Part 2 of a 3-Part Series on Consultative & Relationship-Based Collections
Collections is one of those operations that is usually performed with insufficient forethought as to what people, process, strategy and policy need be employed to deliver exceptional results.
In the previous series installment, we discussed traditional and radical schools of thought on the collections function and how a collections process should define and justify its existence within the organization. This second installment will focus on what elements require rethinking and review. In almost all organizations, the collections function is ripe for improvement, and we need fresh eyes to examine and improve the process.
Today, there are many players in the market who claim to automate collections, bring efficiency, reduce cost and help organizations meet business outcomes.
Undoubtedly, they have technology that has worked for some, and they have testimonials that talk about their customers’ experience. But remember, all these solutions are built and overlaid on the organization’s ecosystem, which has not evolved in most cases. An organization may spend time and money to patch a deficient system, but still not realize its full potential unless:
- It captures and converts knowledge acquired over a period into its processes and procedures.
- It redefines the company policy and strategy to minimize the need for judgement calls.
- It designs the process for success and excellence.
Insufficient Forethought: People
Most organizations staff collections based on the “collector” mentality. They hire and train people to communicate with the customer’s payable team and collect cash. While this has value in a B2C collections framework, in B2B collections, collectors must be able to properly review invoices, compare them to contracts and then have the ability to take corrective action or clearly explain the invoice to the customer. While communication is critical, knowledge about invoicing and contracts is pivotal.
Insufficient Forethought: Process
Collections operate on the 80:20 principle. That is, 80% of the outstanding A/R is contributed by 20% of the customers who are habitually late in nature. Your top customers are usually the same over time, with some change in overall contribution owing to the seasonal nature of the business. So, why do late payment patterns persist? Collections departments focus more on collecting cash, than taking the time and effort necessary to backtrack through a problem and correct the root cause that promoted the late payment from the start.
Insufficient Forethought: Policy
During the course of collections, a collector learns multiple things about the service offered, the customer’s behavior, pricing, invoicing, payment method, etc. However, there is no formal attempt or mechanism to collect these findings, review them and incorporate an appropriate remedy into the system. Collections feedback is the voice of the customer at the point of sale. When a customer disputes or demonstrates unwillingness to release payment, this feedback should form the basis for policy changes that reduce collection efforts in the future.
Insufficient Forethought: Strategy
It is widely believed that a collections strategy is based on business goals. In reality, the strategy changes every month and, in some cases, every week. As the organization shifts its focus from one metric to another, the strategy changes. The collector struggles to prioritize his work and is constantly striving to align to the new strategy.
Collection operations fail to add real value to the business, because efforts are focused on the immediate gratification of collecting debts, rather than understanding the root causes behind the late payments. For this reason, operations managers must not only re-think how they hire and train personnel, but re-imagine the processes, policies and strategies they emplace to ensure an upward curve in on-time payments over time.
In our next installment on this topic, we will explore how best practices, combined with modern technology and the right people skills, can dramatically improve collections, mitigate late payments and return greater value to the organization via a renewed collections operation.
To learn more about EXL’s approach to modern collections, please visit. www.EXLservice.com.