How to create an effective Collections strategy? 

1. 7.1% rise in the average days to pay

• While an increase in payment cycle time was anticipated, the teams that leveraged a cloud-based automated collection process exhibited a lower increase in payment cycle time than industry benchmarks.

2. 21.50% decline in payment commitment honoring

• One of the critical metrics that helped us understand the relationship between O2C’s A/R departments and their A/P counterparts was the number of payment commitments honored.
• Many companies use payment commitments as input for their cash forecasting models. If these commitments are not honored it substantially impacts their ability to forecast and manage working capital accurately.
• Potential Causes for payment commitments not being honored:
  • Collectors set payment commitments with customers under increased pressure to deliver faster even when they knew the probability of getting paid by the buyers was low.
  • On the Accounts Payable side, many buyers were unsure about their cash flow. They were making payment commitments to avoid any impact on their credit lines.
  • These reasons point to the need for a system that enables collectors to analyze the integrity of payment commitments and understand the customer’s ability to pay.

3. 32.50% spike in dunning activities

• To have an impact on working capital, collections teams grew more aggressive in collecting payments faster. The economic uncertainty pushed them to focus more on the 0–30-day aging buckets instead of the 60+ day bucket, which was earlier a typical priority.
• This strategy may work in the short-term; however, it’s not a long-term solution for two reasons:
  • It is difficult to scale this activity (correspondence, disputes, payment commitments, and communications, etc.) across the entire customer portfolio without a collections management system in place.
  • A continuous aggressive collections strategy impacts the customer experience.

Collections operations within organizations are in dire need of innovations that could improve the overall process efficiency and help optimize working capital. Transitioning from traditional methods of operation to more data-driven futuristic and scalable digital solutions is the way forward. Additionally, having global visibility across all A/R operations with the help of a platform that consolidates all the data from internal teams helps break silos and contributes to faster revenue growth.