Controller’s Guide to Managing Credit, Receivables & Collections

icon Research Report on Benchmarks, Credit & Collections, Best Practices, Managing Credit & Collections, Research  •  posted 06/15/11

This guide provides you expert insight and advice on how you can utilize and build the credit and collections strategies needed to flourish in this challenging business and regulatory environment.

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Controllers and other financial executives with responsibility for credit, receivables, and collections need the best tools, strategies, benchmarks, and advice to set goals to improve the operations of this vital function.

IOFM’s Controller’s Guide to Managing Credit, Receivables, and Collections has been produced to meet exactly this need. 

This report provides you expert insight and advice on how you can utilize and build the credit and collections strategies needed to flourish in this challenging business and regulatory environment. In it, you'll find:

• Best practices for AR, credit, collections
• 50 key process and departmental benchmarks
• Plain English explanations of the automation of AR imaging, e-invoicing, scoring, and RCM
• A framework of options for outsourcing and offshoring credit and collections
• An explanation of credit and collections international and legal issues

Jam-packed with comprehensive charts & tables that will enable you to benchmark your operation, for example:

The guide covers four basic areas critical to managing credit, accounts receivables and collections: best practices, benchmarks, automation, and outsourcing.

1. Best Practices: While there is no need to highlight the challenges facing your credit department today—the following data help to clarify the magnitude of the challenges controllers and their credit departments are facing

• Customers are paying more slowly and requesting extended terms more frequently
• Business bankruptcies continue at record levels
• Collectability of overdue accounts continues to fall

To help controllers navigate this increasingly treacherous business environment, this guide contains dozens of best practices being employed by cutting-edge credit professionals today.

2. Benchmarks: Credit executives and the controllers they report to need to be armed with the kind of extensive intel­ligence this guide provides, including 52 individual key credit benchmarks, broken down by industry sector and company size to ensure you’re comparing apples to apples. Samples of benchmarks you will find in this guide:

• Speeding order-to-cash cycle top goal for credit pros
• Reducing DSO and past-due percentage also top credit efficiency standards
• Automating risk analysis
• Commercial collectors, now on the hot seat, need to work smarter and more strategically
• Effective deduction management critical in today’s cash-tight economy
• A new wave of credit automation
• E-invoicing and e-payments lead the way
• Renewed focus on ABCs of credit
• Credit standards receive new emphasis
• Collections is top outsourced credit, receivables function

3. Automation: A refrain that controllers and credit executives have grown all too familiar with is: “Do more with less.” When asked whether their credit, receivables, and collections staffs have grown or shrunk compared to two years ago, 66 percent of IOMA survey respondents report they are “smaller” while just 34 percent answer “larger.” Nevertheless, when asked whether their departments’ workloads have increased or decreased during that same period, a dramatic 90 percent report “larger” workloads and just 10 percent “smaller” ones.

How is this happening? Credit departments’ remarkable productivity gains are being driven principally (if not exclusively) by the automation of an ever-widening range of credit, AR, and collections functions.

This section of the guide is designed for proactive controllers who recognize the new paradigm and are seeking strategies and intelligence to help them meet the challenge. With the current continuing pressure on IT budgets in particular, it is critical that credit provides a convincing ROI for any credit automation projects they recommend—and the controller is in a key position to aid the credit manager in doing so. This guide provides exactly the ROI information required.

Another key challenge for the controller is determining which functions are ripe for automation in this department—and what actually will be gained by automating those functions. Controllers must avoid the mistake of simply overlaying automation on broken processes.

Whether it’s implementing automated credit decision-making, making the critical move to e-invoicing and accepting payments electronically, improving the credit and AR functionality of your ERP systems, jumping into the fast lane with electronic funds transfer (EFT), going the whole nine yards with collection receivables management (CRM), or any other technology solution to improve your credit department’s (and broader organization’s) profitability and competitiveness, this section of the guide offers a wide range of tested strategies and hands-on, real-world solutions.

4. Outsourcing: The pressure on margins has forced companies to identify newer ways of optimizing costs. Not sur­prisingly, support-related activities have been the first to go under the scanner. There is a limit to how much companies can reduce costs internally. However, there are many caveats to the benefits commonly ascribed to outsourcing:

• Outsourcing comes with risks attached. Companies need to be aware of the extent and nature of risks that they are exposed to on account of outsourcing
  • There are many hidden costs in the outsourcing/offshoring process, which may erode potential savings from the outsourced/offshored activity.
  • Since AR involves customer interaction, any outsourcing error can result in significant damage to a company’s brand and image.

If companies decide to outsource any AR process, it is imperative they follow a structured approach. Specific areas where information is hard to come by include:

• Figuring out which AR process can and which cannot be outsourced
• lWhich are the most commonly outsourced functions, and why
• Developing an overall outsourcing strategy so that it genuinely works for you
• Issues to consider while evaluating vendors
• Key vendor segments for AR processes and understanding how to choose the one that is right for you
• The essential requirements for an AR vendor
• How to select a vendor
• Pricing models and billing rates for AR services
• How to structure a contract and define service levels for key AR processes
• How to ensure ongoing process improvement

This section of the guide provides companies with the required guidance on each of these aspects.

In developing this report, IOFM relied on data from its own research including its Credit & Collections 2010 Benchmarks & Analysis Report, its Guide to Automating the Credit Department research report, its Best Practices in Credit & Collections Guide, and a special contribution from ValueNotes, a firm special¬izing in researching and writing about the outsourcing of credit and collections activities. Lastly, during the past year, the editors at IOFM have conducted dozens of interviews with credit, collections, and receivables managers and executives for this report.

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