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Reforming Accounts Receivable Collections Strategy for CFO’s Office

What you’ll learn

  • Balance customer experience with business expectations
  • Avoid a “one size fits all” approach
  • Optimize your collections strategy
  • Conduct periodic reviews with a focus on AR
  • Establish a strong credit policy
  • Customer segmentation: Maximize collections, minimize effort
  • Automation for improved collections and CX
  • The RadiusOne Advantage

Customer Experience vs Collections KPI- It’s a tightrope!

The success of B2B businesses depends on their ability to deliver the best customer experience(CX) that differentiates them from competitors. The proliferation of digital channels and the convenience and better engagement levels that they offer have only heightened the need to offer great customer experiences every time.

What started out as a nice-to-have novelty for B2B businesses has now become a necessity. And organizations across the globe are making huge investments to boost customer experience. In fact, as per a recent study, 73% of businesses reported that CX is becoming a first concern, while 38% of brands have indicated an interest in improving the CX that they offer.

CFOs across B2B businesses have identified this opportunity and have jumped on the CX bandwagon, adding it to their accounts receivable collections strategy as well – a crucial post-sales juncture for businesses and customers.

However, the zest to deliver customer experiences in the B2B collections process may cloud your decision-making and could severely impact your cash flow. This is because most CFOs look at their Accounts Receivable from the lens of an optimist, assuming that all of their customers will pay on time. This causes the collections team to chase payment defaulters without considering their unique individual circumstances.

The CFO’s office is also under pressure to meet tight deadlines and, often, unrealistic KPIs. Collections KPIs like ADD(Average Days Delinquent) and DSO(Days Sales Outstanding) are collections performance metrics that are always expected to be as low as possible.

To improve CX and ensure steady cash flows, finance teams need to avoid a one-size-fits-all approach to collections, and instead, segment the customers based on their collections stage and financial situation.

Customer segmentation enables the collection teams to classify their customers based on the type and reason of delinquency by analyzing historical payment behavior data. The teams can leverage the data to customize collection strategies for each segment. This helps ensure a friction-free customer experience and improves collection rates. You can explore a cheat sheet for customer segmentation here.

In the ebook above, you’ll find information on how segmenting customers based on previous payment behavior and profile type helps collection teams build proactive and customized collections strategies. In doing so, CFOs create an ecosystem of trust and a CX that encourages customer loyalty and maximizes customer lifetime value(LTV).

Why is it important to look beyond preconceptions in collections?

Let’s say that you lend $1000 to your friend who promises to return it in one month. Now, a month has gone by and yet your friend hasn’t returned your money, despite your repeated requests. How will this impact your finances and moreover, how will this episode impact the relationship with your friend? Crucial questions to ponder!

Let’s expand this use case to your business. You onboard a customer with a renowned brand name, strong market leadership, and a large customer base. Based on these indicators and the rapport built by your sales team, you offer a larger line of credit as compared to your other customers. Now it’s time for them to pay up, and you follow protocols by raising an invoice, informing the date and terms of payments, and the implications of failing to make the payment after the due date.

The date of payment has come and gone, yet no money in the bank! Your countless follow-ups result in myriad excuses from ‘it’s in the mail’ to ‘it’s in process.’ Your collections team is now stuck with a customer who may either bounce the payment or may pay late. Either way, it will affect your cash flow! Hence, CFOs must never be disillusioned by assumptions or preconceived notions about any client account however renowned or big they might be.
It is said that by failing to prepare, you are preparing to fail. This adage resonates with the many finance leaders that we interacted with.

You must create a failsafe collections strategy and get actionable insights to aid intelligent customer segmentation. Here’s what mid-market CFOs should do to ensure an unbiased and seamless debt collections process:

1. Get your collections strategy right to ensure optimum cash flow throughout the year

‘Most mid-market businesses fail to look at their accounts receivable till it’s too late.’ expresses Lawrence Chester, President, CFO Simplified. And we couldn’t agree more. The CFO’s office is trained to have the mindset of tackling problems as they come instead of taking a measured approach to why these problems occur. Hence, the collections team may invariably reach out to customers who could be over 30-45 days late on their payments. The continued collections persistence to an incorrect customer segment may lead to loss of valuable bandwidth. Furthermore, it could lead to the dilution of CX, leading to the loss of future business opportunities.

By applying a thought-through collections strategy and employing the best practices in collections, the CFO’s office can identify areas within the accounts receivable spectrum that are critical and require attention. Through real-time AR monitoring, the collections team can mitigate lost opportunities to collect cash, as well as plan their correspondence well in advance. This helps avoid bottlenecks caused by collectors’ focussing solely on making calls to customers. A planned approach can ensure businesses have adequate cash flows that can be used for other vital processes like inventory management and payroll.

2. Conduct periodic reviews apart from collections to optimize your day-to-day AR process

With the right collections strategy in place, the next step is to ensure regular monitoring of the AR processes. Assign a resource to review all the invoices and apprise the CFO’s office of any critical cases that require immediate attention.

Establish a correspondence mechanism that makes it easier for your team to send reminders to customers in a way that isn’t curt or inconvenient. The collections team should also take notes on how customers react to the team’s correspondence methods so that they can amend their approaches accordingly.

3. Establish a strong credit policy for better control

It can often be difficult for mid-market CFOs to predict which of their customers will default on payments. The chances of even the most disciplined customers becoming delinquent are not unlikely, given the current, highly erratic economic climate.
On the other hand, businesses that pay a day or two late are often considered by collections teams to have gone under. The reality, though, might be that they are only taking a few days extra to sort their finances. To account for varied instances of this sort, the CFO’s office must have a strong credit policy in place that takes into account all the different factors including market conditions and clients’ promise to pay.

A well-defined credit policy enables customers to have some leeway while ensuring that all possible scenarios are accounted for in the credit policy. This vastly improves customer acquisition as well as the CX. Read this blog to get tips for designing a sustainable credit policy.

4. Know your customer

Customer segmentation allows collections teams to plan correspondence and customize it according to different customer profiles. It enables the team to maximize collections and simplify customer communications. For example, by segmenting customers, you can identify low-risk customers who needn’t be sent too many reminder emails. You’ll also know your high-risk customers, whom you’ll need to actively engage with dunning techniques.

5. Leverage automation to streamline collections and improve CX

Mid-market CFOs are realizing the efficacies of automation in their AR strategy, as it –

  • Eliminates manual processes
  • Simplifies AR complexities
  • Eases customer onboarding
  • Infuses artificial intelligence in collections
  • Helps manage customer correspondence
  • Drives cash flow
  • Reduces the number of delinquency cases
  • Delivers exceptional CX

Power up your collections process with RadiusOne

With CX now a priority for businesses today, mid-market CFOs can deliver seamless CX by integrating automation techniques in their collections process.

RadiusOne by HighRadius is a powerful AI-based solution specifically designed for the mid-market business. The solution not only helps simplify the AR process for CFOs but helps personalize the collections and correspondence strategy for customers. It also helps add more value to your customer relationships.
RadiusOne comes with native VOIP calling and automated correspondence that lets the collections team customize their message. The self-service portal allows customers to track their pending invoices and pay via their preferred payment method, helping elevate the CX.
Reduce your DSO by partnering with HighRadius, and take the next step towards implementing intelligent AR processes.

Get in touch with our AR experts for a demo today!

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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.