Collections management is one of the most important O2C functions. It’s a cornerstone element of the order-to-cash cycle, and includes coordination across sales, credit, AR, and legal teams.
But despite its key role in financial success and stability, it’s often an afterthought for the architects of financial processes.
In most organizations, collections teams still carry out most of their job manually.
This means keeping abreast of a huge amount of information from a multitude of sources. Including:
- Customer contact data (which may or may not be accurate).
- Other customer data like payment histories and credit scores.
- Organization-level data like policies on reminders and debt recovery processes (all of which will be used to determine the exact actions needed in a given case).
- The invoice itself.
- Histories of contact attempts and other interactions.
- Timelines for next steps.
- Policies on settlement agreements.
- Contact info and communication records for the right people to approve said settlements.
Keeping track of all this in a work environment dominated by emails, PDFs, Excel sheets, and phone calls is a mammoth task.
And that’s only for individual cases. Manually tracking and actioning tasks across an entire portfolio can become ruinous as a lack of standardized processes and information centralization leads to individual cases slipping through the cracks.
Something as innocuous as a temporary absence can lead to disruptions that increase DSO (Days Sales Outstanding) and jeopardize your organization’s cash position and reputation.
As collections’ most important job is reducing DSO, this is a big problem. Consider the widely known, bleak reality of collecting late payments:
- An account 90 days past due has a 70% chance of being paid.
- An account 180 days past due has a 52% chance of being paid.
- An account 365 days past due has a 23% chance of being paid.
An inefficient collections process doesn’t just slow down payment: it actively contributes to the likelihood that overdue invoices won’t be paid at all. Increasing your chances of losing out on revenue and limiting your options for strategic investments and operational funding.
Many organizations experience high DSO purely because:
- Their data is fragmented (and it’s thus difficult to be sure when collections teams should begin sending reminders and chasing for payments).
- Manual data entry and project management via email mean cases can slip between the cracks (turning a simple one-day absence into a catastrophic source of risk to your working capital and overall financial health if a major invoice doesn’t get followed up).
- Resource constraints and high sales volumes making it impossible for even the largest and most disciplined teams to keep track of every case, action, and, agreement, and approval workflow.
What’s more, many of the options collections teams currently have at their disposal are less than effective when it comes to getting results:
- Manual reminders are easier to ignore, even when you do send them in a timely manner.
- Poor customer segmentation by past payment behaviour, credit data, and market makes prioritizing cases likely to default almost impossible.
- Delays to follow ups lead to further delays in payments, regardless of their source.
- Ineffectual but frequent reminders strain customer relationships—especially when late payments are rooted in disputes, payment system related discrepancies, or miscommunications.
Best practices for AR collections workflows
Following a few simple best practices can help AR collections teams significantly improve their effectiveness while driving down DSO.
These include:
Using a self-service customer portal: Provided they’re implemented correctly and easy to use, self-service resources, tools and platforms create a virtuous cycle in customer satisfaction and experience. They not only make your products and services easier to access (and the outcomes you provide easier to obtain), they also save businesses a lot of time and money. If your customers are constantly making calls and sending emails to you, you’ll need to staff up to deal with the volume, or at the very least your teams will waste a lot of time and effort answering simple questions.
Effective prioritization of cases: The invoice with the closest deadline isn’t always the most important one to chase up on. Different customers have different payment behaviours, and some are more likely to default than others depending on individual financial health, industry-specific cash flow cycles, and regional variations in payment habits. Prioritizing cases for collection requires a high level of coordination between the AR collections team, credit and risk management teams, and 3rd party data providers.
Automate reminders on a schedule: Although modern accounts receivable software makes this easier, it’s possible to maintain an automated communication schedule with an Outlook calendar and a lot of patience—but it isn’t likely to be easy for organizations with significant volumes of collections cases.
Track performance through fixed KPIs: Effective DSO management means tracking not just DSO, but DSO on the level of individual customers, industry segments, and regional markets.
While it’s possible to do all of this yourself, it’s much easier to shift most of the burden to effective accounts receivable automation software.
AR collections automation helps manage the burden
For the most part, this state of affairs is purely grounded in knowledge gaps.
For many in collections and the wider finance department, there’s no point in trying to “solve” collections problems, because they aren’t problems, they’re simply the way things are – frustrating as that is.
But there is a much more attractive alternative. Collections automation solutions are now advanced enough to provide a clear advantage to the entire organization. They make the work of collections teams simpler and more effective – and as a result they help reduce DSO significantly and help secure working capital and day to day cash flow.
Here’s a brief look into 5 reasons why collections automation solutions can do this.
-
Collections automation provides full visibility of every case
One of the most arduous parts of the collections workflow is the effort that clerks put in to ensuring the information they need to progress a case is accurate and accessible.
Automations solutions eliminate this part of the process entirely by centralizing data.
Imagine having a single platform where you can access all relevant information like customer details, invoice details, outstanding balances, credit reports, payment scorecards, and contact records. One that allows your collections team (and everyone else) to instantly assess a given case and understand the best follow up action with just a few clicks.
Intelligent automation combined with central data storage provides this. It also allows all tasks to be ranked by priority and assigned to clerks as an auto-generated worklist.
This means urgent cases get the right attention as soon as they need it – guaranteeing faster collections and bringing DSO down.
-
Collections automations mean your teams always know what to do next
A lot of different steps can go into collecting a customer invoice before you reach the “nuclear option” of stopping services, going to court, or selling the debt to a collections agency.
These usually take the form of date-specific reminders sent at policy-dictated intervals via a mess of different channels. All of which eventually culminate in either a modified payment plan and credit limit adjustments or further legal escalation.
Simple in theory. Not so simple in practice.
Even sending a reminder can be tall order in a manual operating environment. Different local markets and companies often prefer different contact channels. Inaccurate data can stop reminders ever reaching their recipients. Or cause them to be sent too late or too early to be effective.
Collections automation solutions remove this ambiguity by using AI-backed smart automation to generate suggestions for the next step at every stage of the process. While still giving individual clerks the flexibility to take this step in a way that fits the specific conditions of the local market and the case itself.
And after each action, the system immediately creates a follow up action with a definite due date based on your company’s policies and approval processes and enters it into the worklist.
This means cases never lose momentum or go cold – even if another clerk has to pick it up from a colleague when they go on vacation or call in sick. This helps processes move along and DSO come down.
-
Collections automation and pre-approved plans mean there’s always a way forward
At some point in the collections process your teams will have to sit down with customers who aren’t able to pay what they owe right away. This means figuring out a new payment plan and schedule – and usually an escalation to senior managers for review and approval. In serious cases, this can even mean getting the CFO involved. And after an agreement’s reached, collections and the credit team will have to work together to create new credit terms for the customer that reflect the increased risk of doing business with them. (Which will likely also require some senior approval).
This kind of back and forth obviously wastes time. It also slows down the process of realizing revenue from a delinquent invoice. This is a big problem because the likelihood an overdue invoice will ever be paid drops with every day.
A collections automation solution eliminates this waiting period by allowing your organization to create pre-approved terms for distress payments. Your clerks can present these to the customers as an option in complete confidence they’ll be accepted without any delay ¬– increasing the likelihood of a swift payment and, as a result, reducing DSO.
-
Automated collections solutions mean no need for spurious escalations
The fact that clerks can access pre-approved terms also allows your organization to create a clear, logical pathway for escalations. If clerks find that customers need terms that are “out of policy”, they can send approval requests directly to the necessary individual without the need to refer to anybody else.
This means clerks can request bespoke terms in confidence that they’ll be approved or rejected quickly. But it also means individual approvers – from the CFO down – can approach these requests safe in the knowledge that their input is really necessary.
This helps keep DSO down by both expediting the collections process allowing people at every level of your organization to concentrate on the areas where their input adds value.
-
Automated collections lets the organization apply experience instantly
An automated collections solution keeps every action, approval, and resolution from every collections case documented and easily reviewable. Allowing the team to reference previous similar cases when they need to in order to apply institutional knowledge directly where it can be most useful.
What’s more, advanced automation solutions that incorporate AI into their workflows can apply previous learnings without the need for anyone to actually look them up – suggesting adjustments to workflows and policies, prioritizing cases, and creating follow up actions automatically to expedite processes and improve outcomes.
This means that all the accumulated experience and data available to your collections teams is always at their fingertips. Empowering them to do everything they can to ensure quicker resolutions and payments – and by extension lower DSO.
How does AI impact AR collections and collections automation?
As we’ve just explored, automation in AR collections isn’t just a “nice to have” or an item on the back-office transformation agenda. It’s vital to gaining a better understanding of your customers and their relative risk/reward profiles for the business, a better understanding of your collection and wider AR teams’ effectiveness, and actionable insights into improving working capital available for strategic growth.
The advent of AI-powered workflow automations introduces a huge degree of improvement to the “standard” automation package.
At Serrala, we’ve seen our AI-powered solutions cut DSO by 10%, automate up to 100% of collections tasks in real time, and bring down bad debt by 10% or more – while eliminating associated impairment losses.
And these results don’t come from sci-fi capabilities – but from the application of proven principles to specific parts of the collection workflow.
And these results are further supported by recent findings from Forrester, which show strong use cases for specific AI capabilities across AR, and collection specifically. These are:
Robotic process automation: RPA is nothing new, but advances in other areas are making it a powerful ally in the world of collections. With the right rulesets and in place, it can generate an entirely automated follow-up workflow as soon as your AR team sends an invoice to a given customer, providing emails and nudges at the intervals your policies require. It can also do the same thing internally, flagging actions needed to individual members of your team based on pre-agreed priorities and escalation steps.
Machine learning: improvements in ML approaches serve to strengthen the effectiveness of RPA by eliminating the need for manual care and updates to your process rulesets. Because ML-enabled systems “learn” from the successes or failures of specific process executions, they’re able to flag immediately when something is or isn’t working, meaning errors and inefficiencies don’t develop into runaway cost sinks, and that cases that need special attention can be directed to a different priority of workflow (with the right people being alerted as soon as an ML algorithm identifies an area for action).
Predictive analytics: machine learning algorithms can be used not just to identify anomalies in your expected payment schedule, but to predict likely defaults from past customer behaviour. They can also help establish realistic forecasts for overdue account recovery, and equip your teams with the insights they need to more effectively prioritize which invoices to pursue to best secure cash, guarantee efficiency, and improve your working capital position.
Prescriptive analytics: this in turn allows your collections team to develop more dynamic personalized approaches to their workflow for different customers and buyer segments. If you know specific customer profiles need more reminders from an earlier stage, it’s easier to target them for special attention. Often, small changes to your collections strategies and tactics like this are all that’s needed to make significant improvements to average collection times, and, ultimately, to DSO.
Generative AI: Large language models enable an extra level of personalization in the collections process, pulling data from across your enterprise systems together to synthesise reminder scripts and novel collections approaches relevant to specific customers. They can also assist individual team members by providing data and reports instantly in response to natural language questions (e.g. “which of our customer invoices are most likely to go overdue in the next 15 days?”). This means that much of the manual “search work” a typical collections operator would be required to undertake even with unified master data and system integrations across the AR and finance department can be significantly expedited. Leading to a more slick, efficient, and above all effective collections workflow that serves to both improve financial performance and customer relationship strength.
How can Serrala help you automate collections management to realize these improvements?
Our FS² Collections automation solution is a cutting-edge solution fully integrated with your current SAP environment (S/4HANA or previous systems like ECC) and embedded in SAP, compliant with clean core standards, and designed for highly automated collections management with real-time updates and insights. Leveraging artificial intelligence (AI) and machine learning (ML), FS² Collections Automation achieves unprecedented levels of automation, minimizing manual efforts and proactively managing high-risk accounts.
By adopting FS² Collections automation software, organizations can efficiently integrate automation technology, reduce costs, foster growth, enhance workforce efficiency, and optimize working capital processes. Automation streamlines collections operations, reducing Days Sales Outstanding (DSO), improving liquidity, and freeing up personnel from repetitive tasks. This results in a significant reduction in collections lifecycle, improved visibility into key performance indicators (KPIs), and enhanced customer satisfaction.
Experience the future of collections management with FS² Collections automation and drive your financial performance to new heights.
Read our customer success story from Merck.
If you’d like to see what our FS² Collections solution is capable of, please get in touch.
Serrala’s AI-powered automation solutions are trusted by over 2,800 world-leading brands to achieve automation rates of up to 99% in their AR processes.
FS² Collections is part of our triple offering for AR Automation. Combining FS² AutoBank, FS² Credit, and FS² Collections, creates a powerful synergy between automated reconciliation, efficient collections, and comprehensive risk analysis. Together, the power of three helps your organization with real-time visibility into payment statuses and credit risks, enabling proactive decisions and faster resolution of overdue accounts.
