A Smart Collections approach to order-to-cash outsourcing can enable rapid results in an economic crisis
 
By Chris Gattenio
 
In an economic crisis, access to capital is increasingly difficult. To stay competitive, companies are focusing on order-to-cash (O2C) processes to reduce operating costs, accelerate collections, mitigate risk, and release working capital. With 60 percent of an organization’s working capital tied up in accounts receivable, accessing this can provide significant stimulus in a down economy.
 
Recent market reports highlight that accounts receivable performance for many companies is deteriorating from consumer and corporate debt perspectives. While accounts receivable is included in 80 percent of F&A outsourcing engagements, according to the Everest Group, not all companies are leveraging a smart collections approach to their outsourced O2C processes.
 
Making Collections Smart
Most organizations face critical pain points that render the O2C cycle ineffective: Rising labor costs due to increased customer delinquencies, poor management of customer credit risk and/or weak credit decision-making, and a lack of integration in technology, processes and information.
 
But smart collections go farther, managing the end-to-end collections process while leveraging analytics and insight to enable better business decisions, improving overall collections performance. A smart approach to collections management uses tools, tactics, and strategies that increase measurement and monitoring capabilities, enhance decision-making, enable visibility via robust data management, and improve operational processes and productivity.
 
A smart collections approach improves overall collections performance by enabling organizations to conduct sophisticated testing, isolating true performance drivers, eliminating defects and leveraging ongoing performance monitoring by tracking these drivers and key performance indicators against industry benchmarks.
 
Leveraging the best telephony, dialer, and workflow management technology, this approach also optimizes collector performance through training, incentive plans, and scripting to increase productivity and improve operations. Smart risk management uses ongoing analytics on customer payment behavior to drive effective credit decisions and collections treatment prioritiziations.
 
Smarter O2C
The O2C process spans multiple steps—order entry, credit analysis, invoice generation and dispute management through cash collections and cash applications—as well as myriad departments, partners, vendors, customers and back-end enterprise applications. A smart approach combines the consolidation and optimization of a typical O2C outsourcing arrangement, and enables process delivery through standards-driven granular measurement, automation and analytics and insight, helping to ensure fully integrated end-to-end design and execution of AR processes.
 
Automated cash collection and work distribution tools reduce the “touch points” that result in errors, delays, and rework. Role-specialization monitoring capabilities provide precise data about where staff can be more productive and the process tightened. The customer’s overall experience improves, and employees spend less time on administrative tasks and more on collections—resulting in a transparent and highly optimized workflow that minimizes profit leakage and eliminates cashflow bottlenecks.
Robust reporting tools—forecasting, account prioritization, trending, customer behavior monitoring and portfolio risk analytics capabilities—enable tracking, collection and measurement of critical data about the people, process and technology components of key O2C transactions. Information captured at the granular level enables a root cause to be isolated and analyzed and actions taken to eradicate defects. Together with status updates that provide more accurate and timely information about customers and their activities, an organization can detect and alleviate sources of profit leakage while anticipating future solutions. Web-enabled dispute management tools allow for more rapid problem identification and correction. 
 
Benefits of Being Smart
A smart approach to collections helps mitigate risk, increase productivity, improve operational performance, enhance business decision-making and increase customer satisfaction. Improved design, automation, measurement and monitoring activities, together with a strong analytics framework, will significantly increase dollars collected.
The reduction in both overall debt and the time to collect it (DSOs) can rapidly increase an organization’s cash position, reducing operational costs (10-30%) and profit leakage (15-30%). A smart collections approach can deliver 15 percent to 30 percent reduction against the current receivables balance, thereby improving internal liquidity.
 
While most organizations are structured to minimize bad debt provisions; the implementation of a smart collections approach to accelerate working capital reduction will achieve that goal faster, improving the balance sheet.
 
 
Smart Collections include:

• Credit limit analysis/behavioral scoring
• Inbound/outbound collection calling
• Performance management/measurement
• Customer/process analytics
• Call center process management
• Deep O2C process expertise
• Controls/compliance expertise with all regulatory requirements

 
Former CFO, FAO metrics guru, and FAO provider Chris Gattenio has been an advisor for more than 1,000 CFOs. She is vice president, MBPS asset strategy and F&A program management, IBM Managed Business Process Services.
 
If you have a question for Chris, send it to: chris.gattenio@us.ibm.com