The current scenario in Collections

As much as the collections process has evolved, the pitfalls in the process fail to disappear. The collectors still struggle across the roadblocks like too many delinquent accounts and a shortage of time to cover all accounts in the worklist. While the majority of their time is spent in sending email reminders, the use of Excel or spreadsheets as a main system of record further slows down the process. Amidst all the shortcomings in the collections process, DSO, past-due A/R and account coverage remain key concerns for the collections team. The golden rule in collections states ?The longer a debt is owed, the less likely it is to be repaid? and rightly so as per the reports by Atradius that state that 52% of 90-days past-due invoice values are usually written-off. As per McKinsey?s report, more than 70% collection calls are wasted! These calls are made for accounts where the customer would have paid even in the absence of these calls. These facts and figures along with the identified process pitfalls pose an undeniable threat to the scalability and seamless working of the collections process. At a closer look, it can be identified that there is something wrong with the way the collections worklist prioritization works today, leading to wasted phone calls, increasing past-due A/R and insufficient account coverage. The next section explores the root causes of the problem.

The Leaks in Account Prioritization

The collections teams have traditionally used aging data and invoice value as the two pillars to slice and dice the invoice data extracted from the ERP. While this technique may seem reasonable and insightful enough from a top-level view, the industrial statistics disagree. When aging data is used to prioritize a collections worklist, it may prioritize accounts in the worklist which have a claim or dispute associated with it. Now the collections process for these types of accounts cannot proceed or start unless the corresponding dispute has been resolved by the deductions team. However, the worklist prioritized based on aging would show up these accounts at the top for every collector. If the collections team focuses on invoice value while prioritizing the day?s worklist, the small and medium accounts are left unaddressed and this may lead to increasing past-due A/R due to their accumulated invoice value. Moreover, there is a high probability that these customers would have paid if they had been sent a reminder or email about the same. What is more interesting is the fact that in a collections worklist 20% accounts on an average have high invoice value while 80% are small to medium accounts. The collectors who focus on only the large accounts often end up delaying numerous payments by small and medium customers. The combination of aging data and invoice value also doesn?t support account prioritization in an optimized manner as they are lagging indicators of delinquency by an account. Moreover, using this tactic doesn?t identify or segregate the fast-paying customers, slow-paying customers or the regularly delinquent account. Conclusion In conclusion, the static method of prioritizing accounts based on just the aging data and invoice value does more harm than any benefit to the collections process and are the leaks in accounts prioritization. This leaves room for more dynamic and leading indicators of delinquency as factors while prioritizing accounts.The next chapter discusses the plugs to seal the leaks.