A Two-Pronged Approach to Credit and Collections Efficiency

Introduction

Credit professionals have so much on their plates these days that it’s little wonder they face an uphill battle to get the most basic tasks completed. Without the proper tools to manage a whole portfolio of accounts, credit analysts and collectors tend to work one account at a time without seeing the bigger picture. This is inefficient. Not only is it hard to prioritize activities, but it is also easy to overlook something important.
These issues can and will affect everything from order processing to cash applications and are manifested by the following challenges:

• Limited Resources – Our troubled economy has caused firms to take a lean stance on staffing at the same time compliance and regulatory issues have increased. Even if you haven’t had to lay anyone off, you are still faced with doing more with less. Under the circumstances, the best alternative for performance improvement will involve streamlining processes and implementing automation.

• Not enough collection activity – Staffing constraints, rising transaction volumes and too much time spent on low return activities like deduction resolution means that the level of collection activity is insufficient to the need. Manual tasks eat up time as well. The power of collection automation is the additional time it provides for collectors to do their jobs.

• Erratic collection efforts – Lacking a strategy-driven, automated collection process, each collector will tend to go about their job in their own way. It is, therefore, no surprise that results will be inconsistent from one collector to the next. Again, manual tasks get in the way of optimizing performance.

• High adjustment volumes – High adjustment volumes are aggravated when there is difficulty in identifying and resolving disputes. The result is low customer satisfaction, too many unresolved discrepancies and too much time spent trying to resolve these issues.

• Inconsistent credit assessments – Without systematic reviews of your accounts receivable portfolio, credit limits and associated risk ratings are likely to become outdated. As a result, many firms face excessive credit holds, a lack of visibility into actual portfolio risk, and missed opportunities in terms of mitigating risks or taking advantage of sales opportunities.

• Limited visibility – When the collective workload of the credit and collections team isn’t readily visible, it becomes nearly impossible for management to properly monitor performance and adjust to the endless issues spawned by the order-to-cash process. In addition, nothing gets done with any semblance of efficiency when the credit department must deal with multiple systems that are not integrated. Credit and collection software provides visibility across the entire order-to-cash process, and the associated reporting tools make it easier to recognize and react to a changing environment.

Overcoming these challenges requires an understanding of the characteristics of your accounts receivable portfolio. Credit and collection automation technology then provide the tools to effectively address those characteristics.
Typically, 80% of your revenue will come from 10 to 20% of your customers. In order to be successful, you must spend an appropriate amount of time on these key accounts, yet still, provide coverage of the less critical customers and quickly process low-value activities. Failure to balance the high priority accounts against lower priority issues will impact performance.

Facing these six challenges boils down to a question of Quality vs. Quantity – key accounts need a qualitative approach while the other 80 to 90 percent need a quantitative one. A qualitative approach requires making sure key accounts get the personal attention they need. For everyone else, mass collection and credit analysis techniques are the way to go. This is why, without a unified solution that re-engineers the entire order-to-cash process, your credit and collections efforts will continue to be hampered by inefficiency.

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Does your department face any of the challenges mentioned above? If so, how do you plan on handling these challenges?