Credit Professionals Discuss Best Practices in Receivables

I recently had the opportunity to moderate a panel discussion on Increasing Cash Flow through Standardization & Automation and I thought I would share a few insights that I took away from that discussion.  The panelists included credit professionals from three different industries – wireless/telecom, manufacturing and pharmaceuticals. All had automated their accounts receivables processes at their current companies but also at previous companies.  An industry consultant from The Hackett Group was also on the panel. 

The Hackett Group recently released its 2012 Credit and Collections Performance Study which surveys organizations and helps them make specific comparisons with what The Hackett Group identifies as top performers.  The study also takes a look at how collectors are spending the majority of their day.  In the study, 59% of top performing companies are contacting customers, which was great to hear, but more importantly they are being proactive in their efforts. 

Organizations are able to be more proactive once they standardize their processes and introduce automation workflow into their accounts receivables.  It frees up the collectors from having to manually prioritize which accounts to contact and focus instead on contacting the customers.  The overall consensus on the panel was that standardizing and automating accounts receivables helps the collectors within their organizations contact not only more customers but the right accounts and ultimately increase cash flow.

However, the panelists and The Hackett Group’s industry consultant agreed that preparation played a key role prior to automating – standardize processes first – then automate those processes.  Most companies need to answer these questions:

• How are we going to manage our portfolio?
• How are we going to define different customer segments?
• What are our current desktop procedures and how will they be mapped out?
• What are we going to build into and expect from the automation tool, as well as what NOT to build into the automation tool?
• How do we develop and look to improve the user experience?  How many systems do my collectors have to access?

The panelists moved on to the topic of managing deductions/disputes.  Managing and quantifying deductions, disputes, chargebacks and claims is difficult for many organizations.  Often times, associated data is poorly organized and it references distributed documents. Two of the panelists discussed how automating the workflow process helped them gain visibility into their disputes and track them for timely resolution.

The panel discussion wrapped up with a topic near and dear to the hearts of the many credit professionals I encounter – key performance indicators (KPIs).  What should credit and collections teams measure and report?  According to The Hackett Group’s 2012 Credit and Collections Performance Study, 100% of the study participants track and measure DSO; 56% track and measure cycle time (approve credit, days to issue invoice); 44% track and measure productivity (transactions processed per FTE). The study also indicated that 94.3% of the respondents stated that the top Performer Collections Effectiveness Indicator (CEI)  is 21% better than that of the peer median.  (Note - CEI is a percentage that expresses the effectiveness of collection efforts over time. The closer to 100 percent, the more effective the collection effort.  It is a measure of the quality of collection of receivables, not of time.)  DSO, past due A/R and CEI were among the KPIs that the corporate practitioner panelists track, measure and report.  All of the panelists agreed that having visibility into the data is key to being able to effectively and efficiently track, measure and report KPIs.

Are you able to reach all of your customers?  Do you have visibility into your disputes? What KPIs are you tracking and reporting? I’d like to hear from you...