Perspectives

Companies continue to look for ways to reduce borrowing requirements during the credit crunch; add that to the cost of restructuring efforts to eliminate wasteful spending and the refining of inefficient practices. All of this is in an effort to leverage every dollar passing through the organization, while being tasked with accomplishing more with fewer resources.

While challenging, many companies are gaining traction by using automation and workflow technology focused specifically on credit risk mitigation and cash collections.

The following are five key best practices for improving credit and collections management that every company should consider:

Institute a Strategic & Automated Approach to Cash Collections - Unlock hidden cash, enhance compliance and improve customer service with greater visibility to optimize working capital and streamline collection processes.

Embed & Manage Risk Policy Across the Enterprise - Leverage a centralized web-based deployment with a zero client footprint allowing business units and locations to leverage a single view of risk. Consolidating data from legacy ERP or A/R systems is a critical component for effective risk policy management and helps to reduce redundant data purchases.

Leverage Credit Data for Risk Based Collections - Collection prioritization is usually based on aging; simply contact the oldest invoice first. This can often result in high dollar accounts or high risk, low dollar accounts being ignored, even though they are the most costly for a company.

Risk-based collection methodology allows for the use of judgmental and statistical-based credit scoring to determine inherent customer risk and then uses that risk level as the primary driver for developing collection strategies for ongoing customer portfolio management.

Segregate Disputes from the Collections Process - Credit and collections departments need to have distinctive strategies in place to deal with outward facing issues (i.e. collecting on bills and customer service), as compared to inward facing issues (i.e. disputed transactions that may need to be investigated within the organization). With less disputed transactions, collection activities will be more effective, decreasing the carrying costs of receivables and increasing customer satisfaction and contributing more to the bottom line.

Manage Bad Debt Reserves at the Customer Level - By achieving more accurate accounts receivable portfolio monitoring, more precise estimates of bad-debt reserves and improved forecasts of monthly cash flow can be achieved. Take stock of customers’ past payment performance since they most likely will directly correspond to their future payment habits.

Through implementing automated systems that are intuitive enough to embed receivables workflow with risk management functionality, organizations will be able to unlock cash that may have been tied up in such draining activities as covering bad debt. This in turn will have a positive impact on the bottom line and will help companies rise above the economic turmoil.

I recently took part in a round table on liquidity management for CFO.tv Cash Clinic, expanding on these ideas and I invite you to share your perspective on what credit and collections processes are working for your organization.