Magazine article Business Credit

Automating Collections Adds Cash, Frees Up Staff Time

Magazine article Business Credit

Automating Collections Adds Cash, Frees Up Staff Time

Article excerpt

Moving information electronically is, the easiest, quickest, and most flexible method available. When this principle is applied to the collection function, the benefits--new cash and more staff time--are tangible.

A middle-market clothing and textile manufacturer provides an enlightening case in point. Like many companies, it was looking for new cash and suspected some could be found within the collection procedures for its 3,000 accounts. The firm also wanted to avoid adding more than $200,000 in annual personnel expense for taking on an additional 8,000 accounts that were being factored.

With four analysts, seven collectors, and one file clerk, collectors searched weekly printouts of the aged trial balance for past-due accounts, then entered the names of the delinquents on their desk calendars. These names became the daily list of files to be retrieved by the clerk for the collectors to call. Each collector put a report into the file for review by analysts, who checked the quality and consistency of the collectors' performance.

Manual Processing Is Expensive

This unpretentious approach was actually expensive. Searching for overdue bills, scheduling calls, and physically retrieving paper files consumed approximately 40 man-hours per week.

More important, the paper shuffling and manual note-taking caused the company to fall consistently short--by some 25 percent--of its goal of 30 calls per collector per day. And, without doing a special analysis, management was unable to monitor days sales outstanding (DSO) performance of collectors.

The right system could do away with many of these delays. For example, there was a 10-day grace period before invoices were considered past due. Another 10 days went by after a promise to pay was made. The process lost another three-and-one-half days because it depended on a weekly report.

The top priority was installing automated collection software and hardware that could tap the existing accounts receivable system. This change should enable collectors to make 40 percent more calls per day. DSO, our department feels, will fall from 60 days to 54 days, and bad debt should decline by 15 percent. Here's why:

Different strategies and protocols can be applied to different customer classes. With an automated system, collectors can match collection efforts to the size and payment behavior of the account.

Identifying overdue bills will no longer be a manual process. The list of accounts to be called the next day will be downloaded to the collector's terminal every night.

Collectors will no longer have to check for payment before calling. …

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