Over the years, collections have evolved from a back-office function to an extremely vital operation that contributes to the CFO’s office. Nowadays, a CFO’s top priority is to optimize working capital and monitor cash flows to ensure lower bad debt. As the cash inflows are regulated by the collections team, it results in consequent business growth.
A proactive collections team has the potential to alter the collection strategies. Recent surveys show that approximately 93% of businesses experience late payments from customers, which frequently leads to bad debt, increasing the company’s losses.
Selling on credit includes two important business processes: one for sales and the other one for collections. Companies around the world lose millions of dollars each year by writing off bad debts as a result of a slow and ineffective debt-collection process.
Gone are the days when the customer preferred to be reached by phone. With technology at our fingertips, the options for reaching out and communicating with your customers are as diverse as the customers are. Businesses that rely on primitive cash-collection methods are more likely to incur a bad debt. Moreover, when combined with a complex, multi-touch payment system, the process gets complex for your customers even if they intend to pay. If customers face a longer wait time for payment, the intent to pay will gradually reduce. Accounts receivable departments frequently rely on countless hours of number crunching and invoice-related clerical tasks. This labor-intensive work consumes a significant amount of time and increases company costs in terms of employee compensation. This can be easily replaced with collections software that performs the same function more efficiently with the help of automation.
All these challenges have compelled businesses to alter their collection practices. Over the last decade, many companies have tried to incorporate automation into their operations to recover debt effectively and have seen significant results.
Accounts Receivable can usually be a big-budget task for your business as high DSO and aging receivables can have expensive side effects. It could further lead your company to rely on bank loans to maintain the working capital. The statistics below show the importance of automation to carve out the challenging factors in the Accounts Receivable processes.
On an average, companies write off 1.5% of their receivables as bad debt. For example, if a company owns an Account Receivable of $50M, then $750K is recorded as bad debt! This mainly occurs due to a lack of prioritizing critical customers. With an automated Debt Collection System, you can automatically prioritize critical customers and have customized strategies with AI-recommended actions reducing the risk of bad debt.
93% of businesses experience late payments from customers, with 47% of credit sales being paid late. On average, payment terms are 27 days, but the actual payment period ranges upto 34 days. This takes place due to a lack of proper communication between the collector and the debtor. With an automated system, you can scale up collection outreach with automated dunning emails, fax. Increased efficiency, productivity, and lower costs result in higher profit margins. This calls for an increasing need for automation in debt collection.
In today’s competitive environment, customer experience is the only differentiator when providing a service such as debt collection software. Traditional collection methods mostly focus on money more than customer satisfaction. Automated customer segmentation ensures a systematic approach and assists the collections team in communicating with customers using targeted and customized collections strategies to address their needs.
The debt collection software provides clear visibility to the collector regarding the customer’s status and past activities, allowing them to spend their time and efforts on more strategic tasks and actual collections.
Collections is one of the most time consuming activities for businesses. Over the past decades, however, there have been tremendous advancements in collections management through automation technology. With the right software and strategies, your collections process can help you save costs associated with ineffective collection. Here are 5 major ways to cut costs with an automated debt collection software:
An era of digital transformation has begun, and planning for a digital future is critical to ensuring business growth and continuity. Despite the economic disruption caused by the COVID-19 pandemic companies are trying to deal with, but the hidden operational costs associated with AR processes may cause a significant challenge. Identifying such hidden costs and utilizing technology to eliminate them results in saving a lot of money while improving overall process efficiency.
Ready to digitize your collections process?
HighRadius Integrated Receivables Software Platform is the world's only end-to-end accounts receivable software platform to lower DSO and bad-debt, automate cash posting, speed-up collections, and dispute resolution, and improve team productivity. It leverages RivanaTM Artificial Intelligence for Accounts Receivable to convert receivables faster and more effectively by using machine learning for accurate decision making across both credit and receivable processes and also enables suppliers to digitally connect with buyers via the radiusOneTM network, closing the loop from the supplier accounts receivable process to the buyer accounts payable process. Integrated Receivables have been divided into 6 distinct applications: Credit Software, EIPP Software, Cash Application Software, Deductions Software, Collections Software, and ERP Payment Gateway - covering the entire gamut of credit-to-cash.