Most organizations have been able to drive process efficiency and cost reduction by centralizing and/or outsourcing operation. But, significant gaps exist in achieving optimal process effectiveness. According to the CFO insights from the Global C-suite Study, Value Integrators consistently outperform. They excel in two key areas: finance efficiency and business insight. They are effective at integrating enterprise-wide information, continuously improving processes and develop talent that partner with the business to drive integrated planning and forecasting, scenario planning and predictive modeling capabilities.
Commonly observed gap in accounts receivables collection process is the limited use of technology and analytics for decisions making, leading to lost opportunities to generate more cash. Conventional accounts receivables collection strategy for most organizations is based on the following:
- Execution focus, driven by cash collection targets
- Customers and invoices with higher value of outstanding targeted
- Dedicated collections practitioners aligned by customers
- One size fits all approach from a frequency and communication channel perspective
Conventional methodology has numerous flaws
- Collector’s discussion with customers is at overall balance level, potentially ignoring invoice level issues which might impact likelihood of payment
- Significant volume of low value invoices is ignored. Neglect and lack of regular follow-up leads to delinquency and write-offs
- High dependency on people as source of knowledge about customer is not institutionalized. Contact strategy is not standardized across collectors, adding a lot of subjectivity to the process and sub-optimal outcomes
- High cost of managing collections process and customer dissatisfaction
A smarter collection strategy takes into account end to end collection process, generating insights from past customer behavior including payment pattern, claims, deductions and judging the credit risk associated at a customer level. The smarter strategy enable organizations to
- Develop risk model at an invoice level which could be rolled up to a customer / segment level and enable organizations to assess overall credit risk, payment behavior and identify high risk customers
- Collection contact strategy leverages inputs from risk models to design effective communication strategy including optimal channel and frequency required to maximize cash collections. The strategy also eliminates the individual bias in how a customer with an outstanding receivables should be managed
- Periodic strategy refinement based on recent data not only enables short term reduction in delinquency rate, but also drives change in customer payment behavior
- By using a combination of risk based prioritization and optimal communication strategy, organizations can drive increased effectiveness in collection process and reduce operation cost
Multiple IBM clients across industries and regions have been able to reduce accounts receivables delinquency rate and improve cash flow through smarter collection strategy.
Write to email@example.com to conduct an IBM RapidScan Assessment. The assessment help you identify key opportunities, with recommendation for improvement by benchmarking your collection processes with the best in the industry.
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