Collections Maturity Assessment Model for CPG Companies

To meet the CFO’s objective of safeguarding cash-flow, A/R leaders must assess the operational gaps in their collections process. This eBook provides a Collections Maturity Model for CPG companies to help them compare their collections processes with the best in class in the industry.

A/R leaders will also learn a few best practices to help their teams adopt a proactive dunning approach and reduce Day Sales Outstanding (DSO).

Introduction

• In today’s fluctuating economy, A/R leaders across the consumer packaged goods (CPG) industry identify collections as their top priority for its potential to bring in cash from all outstanding invoices.
• The collections department was put in the limelight in 2020 due to the turbulent economic climate. Now, as we are in what can be termed as a “recovery economy”, the focus on collections remains. Today, most A/R leaders are spending time assessing their collections operations and identifying gaps to fill.
• A/R leaders must evaluate their operations against a Collections Maturity Model to understand how efficient their collections process is. Collections teams have seen a significant shift from being a “back-office function dialing for dollars” to a “front-office strategic partner to the customer.”

The Collections Maturity Model for CPG Companies

The HighRadius Collections Maturity Model classifies collections processes across CPG organizations into four levels, namely: traditional, reactive, preventive, and proactive processes. The model helps A/R decision-makers perform an in-depth analysis of where they are in terms of their process efficiency today and identify the next steps for growth and maturity.

Let us take a look at some common challenges faced by the CPG industry

• Limited collection staff restricts them from navigating across a diverse and global customer portfolio.
• Lack of real-time visibility into global A/R health and customer data
• A reactive approach to collections due to non-standardized processes

For your collections department to become an industry leader and mitigate the challenges mentioned above, you need to dive deep into the four-point maturity modelbelow and take action to emerge as a best-in-class collections department.

The Collections Maturity Model characterizes the evolution of the collections operation into these four stages:

Does your collections team lead and make innovative collections decisions using technology? Or is it still lagging with room for improvement?

1. Collections with Traditional Processes

A/R leaders whose collection processes depend on their collectors’ skills, experience, and individual expertise can categorize their teams as operating on a traditional approach.

They are usually in the early stages of blending processes and technology together in one place to manage better and take control of their A/R function.
Your collections process is traditional if –

Your team is likely to have trouble managing past-due A/R, and you have insufficient resources to control the high volume of receivables that come in your team’s way. 

• Your team spends their time maintaining spreadsheets on accounts with past-due A/R, and calling customers to get paid. 
• Your team doesn’t have the latest information on credit limits, open deductions, cash posting data, and blocked orders, all of which affect account prioritization while contacting customers.

Finance functions with a traditional collection process do not usually communicate or collaborate effectively with internal or external stakeholders.

2. Collections with a Reactive Processes

A/R leaders who have a reactive collections process are also primarily dependent on people, but have started addressing the ‘process’ elements. They are in the first stages of placing technology to manage collections better.

Your collections process is reactive if– You find that your team’s follow-up process is usually triggered after an account goes past due. Your reliance on aging lists and customer master data from ERPs to call customers for collections on a day-to-day basis slows your collections down.
In such cases, the collections teams are most likely to operate on very fixed dunning strategies, or there are limited resources to reach out with critical accounts proactively.

3. Collections Department with Preventive Processes

A/R leaders who have preventative collection processes are generally quite efficient with people and processes. They are starting to leverage technology to automate manual activities within collections.

Your collections process is preventive if – Your team can modify dunning strategies to share the data across the other A/R teams. Analysts no longer need to prepare a worklist on ‘who to contact’ because the system provides a customized worklist for them.

Additionally, some parts of customer correspondence must be shifted from calls to emails. This means account coverage on any given day could increase by leveraging customized templates. 

While there are specialized systems and processes, collections management is still a problem. This is because their systems designs don’t allow collaboration with the customer’s accounts payable team.

4. Collections Department with Proactive Processes

A/R leaders who work with a proactive collections team leverage people, processes, and technology to run their business operations and are in a win-win situation. They have optimized collections operations and are doing everything right.

Your collections process is proactive if– You have all the order to cash processes like credit, deductions, and cash application, integrated into the collections system. Collections analysts in your team have all the critical information on any account at any point in time.

• Additionally, collections analysts effectively leverage email automation to scale communication and prevent collections from falling through the cracks.
• The system is powered by predictive analytics. The analyst is presented with at-risk invoices that are likely to be paid late so analysts can proactively follow up with customers and prevent late payments. In addition, analysts are empowered with tools to offer early payment discounts and reduce DSO.

They also collaborate better with buyer A/P teams using self-service systems for invoicing, dispute resolution, and payments.

People and processes are efficient because the A/R team is technology savvy, automates transactional tasks, drives standardization throughout the organization, and ensures seamless collaboration with customer accounts payable teams. As a result, the organization has a high level of visibility into operations and reporting capabilities.

A proactive approach to collections would involve:

Proactive collections departments help you improve your working capital and cash flow, increase efficiency across the order to cash processes, and deliver an exceptional customer experience to your buyers.

Conclusion

You can use the real use cases above to evaluate which category you fall into within the Collections Maturity Model. The next step is to quickly determine whether or not your collections department is on top of its game.

Being in the first two stages means you may need to fix your collection operations to climb up the technology ladder. The end goal of the Collections Maturity Model is to guide a best-in-class proactive collection team.

To learn more about how the collections maturity model leads to a proactive and world-class collections team, read HighRadius’ e-book, with insights on more than 500 receivables projects.