Managing the Collection Process, or "Dialing for Dollars".(Brief Article)

Do you ever wonder why past due receivables keep creeping up? Are you concerned that the receivables keep aging thus your percent payment performance goals continue to be below target? Or putting it more openly--why is it that the competition consistently manages to report record on-time payment performance and low bad debt losses? Working capital initiatives and the review of the collection process, tools and systems rarely yield the expected results. What these initiatives and reviews often fail to recognize is the paramount role of a collection group.

Managing accounts receivable in a company is one of the most challenging responsibilities assigned to a group. Depending on the size of the organization, it would not be surprising to find out that accounts receivable is one of the largest, if not the largest single component of capital employed. Why then don't companies place greater emphasis on such a critical process?

Collections are a complex and wide-ranging process-more than we want to admit. It involves many components and parts of the organization that must fit perfectly for the process to be effective. For the collection process to work, domestic or international, sales must provide timely and correct pricing and payment terms information, accounting needs to generate an invoice, and collections must learn how to "negotiate" with a customer for the prompt payment of each invoice. It is a process that is repeated hundreds of times in a single day, and this is perhaps the greatest misconception about collections: a number of organizations in the credit arena tend to view collections as a commodity process.

The success of collections also depends on the philosophy of the company expressed through its corporate credit policy, and how proactive sales wants collections to be managed. If a company has the people, systems and processes but lacks clear direction from sales regarding allowing customers to pay beyond the negotiated terms, then that company has a more fundamental and serious challenge. On the other hand, if a company has a credit policy that precisely defines the roles, possesses a reliable system and depends on a proven process, the crux of the challenge most likely lies in finding the difference between managing the collection process, rather than "dialing for dollars."

"Dialing for dollars" is a simplistic approach to calling for payment: the goal is not how effective the individual is in dealing with complex situations, but rather how many calls are made in a day. Performance thus is measured on quantitative grounds. Managing the collection process is a more systematic and intelligent approach to optimize cash and develop customer relationships, and typically involves not only collectors but collection assistants. It is good to know when the payment will be made, but it is as important to know why a customer cannot make a payment.

Managing, negotiating and being able to make critical decisions on the spot are the intrinsic traits of a collection assistant ...