The New Collections Approach: From the Back Office to the Front…and Beyond
I recently had the opportunity to present and meet with many financial executives during the CFO Dimensions conference, held in Chicago on Sept 18th. Directly taking the pulse of corporate finance is always fascinating, since no other forum provides the interaction and candor found within the cocktail reception and the ensuing full day of meetings. The particular area of interest for me was the topic of Receivables Management, and more specifically, trends within the Collections area. It was encouraging to find consensus among many regarding the direction of the new approaches for managing past due receivables, which was part of my presentation topic. So let’s look at some of these trends.
Companies are realizing that outdated ways of handling delinquent accounts have not been successful in this real-time world we live in. Progressive companies are no longer waiting for an invoice to become past due, but rather are sending out reminders prior to the payment date. Also, there has been a pervasive movement away from the Collections process as a back office boiler room operation to a more customer-engaging front office one. Embedding Collections within a Shared Services call center has helped to leverage economies of scale and the benefits of consolidating these efforts. Improved collection customer segmentation has also developed based upon algorithms which combine the largest amounts due, oldest items, credit limit excesses, broken promises-to-pay, and other variables which optimize the approach. Additionally, the education of the Field Reps regarding the importance of working capital and cash flow has altered the collection strategies. Many companies now tie the commission payments of the Sales Rep to the payment of the invoice…what better way to engage the Field in the collection process? And Field interaction has an added benefit within countries where telephone-based collections don’t fit from a cultural point of view. However, we must keep in mind that technology is a critical element for enabling these changes and let’s review what’s needed to be successful…
Firstly, the foundation of the Shared Service center is necessary for the most effective collections strategy. Today, according to a recent 2012 Aberdeen study*, 67% of the Leading companies surveyed are delivering accounts receivable within such a landscape. Next, application software is required for the optimized customer segmentation in order to manage the multiple variables which impact the prioritization of collection efforts. And it should be noted that this process is an iterative one which should periodically be assessed and fine-tuned for the best results. Also, enlisting your Field Reps (and providing incentives) to help improve the payment cycle requires arming them with mobile applications which provide real-time customer data in an easily understood format. They need to arrive at the customer location with all of the necessary account information on their hand-held device (iPhone, Android, iPad, etc) so that any invoice payment discussion is reliable, timely and fully documented. And this information needs to flow back from the mobile device to the source accounting systems in a real time manner as well, ideally updating cash and liquidity planning too. Now that’s how the collections world is moving from back office to the front…and beyond.
For more information about the SAP solutions supporting Receivables Management and the Collections process, please click here: SAP Receivables Management
* Source: Receivables Management for the Long Term: Balancing Collections and Customer Service, Aberdeen group, August 2012