While the overall backlog of unpaid bills in the State of Illinois’ General Fund has been cut in half over the last 2 years, the backlog of payments to the insurers of healthcare services to state employees, retirees and their dependents remains a significant issue, causing disruption in patient care to this important population.

GOMB Bills Outstanding Summary - June 2014

Since January 2013, VAP has expedited payment on thousands of invoices to over 150 vendors, totaling $435 million. We maintain a close relationship with every vendor we work with, understanding the importance of helping small businesses (90% of our vendors) maintain their cash flow.

VAP has seen significant demand in the Illinois State employee health insurance market. We are currently funding a majority of the fully insured plans under the Illinois Vendor Payment Program. Because of our dedication to customer service, we have gained a deep understanding of the Illinois insurance market and look forward to helping get the best care possible to state employees, retirees and their dependents

Cloud Computing

Cloud-based credit and collections hosting software solutions are, literally, the latest. But are they the greatest?

We decided to look at the pros and cons of migrating credit and collections functionality to the cloud. For the sake of argument, cloud-based solutions are assumed to be hosted by a third party and on-premise solutions are presumed to be fully owned.

Embrace the Cloud if your organization values…

Predictable monthly capital outlay: Generally, cloud hosted solutions are based on an all-inclusive fee: the hardware, the applications, the environment, the backups and the maintenance are all handled for you. This lowers the cost of getting started from scratch and lets you plan your monthly expenses.

Off-site usage/remote access: This could be an asset for a small business where all the principals travel a lot or benefit an office that doesn’t want to hire full time credit and collections staff. Cloud-based solutions can be accessed from anywhere, and typically from any device, with a high-speed Internet connection.

Limited IT and scaling headaches: Cloud-based solutions allow you to pay for what you use and enable you to grow without having to reinvest in additional hardware or system reconfiguration. You will have little or no implementation time lag if you need to suddenly scale up because you don’t have to worry about servers, licenses or operating systems.

However, totally embracing the cloud is not for every organization and it should be approached with Caution

Integration with legacy system: Cloud-hosted solutions frequently tout the phrase “minimal capital outlay” which can be deceptive based on what your expenses are for an on-premise solution and what they entail. Unless you are outsourcing every company function to the cloud, it’s likely that you will still have to maintain some or part of a legacy system. It’s true that if you were starting from scratch – buying hardware, paying for the operating systems licensing fees, hiring a tech person, etc. – then “renting” space in the cloud makes sense. If you already have legacy systems, software and staff that fulfill 80% or more of your needs – and that you will not be able to eliminate if migrating solely the credit and collections functions, it could be more cost-effective to tweak what you have. The cloud portion will be an additional expense. Also, in terms of full time employees, an IT employee typically does more than simply maintain credit and collections software and you will likely still need help for other functions.

Loss of tax deduction(s): There’s no amortization or depreciation with cloud solutions. This can throw off financial projections if they were made with accrual accounting and you have not reached the end of the predicted life of your legacy system.

Less flexibility: Mature software tends to have many features while cloud-based solutions have relatively fewer. The cloud solutions may be based on best practices, but if you need extreme flexibility, tailored functionality, and/or make frequent or multiple changes on the fly, you might find the limitations of a cloud solution frustrating. In addition, extra fees are inevitable if the cloud vendor can accommodate your customization needs. Furthermore, if you’re used to a fully integrated system across all functions of the company — say where a salesperson can automatically see on his/her CRM screen where a client is behind in payments — you may lose some of that access or need to take multiple steps to facilitate ODBC, SQL, PERL, JDBC interfaces and regain that visibility across functions.

Moving business software to the cloud is all the rage, but you need to evaluate your operational, personnel, and financial needs before moving your credit and collections software to the cloud.

By The Vendor Assistance Program, LLC

Did you know that accounts receivable (AR) performance has been deteriorating? According to a Genpact paper, over $1 trillion is locked up in working capital in the US. However, the time it takes to turn receivables into cash (as measured by days to pay, DTP) has increased 10% on average.

The solution is to find and fix the causes for working capital to become “stuck” in the AR cycle. In accounting terms, it means leveraging new order to cash (OTC) automation applications and improved processes.

In helping hundreds of organizations manage their working capital these are the sorts of things we at VAP have seen. You know cash is “stuck” if you have any of these issues:

  • Delays in getting bills to clients
  • High rate of disputes holding up cash in AR
  • Large volume of small balance accounts and unaddressed disputes older than 90 days
  • Lack of system tools to risk-segment AR portfolio
  • Limited/no visibility into DSO (days sales outstanding) drivers, AR exposure indicators and other actionable data
  • Patchwork of manual tools and manual efforts that cannot scale to accommodate growth

Here are five ways to improve OTC processes and increase available working capital.

Implement good information systems. Eliminate multiple and incompatible ERP systems. Consider using a targeted system specifically designed to aggregate AR information across multiple sources.

Be pro-active. To generate as many on-time payments as possible reach out to customers before the bill is due to make sure there are no invoice issues. Shorten the Days to Pay by confirming that credit terms, discounts, conditions and timing are understood before the payment term is reached.

Target every customer. Many companies only reach out to 40-50% of their receivables-carrying client base each 30-day cycle. Systems that allow you to cover 100% of your AR portfolio every 30 days provide huge advantages.

Track payment behavior. Set automated tracking to watch for delays of all kinds (Broken Promises, Material Deductions, etc.) and flag accounts with problems.  Remember, if your terms are net 30, on day 31, you’ve got a problem.

Pay bonuses tied to working capital. Incentives to improve key working capital metrics like DSO, DTP and DPD. Set a baseline by reviewing historical averages the set goals and reward the teams that unlock critical working capital trapped in OTC processes.

Innovative and cost effective technologies, like software as a service (SaaS) solutions are available at a variety of prices. Another way to access this kind of expertise is to outsource the AR function. For more information, get this white paper about outsourced AR solutions. It’s written by Atlanta-based Advanced AR, a solutions provides, and should be taken with a grain of salt, but nonetheless provides a good primer.

One thing is certain, doing nothing about your accounts receivable, however, will leave you “stuck” in more ways than one.

Director Arthur Bishop‘s FY14 budget request for the Illinois Department of Juvenile Justice matched the Governor’s Recommendation of $132.4M, a 2.4% increase over FY13 enacted appropriations. Director Bishop stated that the overall spending for FY14 will actually increase 2.8% due to the Impact of Collective Bargaining Agreements. What sort of things will this money buy in fiscal 2014 in the finalized budget? For starters, focus on the 21.1% increase in Aftercare and 15.5% increase in Operations (see diagram below).

Capture

Click image to see full size.

One can assume a large purchase of computers will be included in the Operations appropriation line items, for sure.

According to the State Journal-Register an audit found 240 computers lost from Illinois prisons, 156 from the IL Department of Corrections and 84 from the Department of Juvenile Justice. In June the auditor found more than 250 computers unaccounted for at the Southern Illinois University. Altogether the nearly 500 missing computers are said to be valued at $639,000.

Another budget item is sure to be aftercare.

In 2012 the department rolled out an expanded Aftercare System to monitor youth on parole. It added an additional 54 aftercare staff to provide transitional post-release treatment support and programs for juveniles committed to the Department. These evidence-based practices are aimed at reducing recidivism, thereby resulting in long-term cost reductions for the state. PS: It’s working: The youth institutional population saw a reduction of 18.5 percent to 901 youth from 12/31/11 to 12/31/12.

Also the department is committed to providing counseling, drug/substance abuse treatment and educational/vocational training social and emotional services for young offenders in the state.

According to a project funded by the National Institute of Mental Health, Mental Health Juvenile Justice (MHJJ) 66% of youth in the Juvenile justice system have a diagnosable psychiatric condition. The mental health Juvenile Justice program administered by the Illinois Department of Human Services Division of Mental Health targets these juvenile offenders. MHJJ program helps with substance abuse treatment, family therapy, psychiatric services, psychological assessment, group/individual therapy and mentoring. Again, the efforts are working: Only 27.6% of youth who went through MHJJ were rearrested versus a statewide average of 72%

By Mitch Johnson, VAP’s Director of Accounting

While you are doing everything you can to get paid on time, there are accounts payable staffers whose job it is to push the envelope and figure out just how long they can use your money for.

It’s true.  In fact, some Payables Management Practices offer consulting dedicated to the fine art of figuring out just how long a company can string its creditors along before damaging the business relationship and causing customer service issues.

The tried and true way for creditors to figure out just how long you will hold on is a trial and error process. Knowing this can help you time your collections calls for the greatest impact.

For instance, if you sell products or services with terms of Net 30, your creditor is likely to pay you on the 35th or 37th day and see if it provokes a response.  If you don’t protest at 37 days, your creditor is likely to pay your next invoice at 40 days.

This process can go on for months and your company’s limit will be assumed to be the day you place your first collections call, irate or otherwise.  That is, if you accepted payment at 55 days without a peep, but complained bitterly after the 61st day payment went missing, you can expect that most of your bills from this particular creditor will be paid at 55 days.

Knowing this, shrinking your DSO can be as simple as timing your collections calls to more closely match your credit terms.  That is, for net 30 receivables, your call for payment should be on the close of business of the 30th day.  Not the 32nd day, and not the 35th, when you’ve exhausted the likelihood that payment was mailed on the 30th day.

Further, you can pre-empt calls at 30 days with “courtesy calls” in advance of the due date.  With courtesy calls, creditors are reminded that payment is due in 5 (or 10) days, and are asked if there are any outstanding issues or misunderstood charges that can be addressed before their payment is late.

Courtesy calls may not be a silver bullet for collecting receivables, but they provide powerful documentation for any subsequent efforts you may need to make to collect the money owed to you.

Even the best strategy will not work in situations where your creditor is financially impaired, as is now the case with receivables from the State of Illinois.  However, this difficult challenge provides even more impetus for carefully managing your remaining receivables.

If you are suffering a cash crunch as a result of unpaid receivables from the state of Illinois, contact the Vendor Assistance Program.  We’ll advance your receivables, and you won’t pay interest or factoring charges.  It’s your money, why should you?  Register today to gain control of your state-based receivables and get 100% of your money – sooner.

Consolidated List of Open Bidding Opportunities on Illinois State Contracts.

Overall, the number of bidders appears to be down on state contracts in Illinois. With a thinner field of competition, and VAP as your receivables financing partner, now may be the best time to get new business while still maintaining predictable cash flows without taking a discount.

Below is a list of selected contracts currently seeking bidders. Click on the links for more info to see the bid requests and find the right agency procurement office to contact.

Commodities:

  • Mopar-Chrysler-Dodge original equipment manufacturer (OEM) Auto and Truck Replacement Parts (more info). Agency: Toll Highway Authority. Due 8/30/13
  • Soap Making Materials (more info) Agency: Central Management Services & Corrections. Due 8/23/13
  • Janitorial Supplies (more info) Agency: Central Management Services & Corrections. Due 8/22/13

Equipment:

  • Copier and Printer Production Equipment (more info) Agency: Toll Highway Authority. Due 9/6/13

Facilities:

  • RFI for Leased Space in Springfield (more info) Agency: Human Services via Central Management Services Due 9/17/13
  • RFI for Leased Space in Rock Island/Moline (more info) Agency: Children & Family Services via Central Management Services Due 9/17/13
  • RFI for Leased Space in Chicago (more info) Agency: Human Services via Central Management Services Due 9/10/13
  • Cable Television services at the Centralia Correctional Center (more info) Agency: Corrections Due 8/23/13

General Services:

  • Master contract to provide automotive glass repair and replacement services for all State agencies (more info) Agency: Central Management Services Due 8/29/13
  • Multi-year contract for a Professional Auditing and Accounting Firm (more info) Agency: Children & Family Services. Due 8/27/13

Health and Medical Services:

  • Medicaid Accountable Care Entities RFP (more info) Agency: Healthcare & Family Services. Due 1/3/14
  • Life Technologies (ABI) Instrument Maintenance (more info) Agency: Public Health Due 9/5/13

By Jonathan Buchbinder, VAP’s Director of Treasury

One of the perks of my job is that I get to see how various companies manage their risk. Some are better at it than others and I’ve identified some best practices that you might find helpful.

All companies are started with the hope that they will grow and become successful.  However, when a company puts growth above all else, it can lose sight of its cash needs. The lack of cash flow will put the brakes on any growth.

Money has to move and it’s got to move correctly and on time. Here are some ideas for avoiding and controlling cash burn.

Stick to your knitting: Outsource non-core functions. You want to spend your cash and your time on the areas of your expertise. If that’s providing janitorial services to facilities, then it’s probably not a good use to spend your time and effort on staffing for legal, payroll or human resource functions.

Share the wealth, not the cash. Consider paying partners and vendors with partial equity or royalty payments, especially for start up expenditures. Say you have a quote for website development at $200,000. Instead of writing a check for that amount, consider spending half and offering $100,000 in company stock or a future royalty payment. This technique not only saves cash, but gives your partners an incentive to see your business succeed and advocate for your best interests.

Budget for cash flow, not profit and loss. If you create your operating budget off a traditional P&L, you have no way of seeing when you will run out of money. You need to give heavier weight to cash management. If you’re working with a finite pool of money, you need to have a reasonable expectation of what your sales, accounts receivable turnover, and spending are going to be.

Cut costs on future expenses, not present ones.  If you start to run out of cash, anything focused on the future should be reviewed and probably delayed. Reevaluate staffing, new hires, and consultants. Correct the present situation of cash burn or there might not be a future.

Renegotiate early. Secure financing well before you need it. If you try to raise money when you’re cash is running out, you give up leverage to your investors who can now dictate more expensive terms. Instead, keep yourself in the driver’s seat.

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