To meet the CFO’s objective of safeguarding cash-flow, A/R leaders must assess the operational gaps in their collections process. This eBook provides a Collections Maturity Model for CPG companies to help them compare their collections processes with the best in class in the industry.
A/R leaders will also learn a few best practices to help their teams adopt a proactive dunning approach and reduce Day Sales Outstanding (DSO).
The HighRadius Collections Maturity Model classifies collections processes across CPG organizations into four levels, namely: traditional, reactive, preventive, and proactive processes. The model helps A/R decision-makers perform an in-depth analysis of where they are in terms of their process efficiency today and identify the next steps for growth and maturity.
Let us take a look at some common challenges faced by the CPG industry
For your collections department to become an industry leader and mitigate the challenges mentioned above, you need to dive deep into the four-point maturity modelbelow and take action to emerge as a best-in-class collections department.
The Collections Maturity Model characterizes the evolution of the collections operation into these four stages:
Does your collections team lead and make innovative collections decisions using technology? Or is it still lagging with room for improvement?
A/R leaders whose collection processes depend on their collectors’ skills, experience, and individual expertise can categorize their teams as operating on a traditional approach.
They are usually in the early stages of blending processes and technology together in one place to manage better and take control of their A/R function.
Your collections process is traditional if –
Your team is likely to have trouble managing past-due A/R, and you have insufficient resources to control the high volume of receivables that come in your team’s way.
Finance functions with a traditional collection process do not usually communicate or collaborate effectively with internal or external stakeholders.
A/R leaders who have a reactive collections process are also primarily dependent on people, but have started addressing the ‘process’ elements. They are in the first stages of placing technology to manage collections better.
Your collections process is reactive if– You find that your team’s follow-up process is usually triggered after an account goes past due. Your reliance on aging lists and customer master data from ERPs to call customers for collections on a day-to-day basis slows your collections down.
In such cases, the collections teams are most likely to operate on very fixed dunning strategies, or there are limited resources to reach out with critical accounts proactively.
A/R leaders who have preventative collection processes are generally quite efficient with people and processes. They are starting to leverage technology to automate manual activities within collections.
Your collections process is preventive if – Your team can modify dunning strategies to share the data across the other A/R teams. Analysts no longer need to prepare a worklist on ‘who to contact’ because the system provides a customized worklist for them.
Additionally, some parts of customer correspondence must be shifted from calls to emails. This means account coverage on any given day could increase by leveraging customized templates.
While there are specialized systems and processes, collections management is still a problem. This is because their systems designs don’t allow collaboration with the customer’s accounts payable team.
A/R leaders who work with a proactive collections team leverage people, processes, and technology to run their business operations and are in a win-win situation. They have optimized collections operations and are doing everything right.
Your collections process is proactive if– You have all the order to cash processes like credit, deductions, and cash application, integrated into the collections system. Collections analysts in your team have all the critical information on any account at any point in time.
They also collaborate better with buyer A/P teams using self-service systems for invoicing, dispute resolution, and payments.
People and processes are efficient because the A/R team is technology savvy, automates transactional tasks, drives standardization throughout the organization, and ensures seamless collaboration with customer accounts payable teams. As a result, the organization has a high level of visibility into operations and reporting capabilities.
A proactive approach to collections would involve:
Proactive collections departments help you improve your working capital and cash flow, increase efficiency across the order to cash processes, and deliver an exceptional customer experience to your buyers.
You can use the real use cases above to evaluate which category you fall into within the Collections Maturity Model. The next step is to quickly determine whether or not your collections department is on top of its game.
Being in the first two stages means you may need to fix your collection operations to climb up the technology ladder. The end goal of the Collections Maturity Model is to guide a best-in-class proactive collection team.
To learn more about how the collections maturity model leads to a proactive and world-class collections team, read HighRadius’ e-book, with insights on more than 500 receivables projects.
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.