This eBook dives deep into the Collections Maturity Model for enterprise consumer goods companies. A/R leaders will understand where they are in their collections journey given their current workforce, processes, automation capabilities, and how they can jump to the next level.
In today’s fluctuating economy, A/R leaders in the Consumer Packaged Goods (CPG) industry identify collections as a top priority since it is responsible for bringing in the cash on all outstanding invoices. The collections department was put in the limelight in 2020 due to the pandemic. Now, as we are in what can be called the recovery economy, the focus on collections remains. Today, a majority of the A/R leaders are spending time assessing their collections operations and identifying gaps to fill.
The best way to find out how efficient your collection processes are is to evaluate your operations against a Collections Maturity Model. The collections department has seen a significant shift from being a “back-office function dialling for dollars” to a “front-office partner to the customer.” Let us learn about the various stages of this evolution of collections through the Maturity Model designed by HighRadius.
The HighRadius Collections Maturity Model classifies collections processes across CPG organizations into traditional, reactive, preventive, and proactive processes. It helps finance 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.
Being a collector is not easy. While the challenges facing collections departments are not unknown, the most common challenges for the CPG industry are:
1. Limited numbers of collectors having to navigate an extensive customer portfolio
2. Lack of real-time visibility into global A/R health and customer data
3. Reactive approach to collections due to non-standardized processes
For your collections department to become an industry leader, you need to dive deep into the four-point maturity model below and take action to emerge into a best-in-class collections department.
The Collections Maturity Model characterizes the evolution of collections operation into these four stages:
Does your collections team lead and take innovative collections decisions using technology?
Or is it still lagging with room for improvement?
Let’s find out.
Companies that find their collection processes traditional depend on their collectors’ skills, experience, and individual expertise. They are usually in the early stages of putting processes and technology together in one place to manage better and take control of their A/R.
Suppose you evaluated your company as traditional in the Collections Maturity Model. This means that you likely have trouble managing past-due A/R and have insufficient resources to control the high volume of receivables.
Your collectors spend their time maintaining spreadsheets on accounts with past-due A/R and calling customers to get paid. They don’t have the latest information on credit limits, open deductions, cash posting data, and blocked orders, all of which affect account prioritization while contacting customers.
Companies with traditional collection processes do not usually communicate or collaborate effectively with internal or external stakeholders.
Companies that find that their collections processes are reactive are also primarily dependent on people but have started addressing the ‘process’ elements. They are in the first stages of putting technology in place to manage collections better.
Suppose you evaluated your company to reactive in the Collections Management Maturity Model. This means you are most likely “chasing” past-due A/R, and the process is usually triggered after an account goes past due. You rely on aging lists and customer master data from ERPs to call customers for collections on a day-to-day basis.
There are most likely limited strategies in place or none to reach out and communicate proactively with critical accounts.
Companies that identify their collection processes as preventive are generally quite efficient when it comes to people and processes. They are also starting to leverage technology to automate manual activities within collections.
If you evaluated your company as preventive on the Collections Management Maturity Model, you most likely have systems where you could set collection segments and strategies and integrate data with other A/R teams. Analysts would no longer need to prepare a worklist on ‘who to contact’ because the system provides said worklist for them.
Additionally, some parts of customer correspondence would have shifted to emails from calls. This means account coverage on any given day could increase using customized templates. Such companies may rely on systems designed explicitly for collections to achieve automation of 30%-40%.
While there are specialized systems and processes, collections management is still a problem as the designs don’t solve collaboration with the customer accounts payable team.
Companies with proactive collections departments leverage people, processes, and technology for their business operations and are in a win-win situation! They have optimized collections operations and are doing everything right.
Suppose you evaluated your company as proactive on the Collections Management Maturity Model. This means you have all upstream processes, including credit, deductions, and cash application, integrated into the collections system. Hence, the collections analysts have all the critical information on any account at any point in time.
Additionally, collections analysts effectively leverage email automation to scale communication and prevent collections from falling through the cracks, especially for small and medium businesses that make up 80% of the volume. The system is powered by predictive analytics. The analyst is presented with at-risk invoices that are likely to be paid late so the analysts can proactively follow up with customers and prevent late payments. Analysts are empowered with tools to offer early payment discounts and reduce DSO.
They also collaborate better with buyer A/P teams using self-service systems for invoicing, dispute resolution, and payments.
The people and processes are efficient because the company is technology savvy, automates manual tasks, drives standardization throughout the organization, scales cash forecasting, and ensures seamless collaboration with customer accounts payable teams. The organization has a high level of visibility into operations and reporting capabilities.
A proactive approach to collections:
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.
As you have evaluated yourself and understood the category in which you fall in the Collections Maturity Model, as a next step, you can quickly determine whether your collections department today is on top of its game or not.
Being on the first two stages of this four-point collections maturity model means that you may need to fix your collection operations to climb up the technology ladder.
The Collections Maturity Model guides a world-class proactive collection team.
Click here to know more about how automation helps your collections department emerge as an industry leader in the CPG space.
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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.