Published: October 01, 2012
As a result of a largely cash-driven payments culture in Poland, Grupa Žywiec collects around half of its revenues in cash, with thousands of customers across Poland. As cash collection can often be expensive and subject to a variety of risks, it was very important for Grupa Žywiec that it had an efficient, cost-effective and risk averse means of collecting, posting and reconciling cash. This article outlines how the company embarked on this transformation and the outcomes it has achieved so far.
Grupa Žywiec is part of the Heineken group, and represents the group’s business in Poland. Of the 30 beers we offer on the market, the most famous brand that we produce is ‘Žywiec’ which is one of the leading premium brands of beer in the country. We also sell a number of other alcoholic and soft drinks brands. We are one of Poland’s largest employers, with around 5,000 staff across the country. We have five breweries, with a unique sales and distribution model in our industry. Instead of selling our products only to wholesalers, which is typically the model adopted by our competitors, we have four sales channels:
i) Modern trade (sales to a limited number of very large companies)
ii) Wholesalers (around 700 customers)
iii) Retailers
iv) Catering outlets (hotels, restaurants, cafes)
We sell our products to around 60,000 retail and catering customers across Poland, from small shops to large stores. There are a variety of reasons why we have adopted this distribution model. For example, we are able to maintain a closer relationship with our customers than we could do through a reseller model. In addition, rather than channelling our business through a few wholesale partners, which could create substantial business and credit risk, a direct sales model enables us to diversify our credit risk more widely.[[[PAGE]]]
Our direct sales approach influences every aspect of our business. We have around 2,000 sales representatives and drivers in total who deliver goods and collect cash. These are linked to one of 50 depots across the country and visit customers at least once each week. Larger customers, particularly wholesalers, generally pay through bank transfers. We do not use a direct debit scheme as this is not supported by law in Poland, which means that collection may be unpredictable. Smaller customers, such as retailers, typically pay in cash, both under cash-on-delivery arrangements and when credit terms are offered. Cash is the primary method used for retail payments, partly as there is not yet widespread familiarity or confidence in banking services, and use of cards is not prevalent in many parts of the country. Amongst those with bank accounts, the use of electronic banking, particularly in more rural communities, is still rare, particularly as internet access may be poor. Furthermore, paying cash into a bank branch is expensive due to high cash counting fees. Consequently, most business owners, who themselves receive payments in cash, prefer to pay cash to their suppliers to avoid high banking fees, so we receive around half of our turnover in cash.
In the past, the cash collection process was managed by sales representatives, who then went back to the depot and passed cash on to the cashier. The cashier then counted and reconciled the amounts against the customer’s outstanding receivables. Cash was held in a safe box at the depot and then transported to the bank via secure courier to book on our account. This process had a variety of disadvantages. Sales representatives were spending too much time involved in the cash collection process, which meant that they had less time for sales when visiting customers. They then had to wait a long time at the depot for cash counting, often late in the day. It was difficult to enforce customer payment terms, leading to credit risk and unpredictable collection, as customers did not necessarily pay an amount that corresponded to an exact invoice amount. Furthermore, once cash had been received at the depot, it could take another two days until it was posted on our bank account.
As a company, we are committed to the highest standards of customer service, financial integrity and efficiency. We therefore recognised the need to enhance our cash collection processes as part of a wider initiative to update our business infrastructure and business processes. For example, we set up a central customer services division to ensure a consistently high quality experience for customers, and participated in a Heineken-wide project to implement a single ERP across the business.
Having discussed our cash collection challenges with other parts of the Heineken group, we identified a variety of objectives for a revised process. Two of the most important of these were:
Firstly, we wanted cash to be counted and booked on our account before being physically delivered to the bank. This included ensuring that the bank would be responsible for the cash as soon as it had been entered into the system, without the need to buy a depositary machine for which we would be responsible.
Secondly, we wanted to be able to post and reconcile the amount paid by the customer immediately to avoid the risk of theft or misrepresentation by the individual receiving the cash.
We approached our banking partners to discuss our requirements. This took a great deal of time as in many cases, our banks did not understand, or could not support, what we were trying to achieve. We requested proposals from five banks but the quality of the responses we received was unsatisfactory, even from the largest banks. However, we found that ING was far more responsive and flexible, and committed time and resources to exploring our needs and devising an appropriate solution. Consequently, we were pleased to extend our relationship with ING into collections.
The first deposit machine was installed in our depot in February 2012, and the last one in June 2012. Sales representatives are no longer responsible for cash collection, which is now undertaken only by drivers. This made it easier to roll out, particularly as our ERP provides strong functionality for drivers. Customers insert cash into barcoded envelopes which can then be scanned immediately for remote posting and reconciliation. Drivers no longer have to wait at the depot for cash counting and any errors or inconsistencies can be identified more quickly. We have been able to book cash two days earlier, whilst also requiring fewer resources, enabling us to appoint former cashiers to other responsibilities. Our credit risk has been reduced and we are able to post and reconcile collections against credit lines very quickly, improving the service we provide to customers and enhancing our cash management and forecasting efficiency.[[[PAGE]]]
Implementing a new cash collections process has been received very positively by the sales team, drivers and depot managers alike. As there is often a natural disinclination to change, we spent time on working out the best way of communicating the new processes across the team, which was strongly supported by senior management. In addition, we received advice and assistance from ING. Our business divisions typically operate quite independently of each other, so this project was an opportunity for treasury to work more closely with our colleagues in distribution and sales. We involved them in decision-making which in turn encouraged broader-based support and ensured that implementation, which was undertaken by local teams, was consistent. As a result of this upfront effort and collaboration the new cash collection process has received widespread support.
Although our depots now operate using the new cash collection process, there are still enhancements we wish to make. We are highly dependent on the technology underpinning the solution, so we need to ensure that we have sound contingency arrangements in place in the event of a power outage or other technical issues. Maximising the security of the machines is also a priority.
Another potential improvement is to reduce the number of exceptions between declared amounts and deposited amounts; for example, there may be an input or rounding error which would prevent automatic reconciliation. There is also the risk of fraud which we are trying to counteract through measures such as scanning rather than inputting the collection amount. Around 50% of drivers are Grupa Žywiec employees while the remainder are contracted from third parties. We are keen for all drivers, particularly the latter group who are less familiar with our control mechanisms, to understand that fraud or theft will be identified immediately.
This has been a pioneering project in Poland, leveraging technology to enhance efficiency, risk management and customer service, whilst respecting the way in which our customers wish to operate. The initiative has also been very valuable in demonstrating the benefit of collaboration across different parts of the business to create a more integrated solution. We have been very fortunate in being able to leverage ING’s experience, expertise and innovation, and the project would not have been possible without the flexible, ‘can do’ attitude that differentiates the bank from others that we approached. We look forward to continuing to enhance our cash collections, and other financial processes, in the future, as part of our commitment to leading industry practices.
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