A ROI Framework for Meeting Corporate Objectives through Credit & Collections Automation

Credit & Financial Management Review, 2004 by Coté, Alex

Abstract

Today, CFOs are counting on credit and collections managers to help them improve performance against working capital goals, achieve sales targets, and improve the strength of internal controls. Many managers find that while the pressures they face are escalating, their resources remain limited, and as a result, they find it increasingly difficult to meet these corporate goals and keep pace with sales growth. Proactive managers learn from the examples of world-class companies that use technology to make credit and collections processes as smooth and error-free as possible.

To illustrate the impact of automation technology on the efficiency of the credit and collections processes, the following case study has been developed. This Return on Investment (ROI) analysis quantifies the set of benefits that can be most easily monitored and benchmarked, but even through this limited analysis it is apparent that in most circumstances the technology investment will quickly pay for itself.

Key Challenges Facing Credit Departments

Today's credit departments are stretched in three directions. As they guard credit quality and find ways to help their sales team grow the business, they must achieve these goals with fewer resources.

Challenge 1: Doing more with less

Recent budget cuts and staff reductions have increased the pressure on credit managers to accomplish more with fewer resources:

For decentralized firms as well as those in which mergers or acquisitions have recently taken place, unnecessary duplication and time zone delays are further drains on efficiency. There is often little time left over for responsibilities that are equally important, even if they are not as urgent. Examples of less time-sensitive activities include refining credit screens based on historical results; aggregating credit exposures across corporate hierarchies and geographies; maintaining a dialogue with executives at top accounts; and visiting customers on-site.

Challenge 2: Maintaining credit quality within a tough economy

Not only are credit teams shrinking, but over the past few years the market has been riddled with major bankruptcies from the likes of Enron, Global Crossing, Kmart and WorldCom. Credit managers are faced with a situation where standards for DSO and bad debt are becoming more difficult to maintain.

Effectively addressing these issues involves focusing on periodic account reviews that might be viewed as optional during the boom times. Although resources are often too tight to conduct these reviews manually, credit managers find that they are able to achieve strong results by taking advantage of credit automation tools.

Challenge 3: Help the company to grow profitably

These days, companies are fighting for every sale, and sales reps will not take "no" for an answer until they've spent many hours arguing on behalf of a high-potential customer. Processes that enable credit managers to defend their decisions yield substantial time savings.

Key Challenges Facing Collections Departments

Collections departments face a daunting task: to improve DSO and minimize write-offs with the same or fewer staff, despite the fact that customers are becoming more sophisticated in the art of payables evasion.

Challenge 1: Reducing DSO

As payables departments receive pressure to push out payment timelines, collections professionals achieve mixed results.

Best-of-breed collections departments using automation technology strive to work both harder, by making more calls, and smarter, by prioritizing the calls that will have the most impact.

Challenge 2: Minimizing write-offs

Companies that identify problem accounts when they are one month past due have a distinct advantage over those that identify issues 30 days later.

Collections software automates the identification of problem accounts and notification of relevant managers, placing its users one step ahead of the competition in the payment pecking order.

Challenge 3: Keeping costs in line

Collections departments are working toward tougher goals and applying fewer resources to the task. This is a major challenge, given that there is a direct relationship between the number of full-time employees in a department and the DSO and recovery rate results that they can achieve. The best practice is to find a way to allow each collections professional to spend a higher percentage of time on the phone. Firms implementing collections automation testify that the technology helps their people to accomplish this goal.

Best Practices for Credit & Collections Departments

Through the use of automation technology, both credit and collections departments can address key pain points. Credit automation enables companies to apply a single set of approved rules and procedures to every credit decision, thereby improving the efficiency and consistency of the decision-making process. Automated collections helps collectors get more done with fewer resources, while performance management and analytical tools allow collectors to identify problem accounts more quickly, reign in DSO, and minimize bad debt.