Credit and collection software overview: selection criteria for creating dynamic performance improvements.

Ten years ago, if you wanted to automate the tasks being performed by your credit department, you would not have had many options. At that time, the best you could hope for was an account level note and tickler system--you either had to build it in house or use PC-based contact management software that probably could not exchange data with your A/R system--or some financial analysis tools, which ranged from spreadsheet software to a few heavier duty, but still evolving, risk management products. Back then the great white hope was EDI, which has still to fulfill its promises. In fact, it was disappointment with the progress of EDI that helped spawn auto-cash software solutions. At the same time, Prodigy, Compuserve and AOL were revealing the benefits of online services, but the pool of Internet users was still relatively small and did not often extend into the finance area. Meanwhile, workflow software geared towards collections or deductions and containing robust workflow, tracking and communication features was still in its developmental stage.

Within a few years, this situation began to change rapidly, giving credit pros access to a much wider range of automation tools. Of course, there were humps in the road. Y2K spawned a maelstrom of software conversions as companies abandoned their legacy software systems--along with all the custom credit and collection utilities that had been developed over the years--for ERP software suites that have been notoriously weak (at least until recently) in their support of automated credit and collection tasks. As credit and collection software innovations became proven solutions, two things happened. In the first place, new players entered the marketplace, expanding the number of software offerings of every type. Secondly, and more recently, we have seen the integration of automation tools to address the entire spectrum of the order-to-cash cycle. As a consequence, credit pros face a more complicated task than ever in determining the best automation solution for their company's receivables.

A Unique Challenge for Credit Professionals

Because trade receivables involve unique characteristics from company to company, there can be no "one-size-fits-all" software fix. This uniqueness is due to variability in terms of customer base, distribution channel and all the supporting mechanisms intrinsic to each corporation's order-to-cash cycle. To some extent, every company generates their own process stream in support of the order-to-cash cycle. While credit and collection best practices can be identified, how they are implemented will necessarily vary from one trade creditor to the next. As a result, the potential impact from different types of credit and collection software solutions will vary from company to company. Moreover, credit departments are seldom given budgetary carte blanche to address all their automation needs. This environment necessitates that credit pros set priorities and then make informed choices in order to identify the credit and collection software solution(s) that will provide the greatest benefit to their company.

Establishing priorities in regard to the functional areas one would like to automate requires an understanding of the dynamic features software can lend to credit and collections. These functional areas are collections, deductions, remittance processing and risk management.

Addressing Collections

Collection software derives its effectiveness from two things: expanding the time available for contacting customers and then enabling the individual collector to contact more accounts while simultaneously being more proficient during each contact than previously. There is more time available for contacting customers because the software reduces the time necessary for completing the other four stages of the collection cycle: prioritization, preparation, follow-up and reporting. Prioritized work queues free collectors from spending time reviewing their calendar notes and A/R trial balance (or other aging report) to select whom to contact next. In terms of preparation, all relevant account information--things like contact names and numbers, aging details (linked to invoice details), contact history and payment history--are displayed on the collectors monitor so there is no need to gather information before making a call or sending a dunning notice. Follow-up activities are also lessened by this access to inform ation and the ability to easily share account data with other internal functions when a discrepancy is holding up payment. This stage is the biggest consumer of time, so it is not surprising that the software companies are adding new features, such as access to proof-of-deliveries, contracts, correspondence and other image files that facilitate follow-up activities. Coming full cycle, all the data being stored by collection software ensures better reporting and allows more time to be devoted to both strategic and tactical analysis rather than creating reports. As a result, the time available to collectors for contacting accounts can be easily doubled or even trebled, a significant productivity enhancement by itself.