How to Transform Credit and Collection Operations for Proactive Receivables Recovery

Introduction

It is no secret that how effectively a business manages its finances today is the key indicator of how well it will perform in the future. Yet, many companies grapple with managing their credit and collections operations and fail to implement proactive strategies for recovering receivables. Not only does this jeopardize financial stability, but it also hinders business growth.

To stay ahead, it’s essential for businesses to address these challenges by leveraging technological advancements like AI-driven AR solutions. This will help them streamline collection efforts, minimize bad debts, reduce costs, and elevate the customer experience.

With that in mind, let’s understand how credit and collection function and the pivotal role that technology is playing in transforming these operations.

Understanding B2B Credit and Collection Operations

Credit and collections management are two crucial steps involved in O2C workflow. Efficiently managing these two aspects can help businesses reduce credit risk, improve days sales outstanding (DSO), reduce bad debts, and receive timely payments. Here’s what each of these operations entails:

What is credit management?

Credit management is the process of overseeing credit-related decisions to ensure financial stability and mitigate risks. The process begins with assessing the creditworthiness of customers by evaluating their financial health, credit history, and reliability to set the credit limits and terms. 

What is collection management?

Collection management involves the process of overseeing and managing the collection of outstanding debts or receivables. The core goal of the efficient collection is to ensure proactive and timely payments from customers while delivering a superior customer experience. 

Key Aspects in Credit and Collections Operations

To achieve seamless financial operations and robust cash flow, understanding and managing the key aspects of credit and collections is essential. These operations encompass several critical functional areas that directly impact your company’s financial health and customer relationships. These operations largely include the below-given key functional areas:

Creditworthiness assessment and monitoring

Before extending credit to a business, it is crucial to assess its creditworthiness. This involves evaluating the financial health, payment history, and credit references of the potential customer. Conducting thorough credit checks, obtaining financial statements, and analyzing industry data can help assess the risk involved in new customer onboarding. 

Furthermore, ongoing monitoring of the customer’s creditworthiness is important to identify any changes in their financial situation or payment behavior that may impact their ability to meet payment obligations.

Enterprise-wide implementation of standard credit policies

Establishing clear credit policies is essential for B2B collections. These policies should outline the terms and conditions of credit, including payment due dates, late payment penalties, and credit limits. 

It is crucial to communicate these policies to customers before extending credit and have them acknowledge and agree to the terms. Clear policies provide a basis for collections efforts and help manage customer expectations regarding payment obligations.

Customer account prioritization

It is a common fact that every customer will not have the same amount of debt owed, nor will they have the same level of risk associated with the businesses. Thus, categorizing and managing customer accounts based on their importance, risk level, and payment behavior becomes important for businesses. 

As a result, the collection team will know which customers to reach out to on priority. By focusing on the most critical accounts, organizations can better manage risk, accelerate collections, and make more informed business decisions.

Collections outreach and relationship management

Proactive collections involve regular and systematic follow-up with customers to ensure timely payment. Maintaining regular communication before and after extending credit is crucial in B2B collections. It is essential to establish strong relationships with customers and understand their payment cycles and preferences. 

Early intervention, such as sending payment reminders, making courtesy calls, and offering payment plans, can help prevent overdue payments from becoming problematic. Additionally, maintaining open lines of communication and addressing any payment issues promptly can help preserve the customer relationship and increase the likelihood of successful collections.

Challenges in Credit and Collection Operations

Now that you have a fair understanding of B2B credit and collection operations, let’s discuss some of the challenges faced by organizations due to a lack of technology adoption:

• Limited resources and high reliance on manual processing Many organizations are facing challenges related to staffing constraints, rising transaction volumes, increased compliance, and regulatory issues, with employees spending a lot of time on manual low-value tasks. This has resulted in organizations grappling with high operational expenses, reduced productivity, and inability to cater to critical customers during credit and collection operations.
• Lack of a streamlined collection process Without a strategy-driven, automated collection process, organizations lack a streamlined workflow that enables the collection team to identify the best mode of action for increased collection recovery. Owing to this, different stakeholders can follow disparate credit and collection processes. Further, as tasks are performed manually organizations are unable to optimize performance.
• High adjustment volumes High adjustment volumes are aggravated when there is difficulty in identifying and resolving disputes. The result is low customer satisfaction, unresolved discrepancies and teams spending considerable time and effort on resolving these issues.
• Inconsistent credit assessments Without systematic and real-time reviews of accounts receivable portfolio and other customer parameters, credit limits and associated credit score and risk ratings are likely to become outdated. As a result, organizations might face excessive credit holds, a lack of visibility into actual portfolio risk, and missed opportunities to mitigate risks or take advantage of sales opportunities.
• Limited data visibility When receivables data is maintained manually or in disparate systems, teams do not have a complete overview and face challenges while accessing information. It becomes challenging for teams to ascertain the number of outstanding invoices and the corresponding liabilities. This complicates the ability to recognize trends in delayed payments and assess whether corrective measures are necessary.

Role of Technology in B2B Credit and Collections

Traditional methods of managing credit and collections operations often suffer from inefficiencies due to reliance on manual, error-prone processes. Here, leveraging technological solutions ensures that businesses can proactively and intelligently enhance credit and collection efficiency while ensuring that they can effectively engage with customers. Let’s explore some pivotal areas where technology takes center stage:

AI technology-driven efficiency

By leveraging AI technology, organizations can instantaneously process vast amounts of data, extracting valuable borrower information from diverse sources. This includes income analysis, credit history scrutiny, and payment behavior assessment. The insights obtained enable businesses to forecast risks more efficiently and make informed credit decisions.

The integration of AI technology allows for the aggregation of relevant customer data, facilitating accurate profiling and segmentation. This helps to reduce manual efforts involved in both collections and credit operations, resulting in higher process efficiency and accuracy. 

Advanced predictive analytics

The true power of AI lies in predictive analytics, which aids in identifying customers at risk of non-payment well in advance. By analyzing patterns in customer data, organizations can proactively manage accounts, preventing them from becoming delinquent. This proactive approach allows for tailored solutions, such as payment extensions and customized payment terms, mitigating the likelihood of bad debt scenarios.

A one-size-fits-all approach does not work in collections and based on the analytics-generated insights organizations can implement targeted collection strategies, achieving higher efficiency and identifying potential risk proactively. 

Omnichannel communication

The transformation of credit and collection functions is reshaping customer engagement strategies. Speech analytics and AI-driven customer profiling are leading towards effective digital customer interactions throughout the credit and collection life cycle. 

Businesses adopting digital and omnichannel communication techniques experience reduced operating costs and increased collection rates, with customers favoring non-invasive, convenient, and self-service options. The implementation of AI-based platform solutions further enhances customer experiences, contributing to improved overall customer satisfaction and collection recovery outcomes.

Benefits of Leveraging Technology in AR Operations

Technology has significantly impacted credit and collection operations, bringing about several changes and improvements by improving efficiency, data analysis, communication, customer experience, and security.

1. Enhanced operational efficiency: Technology has enabled the automation of various credit and collection processes, such as customer onboarding, dunning, and debt tracking. Automated systems and software streamline workflows, reducing manual efforts and increasing operational efficiency.
2. Proactive decision-making: Advanced data analytics tools and algorithms help analyze vast amounts of customer and financial data seamlessly. This allows credit and collection professionals to gain valuable insights into customer behavior, creditworthiness, and payment patterns.
3. Better customer interactions: The use of technology enables faster and more efficient interactions between creditors and debtors. Online portals, email, text messaging, and chatbots provide convenient and immediate communication options. This enhances the overall customer experience, encourages timely payments, and reduces disputes.
4. Improved compliance and security: Technology-driven solutions play a vital role in enhancing compliance and security measures in the credit and collection functions. Robust systems and encryption technologies protect sensitive customer information, ensuring data privacy and compliance with regulations such as GDPR and PCI DSS.

How HighRadius Can Transform Credit & Collection Operations?

HighRadius’ AR automation solution enables businesses to streamline and automate their O2C process, including credit and collection operations, ensuring they make informed credit decisions while minimizing risk. Let’s take a look at how all this comes together!

Streamlining credit operations

Our AI-based credit cloud enables you to automate credit reviews and proactively manage credit risk and order management with automated credit workflow, credit scoring, and approvals. 

Online credit application: Our Credit Cloud allows you to provide a link to an online credit application for onboarding new customers. You can either email this link to your customers or host it on your website. When customers access the form, complete it, and submit it, their application is automatically routed to your credit analyst’s worklist.

Blocked order management: The software uses AI algorithms to predict and provide actionable recommendations for blocked orders. Not only this, but the software also automatically routes the decisions made on the blocked orders through the required approval hierarchy. As a result, businesses can expect a reduction in DSO and an improved customer experience.

Credit workflow management: To help credit analysts save time and work efficiently, our credit cloud simplifies crest workflow management. It creates a prioritized worklist for analysts to recognize high-risk customers and take action accordingly. Further, with streamlined multi-level approvals and automated credit decision correspondence, businesses can make faster credit decisions. 

Managing collections operations

For collections automation, our collection management software is equipped with AI capabilities to help collection teams reduce DSO and enhance productivity. 

Worklist prioritization: HighRadius Collections Management software uses advanced algorithms to automatically prioritize accounts based on factors such as outstanding balance, payment history, and risk levels. This ensures that collection teams focus their efforts on high-value or high-risk accounts first, optimizing the use of resources and improving recovery rates.

Advanced dunning: Our solution helps collection teams by automating follow-ups for overdue accounts. Your teams can automate the issuance of past-due notices, reminders, account statements, and other correspondence, enabling collectors to engage with a larger number of customers.

In-app dialer module: The software simplifies the most time-consuming task—making customer calls. Features like one-click calling, auto-transcription, and automated follow-up email help collectors reach out to more customers, reducing past dues and increasing collection efficiency.

How do our solutions benefit your business?

When you choose HighRadius as your partner to automate your receivables process, here are some outcomes to expect:

• Accelerate customer onboarding by 70% 
• Minimize bad debt by 10% 
• Reduce blocked orders by 30%.
• Decrease past due by 20%
• Increase collection team productivity by 30%.

Therefore, stay on top of your accounts receivable operations and scale with confidence by leveraging the power of automation. 

FAQs

1. Why are credit and collection important?

Credit and collection are important because they facilitate economic activity by allowing businesses to access capital and goods on credit. Managing credit and collection functions efficiently helps maintain cash flow, reduce financial risk, and ensure business stability.

2. What are the credit and collections activities?

Credit and collections activities involve extending credit to customers and managing the collection of outstanding debts. This includes evaluating creditworthiness, setting credit terms, monitoring payment timelines, negotiating payment terms, and taking steps to recover overdue payments.

3. What is Collections Technology?

Collections technology leverages digital methodologies to collect overdue or outstanding payments from customers while reducing the total cost and effort to collect. This involves utilizing AI-powered credit and collections software and data-driven analytics to streamline the AR process.

4. What are the emerging trends in collections technology?

Emerging trends in collections technology include the adoption of automation, and AI & ML for predictive analytics, aiming to enhance efficiency and optimize debt recovery strategies. Additionally, digital platforms, chatbots, blockchain, and mobile solutions are also gaining traction.

5. What tasks in the credit and collection operation can be automated?

Tasks in credit and collection operations that can be automated include credit assessment, customer onboarding, risk prediction, payment reminders, follow-up communications, dispute management, and reporting. This automation streamlines processes, reduces errors, and enhances efficiency.