Leverage Predictive Data, Workflow Tools, and Flexibility
In light of the current economic climate, which is still feeling the impact of the coronavirus pandemic, it may be time for your company to rethink how it performs accounts receivable management. Some companies may have had a firm grip on who owes what and when and may haven’t have had to place too much emphasis on collections and concern about bad debt in recent years. However, the business impact of the coronavirus and subsequent shelter-in-place mandates have unfortunately left many businesses inoperable for weeks now.
Businesses that were once able to pay their bills on time may now be short on cash flow if they’ve been closed since March, when most of the orders around only “essential businesses” remaining open took effect. This has impacted both business-to-business companies and business-to-consumer companies - out-of-work employees are not out shopping and buying goods (and shuttered business-to-business companies are not buying as much either as employees work from home and amid frozen budgets), stores are not open to cater to shoppers, distributors are not making as many deliveries, some manufacturing plants are not producing as many goods, and so the economy has slowed down.
Your once low-risk customers may now be at a higher risk of delinquent payments. Without their typically prompt payments, your cash flow can be greatly disrupted, putting your company at risk.
Now, credit and collections teams need to rethink their approach to accounts receivable management. If you felt confidently six months ago that you knew which customers presented a higher level of risk and which ones paid promptly – without needing to be reminded – that may have changed. Here are several suggestions on adapting how your company manages business debt collections.
How to Change Your Approach to Managing Business Debt Collections
First, rethink your accounts receivable management by reviewing all your accounts – even the ones that were low risk, as their risk assessment may have changed. Many companies take a reactive approach and review accounts after a certain time (every 12 – 18 months, for example) or a certain event (such as seeking a 50% credit increase). That part of the credit policy might need to be reconsidered in favour of a proactive approach. A tool such as D&B Credit Premium can help you understand your new risk landscape and monitor for any new changes in potential credit risk.
Reviewing accounts can help you more effectively root out high-risk accounts before they start impacting your company’s cash flow. Start by segmenting your accounts by industry and size, and remember that some industries are feeling the impact from coronavirus more than others. Your customers in the tech industry may not see as much disruption as your customers in distribution. That will affect how their accounts are scored for risk. If you see a shift in your low, moderate, and high-risk customers, you know to change your collections treatment strategy accordingly.
Companies that knew where their risk lies may have not needed to micromanage their aging receivables, but now may find themselves needing to prioritize which accounts need more than an email reminder to pay up. Hopefully your business debt collections process isn’t focused on chasing those aging accounts that are “oldest and biggest,” as it’s likely that your company’s oldest and largest aging receivables were that way before coronavirus. (And, you know the old adage about how the longer a delinquent account sits, the less likely the company will ever pay.)
Having access to predictive data is now more important than ever to help with accounts receivable management. Dun & Bradstreet’s Collection Prioritization Index is a personalised analytics model that can help companies predict recovery rates for the most severely delinquent accounts using a variety of data inputs. An analytics model like this analyses the stability of your customers’ businesses, past payment histories, credit scores, and other attributes to predict how likely they are to pay and when.
Reprioritizing collections can help you understand which accounts your collectors should focus on for payment, but it doesn’t address how those collections efforts should work. Flexibility and empathy are important here, as is using workflow management tools to run the entire process.
First, let’s address flexibility and empathy, as I’m sure companies are striving to express this in their customer communications yet still make their customers understand that they, too have got to stay in business. It’s important to collect on past due accounts, but remember, we’re all in this together. In a previous article, Dun & Bradstreet’s Christopher Rios recommends communicating to your customers (either on the phone or through automated dunning emails) to acknowledge the situation and offer some concessions if you can. Perhaps your company can offer to waive late fees or work to set up payment plans, rather than placing credit holds and sending accounts to a collections agency.
Now, consider the tools you use to manage workflows. If your collectors work off of a spreadsheet of aging receivables, that may not be the best system anymore – especially if your number of aging accounts have now tripled. Automation can help here. An accounts receivable management platform that provides collections workflow tools, electronic invoicing presentment and payment (EIPP), and automated cash application can help here. The collections workflow tools help track productivity and in-house collections activities so you can easily see where each account is in the payment process – right up until the time your company decides to send the delinquent account to a 3rd party collections agency or write it off as bad debt. With the EIPP and cash app tools, you can send invoices online and collect payments online – reducing the time it takes to collect payment via paper checks and the post office.
To sum up, when you leverage predictive data and workflow automation tools - along with flexibility and empathy for your customers – you can better perform accounts receivable management and help protect your company’s cash flow.