC

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The BBC may wish to consider insourcingand outsourcing options

Given that BBC Worldwide performs betterthan the other businesses, the BBC maywish to consider giving it responsibility for allof the BBC's receivables.


Furthermore, the BBC should also consideroutsourcing the collection of further elementsof its receivables to a third party serviceprovider specialising in this area. This wouldrequire a detailed cost-benefit analysis todetermine whether this approach is viable.

5.1.2 Collections Effectiveness Indexsuggests an opportunity to improve

The BBC's Collections Effectiveness Index(CEI), across all its businesses, for the 3

months to August 2004 has averaged 74%.Essentially, CEI assesses the proportion ofaccounts receivable collected in any oneperiod as a percentage of the receivablesavailable for collection (i.e. due for payment).The closer the CEI score is to 100% thebetter.

Comparing the BBC's CEI score withbenchmarks for the UK Services sectordemonstrates that all businesses areoperating above the median level but belowthe upper quartile (See Figures 9 and 10).

BBC Public Service and BBC Broadcasthave higher than expected CEI values whenconsidered in conjunction with their overduedebt. This suggests that a high value of debtis collected prior to due date. This is due toprepayments for BBC Broadcast andinvoices being raised when cash is received,as part of normal trading, for elements ofBBC Public Service.


Upper quartile Median Lower quartile

Collections Effectiveness Index 93.4 70.8 49.1

0

20

40

60

80

100


BBC Public Service

CE

I % (m

ax 1

00%

)

BBC Ventures

85

65

54

59

66

74

Upper

Median

Lower

Figure 9: Source Credit Management Research Centre

Collections Effectiveness Index by businessAverage for the period June to August 2004


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5.1.3 The combined bad debt positionacross all BBC businessesrepresented a net write back of £0.9million

During the financial year 2003/04, the BBCwrote back £0.9 million against bad debtsincurred. This included a sum of £3.4 millionrecovered by BBC Worldwide in relation todebts previously provided for. Excluding thisrecovery, consolidated bad debts for the yeartotalled £2.7 million, representing 0.6% ofsales and recharged costs (both includingVAT). Given the scale of the BBC Worldwidewrite back, we do not consider that acomparison with the UK Service Sectorbenchmarks is meaningful in relation to theBBC as a whole. However, BBC PublicService incurred write-offs exceeding 0.6% ofsales and recharged costs (both includingVAT) which is well in excess of the sectormedian of 0.1%. This raises concerns inrelation to the robustness of its credit riskprocesses.


-0.4%

-0.2%

0.0%

0.2%

0.4%

0.6%

0.8%


BBC Public Service

Per

cent

age

of s

ales

and

rec

harg

ed c

osts

BBC Ventures

0.62%

-0.33%

-0.46%

0.08%

-0.18%

0.00%

Bad debt as a percentage of sales and recharged costsFor the year 2003/04


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5.2 There is an opportunity to improveoverdue debt performance in therange of £7 million to £15 million

If the BBC was to implement therecommendations set out in this report, itwould be well placed to realise a significantopportunity to improve collectionseffectiveness. If overdues were reduced tothe equivalent of 20% of total accountsreceivable (2 percentage points better thanthe sector median), the BBC would generateapproximately £7 million of additional cashreceipts. Moreover, if overdues were to bereduced to 10% (in line with best practice),some £15 million could be released. This isexplained more fully in section 6.2.

5.3 Central control of creditmanagement would further improveperformance and could help toreduce the overall cost of theservice

The BBC has four main dedicated creditmanagement teams with a combinedoperating budget for Financial Year 2004-5 of£920,000. This represents approximately0.18% of the value of sales invoices handledby these teams. This falls between themedian and the best performers in the UKservices sector.

Of the total budget, salary related costsaccount for 90%, the remainder comprisinggeneral office costs and a contribution tocentral overheads.

The credit management teams collectivelyemploy a total of 23.75 FTEs managingapproximately 7,000 active customeraccounts. This represents a ratio of 1 CreditController for every 294 accounts.

An analysis of active accounts per FTE withineach of the main credit management teamsis set out below:


Accounts per Credit ControllerAt August 2004


BBC Ventures(BBC Resources

BBC Public BBC Worldwide BBC and BBC£’000 Service & BBC World Americas Broadcast) Total

Salary costs 89.6 588.2 86.3 65.5 829.6

Office costs 15.1 43.2 22.3 9.7 90.3

Total budget 104.7 631.4 108.6 75.2 919.9


0

50

100

150

200

250

300

350

Consolidated

Upper

Median

Lower

235

324

232

180

294

BBC VenturesBBC AmericasBBC WorldwideBBC Public Service

Num

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We have compared the workload of theBBC's credit management teams with recentbenchmarks relating to a sample of large UKbased Service organisations. These indicatethat, whilst the BBC is operating moreeconomically than the sector median, it stillhas scope to improve.

For example, the benchmarking studyhighlights that the credit management teamsof the top 25% of respondents handle over350 active accounts per FTE. Thisrepresents some 19% more than BBC CreditControllers.

An analysis of the different creditmanagement teams shows that BBCWorldwide are operating closest to the upperquartile (i.e. the best performers), while BBCVentures (BBC Resources and BBCBroadcast) are operating nearer to the Sectormedian of 175 accounts per CreditController.

BBC Worldwide Credit Controllers eachhandle an average of 324 accounts with anannual throughput of over 3,300 invoices.We consider that this team's workload issignificantly enhanced through the use of theCredica workflow system. This application isdesigned to prioritise collection and querymanagement activity and, therefore, assist tomaximise staff productivity. In implementingthe system, BBC Worldwide has alreadymanaged to release 1 FTE and increase thenumber of accounts that receive regulartelephone contact.

The BBC Ventures (BBC Resources and BBCBroadcast) Credit Controllers each manage180 accounts and an annual volume ofapproximately 1,700 invoices. The creditmanagement cost per sales invoice at £22 isover twice that in BBC Worldwide. Of thetotal number of customer accounts managedby BBC Ventures (BBC Resources and BBCBroadcast), 165 relate to BBC Technologyand BBC Vecta. These businesses were inthe process of being sold, leaving the 2Credit Controllers with only 195 accounts; aratio of 1 Credit Controller to 98 accounts.

Whilst we recognise that the number andcomplexity of transactions handled by eachCredit Controller are also important factors inassessing overall workload, in the long term,we consider that a reduction in head count ofbetween 3 to 4 staff is achievable byattaining a ratio in excess of 1 CreditController for every 350 accounts. This wouldequate to an annual cost saving ofapproximately £116,000 to £155,000 (basedupon an average staff cost of £38,700 perannum). However, we believe that reducingheadcount prematurely would compromisethe BBC's ability to deliver the potentialperformance improvements, noted in section5.2. However, the benchmarks suggest thatthe BBC should give strong consideration tostructural change in order to improve boththe effectiveness and economy of its creditmanagement operations.

Again, we understand that any proposedapproach for refocusing operationalaccountability for credit management wouldneed to be conducted within the BBC's FairTrading guidelines and Fair Trading adviceshould be sought.


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5.4 Whilst good in parts of the BBC,there remain opportunities toimprove existing credit policies

The existing credit policies in certainbusinesses, BBC Worldwide and BBCResources in particular, are clear andrelatively comprehensive. However, thepolicies we reviewed are restricted to theprocess elements that are directly related tocredit management. Our experience hasshown that a credit policy should encompassall areas within the revenue managementprocess. We would expect a comprehensivecredit policy to address a broad range ofareas as set out in Figure 14. This table notonly highlights the specific areas we wouldexpect to see, but also summarises theextent to which the BBC has embraced eachone.


Subject Covered Comment in relation to the BBC

New account set up Largely compatible; not specifying data to be captured Key

Terms and conditions of Existed in Resources policy but did not sale/contracts cover payment terms Exists

Credit assessment Present in each existing policyPartially exists

Credit lines and ongoing Present in each existing policyrisk management Does not exist

Billing triggers Not specified in credit policy

Billing responsibilities and Not specified in credit policystandards

Customer classification Resources classify key accounts

Collection approach/ Not specified in credit policystrategy

Query management Credit notes are covered but not Queryincluding credit notes management

Debt escalation, including Largely in place; requires clarity by categorysanctions and litigation of debt (debt is not currently categorised)

Cash posting and matching Not specified in credit policy

Unidentified and Not specified in credit policyunmatched cash

Debt write off Included in Resources policy to a degree

Management reporting/ Partially covered in all policiesreview

Figure 14: Source PricewaterhouseCoopers LLP

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5.5 Standardising processes based onbest practice, demonstrated in partby BBC Worldwide, will help todrive performance improvementacross the corporation

The BBC's credit management structure isdevolved and, therefore, processes vary frombusiness to business. Whilst the businessesare different in nature, it does not follow thatthey could not adopt a standard "BBC bestpractice" set of credit processes. There will,undoubtedly, be a need for some low levelvariation but this should only be byexception. This will provide two majorbenefits:

• those processes that are inconsistent withbest practice will be improved; and

• common processes will open up thepotential for more shared working, makinga transition to one shared centre ofexcellence easier, if desired.

We understand that care would need to betaken (and Fair Trading advice sought) withregard to the sharing of best practice andcredit information or data from the publicservice to the subsidiaries.

5.5.1 Customer information could be putto better use

Customer data could be shared moreeffectively across the BBC, subject toworking within the BBC's Fair Tradingguidelines. We found a risk that, where onebusiness might experience difficulties with aparticular customer, the remainder of theBBC could be unaware of the issue. Bettercommunication and developing jointstrategies to deal with difficult or high-riskcustomers should reduce the risk in grantingcredit and increase the effectiveness ofcollections.

In addition, improved communicationsbetween Payables and Receivables functionswould facilitate more effective 'netting'between a customer and supplier accountrelating to the same legal entity. Weunderstand that this may not be possible insome cases for contractual reasons.

In our review of BBC Public Service, weencountered instances of accountinformation being held in spreadsheets andnot in SAP. This information is not visible tothe remainder of BBC Public Service (orother parts of the BBC) and will be morevulnerable to loss.

5.5.2 A significant proportion of BBCdebt is managed in line with goodpractices which should be sharedwith the remainder of theorganisation

The BBC demonstrates good practice inprocess management in BBC Worldwide(including BBC World), where the processesare well documented and followed by staff.Although BBC Ventures (BBC Resources andBBC Broadcast) employs knowledgeableCredit Managers who have comparativelysmall workloads, its processes are notdocumented. This presents less of apractical issue, given their experience and thescale of the business. BBC Public Servicedoes not benefit from its staff following welldocumented processes and this presents anotable opportunity for improvement. Thecomplexity of its structure combined with theabsence of a single approach to creditmanagement, provides BBC Public Servicewith a real opportunity to improveperformance. To this end, it should considerwhich of the good practices already exhibitedin BBC Worldwide it might seek to adopt.


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In accordance with best practice, both BBCWorldwide and BBC Ventures (BBCResources and BBC Broadcast) telephonemajor value customers before invoices falldue to ensure that there are no disputes andthat payments will be processed on time (seeFigure 15). In contrast, BBC Americas does

not follow the same practice but doescontact customers in the first overdue month,whereas BBC Public Service tends to callcustomers once invoices have becomeoverdue with the focus on collecting theoldest debt first.

5.5.3 Developing a common communityof credit management staff wouldhelp share good practice

Bringing together the credit managementpractitioners across the BBC would promoteknowledge exchange and could be used toidentify better ways of working to improvecollections effectiveness. Currently, only theBBC Worldwide team holds regular meetingswith members of the sales organisation.

We did not find evidence of regular contactbetween the credit teams in the different

businesses. Bringing the credit teamstogether will allow the sharing of specificcustomer information, discussions aroundimproving working practices and any relevantchanges in legislation. It could also smooththe integration of shared standards andworking practices across the BBC.

Again, we understand that care would needto be taken (and Fair Trading advice sought)with regard to the sharing of best practiceand credit information/data from the publicservice to the subsidiaries.


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Figure 15: PricewaterhouseCoopers LLP

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5.6 BBC Worldwide demonstrates goodpractice by using a purpose builtworkflow management system toensure that collections and querymanagement adhere to predefinedstandards

5.6.1 BBC Worldwide uses specialistcredit management software tomake processes more efficient,similar technology could be utilisedin other parts of the BBC

BBC Worldwide is assisted in adhering tobest practice by their use of a specialistcredit management workflow application,Credica. This application provides anautomated workflow for credit managementteams. It produces diarised call lists andallows the storage of key information such aspayment plans and other collection notes.

The system allows bespoke collectionsstrategies to be adopted, providesautomated workflow, prioritised collectorwork queues, standard reports and robustquery management. In using the system,BBC Worldwide provides a workingenvironment within which Credit Controllersare:

• guided through standard processes veryefficiently; and

• able to record information for use inspecific management reports.

BBC Americas, which is part of BBCWorldwide, had not implemented Credica atthe time of our review, but plans to do so in2005. Other parts of the BBC do notcurrently have the benefit of automatedworkflow, placing greater reliance onindividuals following published processes.

5.6.2 BBC Worldwide is the only elementof the BBC to have a clear querymanagement process

By adopting Credica, BBC Worldwide has asystem driven process for the efficientmanagement of queries. BBC Ventures(BBC Resources and BBC Broadcast) hasvery few queries, making the introduction of aformal process less relevant. Whilst BBCPublic Service started to flag queries withinSAP in July 2004, this only allows visibility ofinvoices in dispute at the point of reporting.Once queries are resolved, the query flag isremoved, resulting in an inability to identifyinvoices that were in query at any point in thepast. In addition to this, BBC Public Servicedoes not have the ability to classify querieswithin SAP and has no other system basedmeans of doing so. As a result, weunderstand that it cannot report on theunderlying causes of invoice disputes.

5.6.3 The BBC's credit managementoperation would benefit from betterleveraging technology

Other than extending the implementation ofthe Credica system, there are furtheropportunities for the BBC to use technologyto enhance the effectiveness and efficiency oftheir credit and collection processes. Whilstcost justification will be necessary, the BBCshould consider the following:

• automated data uploads of customerinformation from credit referenceagencies;

• adopting a scorecard system for creditrisk management;

• electronic invoicing and payment systems;and

• use of e-mail dunning.


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This part of the review examines the extent towhich credit management performance at theBBC has improved over time and theprospect for continued improvement in thefuture. It covers:

• an analysis of performance over time andemerging trends; and

• capacity for improvement and the BBC'splans in this respect.

6.1 The BBC has made significantreductions in overdue debt sinceJuly 2002

We have reviewed the trend in overdues foreach of the businesses. The graph belowillustrates the combined performance sinceJuly 2002 of all the businesses, except BBCAmericas. As BBC Americas was only ableto provide meaningful data from February2004, we have analysed this separately.

As a general trend, overdue debt (excludingBBC Americas) has been reduced byapproximately £15 million since July 2002,representing a 48% improvement.

Notwithstanding this, Figure 16 shows thatoverdue debt peaked at over £43 million inJanuary 2003 and represented 48% of totaldebt. 12% was more than 90 days pastdue.

Since then, performance has steadilyimproved to the £17 million achieved inAugust 2004. Of this, 8% was more than 90days past due. This was a direct result ofthe BBC having established specialist creditmanagement operations in all thebusinesses, however, we consider that thereis still further opportunity to improve byachieving best practice performance levels inall areas.

Figure 16 also shows that although there hasbeen a general trend of improvement,performance during 2004 has beeninconsistent, with significant peaks in overduedebt in January and May 2004. Performancehas tended to be best around the financialyear-end. These movements are moreclearly explained by examining theperformance of each division.

6The BBC has demonstrated continuous improvementover the past two years, however this trend will bedifficult to maintain without a step change in workingpractices and targets

Consolidated overdue debt profile excluding BBC AmericasJuly 2002 to August 2004


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BBC Worldwide has the most significantimpact on the consolidated aged debt profilegiven its relative size. As can be seen fromFigure 17, its aged debt profile is very closeto that of the consolidated position and anoverall trend of continuous improvement hasbeen evident over the last two years.

The peaks in January and May coincidedwith trade fairs that resulted in high values ofsales and invoice queries. The period ofimproved performance between Februaryand April 2004 reflected a focus on year-endcash collection.


BBC Worldwide overdue debt profileJune 2002 to August 2004


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BBC Public Service (including BBC World Service) aged debt profileJuly 2002 to August 2004


BBC Public Service (including BBC WorldService) shows a significant improvement inoverdue debt during the last two years,reducing from around 58% overdue in July2002 to 34% in August 2004. During thesame period, over 90 day past dues havebeen reduced to around 11% of debt. Most

of the improvement was delivered during2003 and coincided with an increased focuson collections within BBC Public Service. Atthis time, additional staff were allocated tocredit control but have since beenredeployed elsewhere.

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On face value, the profile for BBC Resourcesshows a deteriorating trend over the last twoyears (see Figure 19). However, this positionhas been significantly distorted by twosizeable doubtful debts (totalling £0.6 million).

These balances have accounted for most ofthe over 90 day past dues since the middleof 2003. Taking this into account, theunderlying trend demonstrates animprovement in overdues.


BBC Resources overdue debt profileJune 2002 to August 2004


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The BBC Americas' data provided to us forearlier months was incomplete, resulting insignificant credit balances, therefore we haveexcluded all data prior to February 2004

During the remainder of 2004, BBC Americashas reduced overdue debt from £2.1m (27%)to £0.3m (4%), an 87% improvement.

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BBC Broadcast is a relatively newcommercial business. Consequently,overdues have increased as revenue hasrisen. As detailed in Section 5 of this report,BBC Broadcast often invoices for substantial

advance payments on immediate paymentterms. Given that these invoices becomedue immediately, overdues are distortedaccordingly.

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6.2 Continuing to improve BBCperformance in credit managementto levels in line with the bestcommercial organisations couldreduce overdue debt by a further £7million to £15 million

External benchmarks demonstrate that theUK Services sector median for overdue debtas a percentage of total accounts receivableis 22%. Our own experience of working withworld-class organisations has found that thebest performing organisations operate at10% or below. If the BBC was to reduce itsoverdues to 20%, it would release cash ofapproximately £7 million.

Figure 23 shows the relative contribution thateach part of the BBC could make towardsthe realisation of this opportunity. To achievean overdue debt position of 20% across theBBC, BBC Public Service presents the singlelargest opportunity. This is due to its relativesize and the extent of its existing overdueposition.

Despite BBC Worldwide's relatively goodperformance, achieving the 10% objectivewould be highly dependent upon it achievingfurther improvement. Furthermore, thecontribution from BBC Public Service andBBC Americas will also be important.


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6.3 Continued performanceimprovement will require the BBC toset significantly more ambitioustargets

BBC Worldwide's performance target impliesa planned increase in overdue debt(excluding BBC World) from £5.3 million(achieved at year-end 2003/04) to £6 millionat the end of this financial year. Last year'sperformance equated to 9% of total BBCWorldwide debt and was considered to beexceptional. No targets have been set forBBC World.

BBC Public Service and BBC Resourcestargets have been designed to maintain theperformance achieved last year. For BBCResources this is a DSO target of 50 daysand is approximately equivalent to anoverdue debt level of 40%. Given asignificant distortion caused by a doubtfuldebt, basing a target on the year-endposition would effectively represent a planneddeterioration in performance.

In summary, based on current performancetargets, the overall position will deteriorate.


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7.1 Structure and accountability

The BBC is most likely to realise the availablebenefits by refocusing operationalaccountability on one individual andestablishing central control over its creditmanagement functions. There are threeprincipal options to consider:


• Maintain a decentralised approach butestablish reporting lines to a Group CreditManager, with overall functionalresponsibility for credit management. Thisapproach would, however, be unlikely todeliver the full extent of potential costsavings, as it would not maximiseeconomies of scale; and

• Given the relative performance of thedifferent businesses, the BBC may wishto consider the potential benefits ofplacing responsibility for all receivableswith BBC Worldwide.

As mentioned, we understand that this wouldneed to be conducted within the BBC's FairTrading guidelines and Fair Trading adviceshould be sought.

As an alternative, the BBC may wish toconsider outsourcing some or all of itsreceivables to specialist third party serviceproviders. The potential benefits of thisapproach may combine improvedperformance (in line with service level targets)together with reductions in operating costs inthe longer term. This would require adetailed cost benefit analysis to establishwhether this approach is viable.

In order to engender cooperation andassistance from each of the divisions insupport of implementing good credit management practice, we recommend thatthe BBC considers levying an internal cost ofcapital charge proportionate to the level ofreceivables outstanding.

7.2 Credit policy

Whilst the BBC has credit policies at abusiness level, there is an opportunity to bothextend their scope (to cover the broadersales-to-cash process) and publish a mastercredit policy, providing an overall creditframework and ensuring consistency with theBBC's broader cash management objectives.

7.3 Processes, work practices andtechnology

Implementing best practice creditmanagement consistently across the BBCwill help to maximise performance. The firststep would be to define best practice as itrelates to the BBC. Our experience hasshown that, within an organisation as diverseas the BBC, processes may need to beadapted to the needs and dynamics of itsvarious businesses.

A key element of standardising processes willinvolve an understanding of the extent towhich technology can be best leveraged.The Credica system, currently used by BBCWorldwide, provides evidence that suchtechnology can deliver tangible benefits.Accordingly, we consider that the BBC wouldderive considerable benefit from extendingthe use of such a system to BBC PublicService. Other future uses of technologywould include the use of e-mail collectionletters, automated credit risk score cards,uploading 3rd party customer information toSAP, electronic invoice presentation andpayment, and document imaging.

7 Recommendations

This section summarises the available opportunities for improvement,highlights options for change and sets out our recommendations

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Credit risk assessment should be undertaken(and credit limits established) beforecustomer accounts are opened and salescompleted. Where new sales orders arereceived from customers with overdueaccounts, these should be referred to creditmanagement prior to release. In this waypayment can be obtained before furthercredit is extended. Where customers haveaccounts with more than one of the BBC'sbusinesses, credit limits should be set andmonitored on an aggregated basis. Inaddition to this, all breaches of existing creditlimits should be referred to the creditmanagement function.

The good practice within BBC Worldwideand BBC Ventures (BBC Resources andBBC Broadcast) of contacting major valueaccounts by telephone before the invoice duedate should be adopted across the BBC.Customers should be contactedapproximately two weeks prior to the duedate in order to establish that invoices havebeen received, authorised and allocated to apayment run before the due date.

Robust query management processes arenecessary in all the BBC's business toensure that invoice disputes are addressedpromptly and that their underlying causes areidentified and eliminated. Use of a creditmanagement workflow system across theBBC, such as Credica, would also providethe control and reporting mechanismrequired to manage this process effectively.

7.4 Sharing knowledge

We observed many good practices within theBBC and there is clearly a wealth ofknowledge and experience within the creditmanagement teams. These teams should beactively encouraged to share both theirknowledge of good practice but also thecredit intelligence that they gather oncustomers. We acknowledge that this wouldneed to take place within the prevailingguidelines and policies in relation to FairTrading.

7.5 Performance monitoring andmeasurement

As outlined in this report, there is aconsiderable opportunity to improveperformance. However, this is unlikely to beachieved unless the annual performanceobjectives (relating to business, teams andindividuals) reflect this potential. Theseobjectives should include monthly cashcollection and overdue debt targets.

Implementing a consistent set of keyperformance indicators across the BBCwould provide greater control and alsoenable comparison of performance acrossthe businesses. A core set of keyperformance indicators could include thefollowing:

• Days Sales Outstanding against BestPossible Days Sales Outstanding;

• Percentage of debt that is overdue forpayment;Percentage of debt that is more than 90days overdue for payment;

• Number and value of queries raised,resolved and outstanding; and

• Cash collections achieved against target.

Similarly, period-end reports prepared byeach business could be standardised arounda core set of performance measurements.Furthermore, a BBC-wide report could bepublished, providing an overview ofperformance and key issues to top-levelmanagement.

7 Recommendations

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METHODOLOGY

• We designed this study to answer threequestions about credit managementservices at the BBC. Are those servicesdelivered:

• 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'sReceivables Management Group (RMG)conducted the fieldwork and analysis forthis report. RMG are one of the UK'slargest credit management practices andthey compared BBC performance with:

• benchmarking data sourced from theCredit Management Research Centre,University of Leeds (www.cmrc.co.uk);and

• selected private sector clients.

Collection of information, data analysisand comparison

• To assess the performance of variouscredit management services we collecteddata from a range of BBC staff andsystems. This data included:

• documentation of servicestandards/policies;

• process and performancemanagement documentation;

• agreements with third party serviceproviders;

• financial data regarding debtmanagement; and

• structural data about the organisationof credit management within the BBC.

• We reviewed the credit managementstrategy in line with our understanding ofthe BBC's overall cash generationobjectives to identify any gaps anddetermine the impact on creditmanagement and the business as awhole.

• Process and performance managementdocumentation was supplemented withour fieldwork visits, see below. We usedthis information to assess management ofcredit risk, robustness of the performancemanagement regime and the efficiency ofBBC credit management. This includedconsideration of how the BBC usestechnology to support credit managementservices.

• To assess financial performance weanalysed trends in volume and value ofdebt and the age of debts. Relativeperformance was assessed bycomparison with a sample of UK servicecompanies.

• We used structural information providedby the BBC to determine the cost ofcredit management services and makecomparisons about their relative efficiency.We also assessed attitudes to creditmanagement across parts of the BBCand their possible impact upon creditperformance.

8 Appendix

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Fieldwork visits

• We visited credit management staff, andin some cases divisional FinancialControllers, across the following:

• BBC Worldwide including BBCAmericas and BBC Canada;

• BBC World; • BBC Ventures (BBC Resources and

BBC Broadcast);• BBC Public Service areas, including

BBC World Service, SportInternational Unit, BBC Scotland, BBCWorld Service, Property, Rights andBusiness Affairs and Radio and Music.We conducted telephone interviewswith BBC Nations and Regions, BBCWales; and

• The credit management processes ofthe outsourced provider providing theBBC with certain financial accounting,administrative and informationservices.

Stakeholder consultation, validation ofbest practices and emerging findings

• We took meeting notes and validatedthem;

• We sent feedback questionnaires toFinancial Controllers across the BBCasking for their comments on theprovision of credit management services.The information gathered was used in thepreparation of this report;

• At the mid-point of this review inSeptember 2004 we held a workshopwith representatives from across the BBCto consider:

• our definitions of best practices incredit management;

• emerging findings from our fieldwork;and

• Following the above workshop, wemet individuals and validated facts andfindings.

8 Appendix

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GLOSSARY

Account (or customer account)A tabulation of transactions relating to sales(including invoices, credit notes and cashreceipts) made to a specific customer.

Accounts receivableAmounts owed to an organisation. Alsoreferred to as receivables or debts.

Accounts receivable ledgerA set of accounts keeping track of debts duefrom customers. Also known as sales ledger.

Collection Effectiveness Index (CEI)Expresses the effectiveness of anorganisation's collection efforts over time. Iteffectively measures the cash collected as apercentage of the debt that is due andavailable for payment. The closer the sum isto 100%, the more effective the collectioneffort.

Best practicesBusiness processes and work methodstypical of those adopted by the mosteffective, efficient and economicorganisations in relation to creditmanagement.

CredicaAn electronic application, designed anddistributed by Credica Limited, to manageand monitor certain credit managementprocesses.

Credit ControllerA relatively junior member of staff withresponsibility for analysing credit risk,collecting cash from customers, investigatinginvoice queries and / or other administrativeduties in relation to credit management.

Credit limitThe maximum value of outstanding debt anorganisation is willing to extend to acustomer at any one time.

Y

Credit ManagerA manager with day-to-day responsibility forcredit management.

Credit managementThe management of trade receivables andthe credit extended to an organisation'scustomers.

Credit management service providersExternal organisations providing creditmanagement services to the BBC, in additionto sales and distribution.

Credit policyA statement outlining an organisation's creditmanagement objectives together with theactions to be taken in relation to credit riskmanagement, invoicing, collections, querymanagement, accounts receivablemaintenance and management reporting.

Days Sales Outstanding (DSO)A calculation that expresses, in days, thevalue of outstanding accounts receivable interms of the most recent days' sales. It is anindication of the average number of days ittakes an organisation to obtain payment fromits customers. Also known as debtor days.

DebtAmounts owed to an organisation. Alsoreferred to as receivables or accountsreceivable.

Debtor daysA calculation that expresses, in days, thevalue of outstanding accounts receivable interms of the most recent days' sales. It is anindication of the average number of days ittakes an organisation to obtain payment fromits customers. Also known as Days SalesOutstanding or DSO.

8 Appendix

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Dunning letterA letter reminding a customer that their debtis overdue and should be paid immediately.Dunning letters are normally issued as part ofa series of letters of escalating severity,typically ending with a letter threatening legalaction.

Fair TradingThe BBC's Fair Trading Guidelines (formerlyknow as the BBC's Commercial PolicyGuidelines) provide a detailed operationalframework which build on the BBC's FairTrading Commitment. The Guidelines aredesigned to ensure that the BBC'scommercial activities support its publicpurpose, that it trades fairly and lives up tohigh standards. The Fair TradingCommitment refers to the Governors'undertaking that the BBC's commercialactivities must have the values of quality andintegrity, which characterise its wider work.

Key performance indicatorsQuantifiable measurements that are used toassess an organisation's performance.

OverduesAmounts owed by customers that areoverdue for payment.

Old debtDebt owed to an organisation by itscustomers that has been overdue for severalmonths.

Overdue percentage (%)The proportion of (trade) receivables that areoverdue for payment. The closer the sum isto zero, the more effective the collectioneffort.

NettingThe process of setting customer debtsagainst payments owed to them as suppliers,by agreement.

Outsourced distributorsExternal organisations providing distributionchannels for the BBC, buying goods from theBBC and reselling them.

Query managementThe investigation and resolution of queriesand disputes in relation to its sales invoices,as raised by an organisation's customers.

ReceivablesAmounts owed to an organisation. Alsoreferred to as accounts receivable or debts.

Sales ledgerA set of accounts keeping track of debts duefrom customers. Also known as accountsreceivable ledger.

Sales to cashA term applied to the process encompassingsetting up a new customer and credit risk,through order capture and fulfilment toinvoicing and cash collection.

SAPA financial ledger and managementinformation system (sometime known as anEnterprise Resource Planning or ERP system)designed by SAP AG of Germany.

Trade receivablesAmounts owed to an organisation by itscustomers in relation to the sales of goodsand services.

WorkflowInformation technology that uses electronicsystems to manage and monitor businessprocesses. It allows the flow of workbetween individuals and/or departments tobe defined and tracked.

8 Appendix

© 2004 PricewaterhouseCoopers LLP. All rights reserved. “PricewaterhouseCoopers” refers to PricewaterhouseCoopers LLP (a limited liability partnership in the United Kingdom) or, as the context requires, othermember firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. Design: DPU0500618(05/05).

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Credit management operationsPricewaterhouseCoopers LLP review presented to the BBC Governors’ Audit Committee,March 2005, and a response to the review from the BBC

British Broadcasting CorporationBroadcasting HouseLondon W1A 1AA

This report is available online atbbcgovernors.co.uk

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