Receivables management and customer retention – a contradiction?
It is part of the daily activity of credit and receivables managers: overdue receivables must be identified and suitable measures initiated. The classical linear dunning procedure with its three or four dunning levels, follow-up telephone calls and legal action as the final stage does not, however, fulfil modern requirements for a customer-orientated way of dealing with late payers, and especially one which promises success.
Receivables managers in conflict of interests?
Companies must be able to deal with their customers as individually as their customer relationships are diverse – also, and especially, when it comes to the collection of receivables. There is therefore an aspiration to be able to make decisions for individual cases and with great sensitivity as to which measure should be performed next and by whom in order to fulfil two aims equally: the receipt of payment and the retention or even the further extension of the business relationship with the customer.
Taking a look at what actually happens in companies shows that this aspiration and reality are often far apart. In many companies there is already IT system support for the area of receivables management, but flexibility and the possibilities to individualize often leave much to be desired. Therefore, the desire of receivables managers to be able to react quickly to changing conditions and to address the customer in a targeted manner with suitable methods can only be achieved to a limited extent. Furthermore, to realize this many manual steps in working processes currently dominate daily activities: additional information about the customer is first gathered (e.g. through internal discussions with the sales department or reporting via Excel) and then manual interventions are made in processes that are already (partially) automated. This means that the automation potential cannot be fully exploited. Another problem with intervening in defined processes is the documentation. Because of the lack of process conformity, it is often not clear which measures have been performed most recently. Separate notes are often kept about customers that cannot be evaluated electronically. Information of this type can therefore not be included in an evaluation of the customer, which hinders the following (automatable) processes and leads to mistakes (e.g. dunning pauses are not adhered to or unsuitable follow-up measures are performed).
One functionality that is currently also underrepresented is the generation of central and flexible evaluations. For example, many receivables managers do not have the possibility to directly evaluate the success of individual measures or to comprehend the current status of one or all of the measures. This information is therefore recorded in parallel (e.g. in Excel or in Access databases). Functional deficits in the area of reporting are typical reasons for the development of shadow IT.
In practice it is especially at the boundaries of the system that problems often occur. If a receivable cannot be collected, legal action follows, which in many companies means that the case is passed on to a debt collection agency or to a solicitor. Here, the receivables manager has to decide when to pass on the case and which information to send to the service provider. It is not unusual that the information is gathered together by hand and then sent by E-mail or uploaded or manually entered in a web portal. If information is missing, it has to be submitted later, errors occur during transmission and the current processing status is not always clear or possibly requires monitoring to be activated in the portal in use. This is only one example of how a lack of integration capability of an IT solution or an incomplete end-2-end process concept can lead to inefficiencies at the boundaries of systems in receivables management. In addition to looking at this from a purely functional point of view, it can be observed in practice that there are increasingly tighter commercial requirements on receivables management. There is significantly increasing time and cost pressure, which requires fast and efficient completion of pending tasks. More and more work has to be done by less and less personnel, quickly and without mistakes. Because of the weaknesses in the existing processes and IT solutions described above, however, this requirement can only be fulfilled with difficulty.
Many receivables managers are therefore faced with the challenge that they should:
- deal with customers individually,
- strengthen customer loyalty,
- process a larger volume of cases,
- achieve a higher realization ratio and
- ideally use less time for all this!
Individually tailored receivables management requires modern software
A common weakness in software projects is insufficient or even non-existent consideration of the underlying business processes. Even when these processes are in focus, they are often not analysed in detail in order to adapt them to new situations, or to restructure them as necessary. It does not usually make any sense to simply transfer an existing process into a new software solution without any reflection on how it works. A modern solution for receivables management must therefore be based on the specific requirements of the company.