How? I hear you ask. When most people think about collections teams they think about staff who are contacting customers, dealing with queries, chasing payments and allocating cash. They are all reactive processes - they are either reacting to a conversation with a customer or reacting to a worklist to contact the customer in the first place.
There is nothing wrong with this, this is how most collections teams work and with a good team this can be very productive. If the team become good at contacting customers, recording customer queries and promises to pay, they can control the way their customers will pay them.
However if you continue with this process you will hit a ceiling. You can add some good systems (SAP FSCM is the tool to you inside a SAP ERP system) and design some good business processes to implement but this is still a bit limiting. The true way to move to the next level is to be PROACTIVE.
How can you be proactive?
Two words spring to mind – Business Intelligence
Customer contacts: Review the performance of your team. Are there members of your team who are more capable than others? Do they have spare capacity to take on more customers or do other team members have too many accounts? Reporting on the number of customer contacts made, the number of duplicate customer contacts and the number of customers not contacted in a collection cycle will provide insight to the collections manager and they can proactively move customers around to ensure the team as efficient as possible.
Customer disputes: Yes customers will raise them, but there must be a reason why a dispute occurred. Proactively analysing the types of disputes being raised by customer, reason code or region will provide insight into underlying business issues. You may find that a new starter in a sales office has not been trained to enter a Purchase Order when they are raising a sales order. If you can report this back to the sales office manager, they can re-train the user to ensure this does not occur again.
Do salesmen tell customers one price for a product but not enter a different one into the sales order? Publishing detailed dispute reports throughout the business let other business units and departments understand the issues they cause when making simple mistakes, and resolving these mistakes will reduce the volume of new disputes.
Promise to pay: Collection teams will contact customers to obtain a promise to pay. This is where they confirm the amount they will pay and when they will make the payment. In isolation this is very useful information, you can use this for your cash flow forecasts as you have an informal commitment to pay. Some customers will honour their promise to pay and others may break this. In a single collection cycle this is very useful information. However you can be proactive, if you start to monitor and track promises to pay over a period of time you will begin to notice trends. It could be certain customers will want to pay you as late as possible. They wait for chase letters, and say two customer contacts. If you have this information you plan how to change this cycle. You ideally want them to pay earlier than they have been, so you might need to contact them earlier in the chase cycle, and send out your chase letters earlier. This way the customer will follow its policy but you will get paid sooner.
If they cant pay earlier it could be that they are having trouble with cash flow and therefore you can proactively amend their credit limit to ensure the customer does not turn into a bad debt.
These are just a few examples of how you can proactively improve your collections team, however I hope this insight has made it clear that by defining the correct business measure you can fully the maximise the potential in your collections process, team leading to real reduction in costs.