Magazine article Business Credit

Fraud/receivables Management-A Transformation

Magazine article Business Credit

Fraud/receivables Management-A Transformation

Article excerpt

Why do we need a transformation? There exists only one reason: proper customer management. When one thinks about the organizations of fraud and receivables management, they are considered as two distinct and separate entities. Their objectives, although focused on reducing loss, are actually opposite. Receivables management is focused towards methods to filter and validate potential customers and reducing the loss exposure of existing customers. Fraud management takes known fraud loss and abuse history and tries to mitigate future losses. Each customer's touch is more of a negative than a positive experience.

Customer management requires a focus on how these organizations interact with customers, and adds value to the whole organization in both a financial control philosophy and a sales/service opportunity. Although one would normally not even consider these organizations as a sales/service function, they can become an integral part of how customers are managed and how costs are reduced, by effectively including their contributions.

The Organizations

Fraud management functions from a historical point of view. A loss must be suffered before a rule or threshold is created. Regardless of the type of product, whether a telecom service or a credit authorization, a financial loss of a given magnitude must have had occurred before a threshold is set. These losses create established fraud scenarios used in the evaluation of alerts produced. Even the new profiling solutions require a history to be developed in order to alert on deviations from the profile.

The rules and thresholds are often within defined windows of time, usually within a maximum of 12 hours. The time limit is necessary due to the volume of activity that is under evaluation and the need to quickly identify potential issues or losses as fast as possible. Due to the volume of activity and time limits, the fraud management organization is placed into a position of evaluating snapshots of time.

Depending upon the fraud procedures for the services under review, the actions of fraud organizations are limited to either restriction or cancellation. This leads other organizations to view the fraud organizations negatively, one that forces restrictions onto products, one that stops revenue and--more importantly--one that impacts good customers.

Receivables management, by contrast, is focused on establishing credit policy--who should be allowed as a customer and under what conditions. Additionally, once allowing a prospect to be a customer, actively define the collection procedures a customer may be subjected to.

The establishment of the entrance criteria is a critical part of creating the credit policy. There is the determination of acceptable risk, validation requirements and deposit or credit limits. Potential customers who fail validation or are unwilling to accept deposit or credit limits are denied access to services. These guidelines are often inflexible.

The creation of the collections methodology allows determination of how a customer is to be treated once delinquent--how soft or hard the dunning will be, and how severe the collection calls made. These are purposeful methods tried and true in obtaining maximum results in order to reduce the amount of bad debt.

Each of these functions has their own expressed actions. The authentication or validation stage will either deny or request deposit/credit limits. The collections process may offer payment plans or cancellation. Yet, these actions are performed within very specific time frames. Authentication only occurs at installation, and collections occur once a customer becomes delinquent.

Just as fraud organizations have a reputation, so has the receivables group. They are often known as the group who creates endless barriers to obtaining customers, who routinely denies prospects access to services and who performs little to no customer service in their goal to collect what is due. …

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