Collections Maturity Model: Where Does Your Organization Stand?

Introduction

In today’s aggressive and unpredictable economy, finance leaders recognize DSO (Days Sales Outstanding) as the basic KPI to evaluate the performance of accounts receivables. Predictably, Collections Management lies at the heart of driving your CFO’s DSO reduction agenda.

Research on more than 500 receivables projects has concluded that credit and A/R leaders are more likely to positively impact A/R if they start with an assessment of their collections operation maturity on factors including people, processes, data, collaboration, and technology.

The Collections Operations Maturity Model has been devised to help finance decision-makers perform an in-depth evaluation of their current operations and identify clear next steps to advance up the maturity pyramid.

Before we discuss the collections management maturity model, let’s look at the five factors that impact collections at your company.

The 5 Pillars of the Collections Process

Traditionally, the collections process has been riddled with pitfalls due to extensive manual intervention, lack of real-time insights, limited internal and external collaboration, and inefficiencies due to non-standardized operations. The following explores the key factors defining the collection process’s success graph:

All the above are the key areas in collections. Tackling them by measures like optimizing the skill and headcount of collectors, ensuring seamless internal and external collaboration, securing real-time data, adopting a scalable and standardized collections process, and using the ‘right’ technology can go a long way in improving the collections process and as a result help in reducing the DSO.

Evolution of Collections Maturity Model

The collection process is no mean feat. Growth in businesses, through organic and inorganic expansion, has only meant more demand leading to more transactions and a rise in the number of customers ensuring chaos in accounts receivables. The collections challenge is clearly not going away. A great deal of insight into the future of collections management could be gained by looking at how the collection process has matured over the years based on the key success factors.

The Ad-hoc Process

Companies that are ad-hoc in their collection management practices are highly dependent on people in terms of skill, experience, and expertise in their day-to-day collections operations. They are in the infancy stages of putting processes and technology in place, to better manage and take control of accounts receivable.

The process overview is given below:

The following explores how the ad-hoc process defines the 5 key success factors:

Reactive Process

In this process, some ground-level standardization is adopted into the system. It focuses on the process itself. This helps the collectors to design and define the process flow

This process is the root level standardized and in the absence of a system, organizations depend on individuals to implement credit and collection policies.

The process overview is given below:

The following explores how the reactive process defines the 5 key success factors:

Preventive Process

A preventive process starts focusing on data to drive decision-making in the collections process. This includes generating prioritized worklists for the collectors. This process also leverages information from other credit to cash processes and includes that information to drive collector activity. It also uses technology for automating clerical tasks such as dunning correspondence.

The following defines the process:

The following explores how the preventive process defines the 5 key success factors:

Proactive Process

Companies who find themselves managing collections at the proactive level leverage people, processes, and technology for their business operations and are knocking all of them out of the park! They have optimized collections operations and are doing everything right, or at least have a plan in place to do so.

Proactive Process focuses on leveraging people, and process automation through technology and data, for decision making and easy collaboration with other credit-to-cash teams.

The process overview is given below:

The following explores how the proactive process defines the 5 key success factors:

Success Story: Dr. Pepper Snapple Group

Dr. Pepper Snapple Group Inc. is an American soft drink company, based in Plano, Texas. Formerly called Cadbury Schweppes Americas Beverages, on May 5, 2008, it was spun off from Britain’s Cadbury Schweppes, with trading in its shares starting on May 7, 2008.

DPSG operates 22 manufacturing and bottling facilities with more than 19,000 employees. 

Elevated Business Challenges with Outsourced Operations

• Outsourced Financial Services: Relied on third-party vendors for their Accounts Receivable operations. This led to limitations such as restricted access and control.
• Reduced Transparency: The lack of metrics and statistics made it difficult to track outsourced resource productivity.
• Absence of Standardized Processes: This led to inconsistencies across processes and created complications for the A/R team.

Rapid Continuous Improvement became part of DPSG culture but made it difficult to impact outsourced processes. A/R improvements were stagnant and variation was the enemy.

With a proactive collections management facilitated by HighRadius, DPSG was able to insource, standardize and automate end-to-end credit-to-cash processing and achieved excellent results.

To know more about how Dr. Pepper achieved these results and to evaluate your company’s collections maturity  model