Fixing a Dirty Process
By —
Richard H. Gamble
Disputes, short-pays and deductions remain a mess, bogged
down in too many front-end mistakes. Software can help
automate the cleanup, but stopping the mess-making requires
both technology and top management muscle.
The persistent collection and deduction problems and that
clog corporate liquidity with DSP debris and bleed away
potential profits by requiring slow, expensive manual
intervention have so far defied a real solution.
In fact, sophisticated technology may aggravate the problem
in some cases, More hopefully, there is some evidence that
senior management is finally recognizing the problem and
pushing for a solution. However, credit and collection
veterans remain understandably skeptical.
The problem is that collectors and deduction managers are
swamped by a combination of legitimate and illegitimate
work, leading one collections professional to compare her
job to "trying to drink for a fire hose.: The deluge comes
faster than anyone can help.
The legitimate side of collection work is following up with
slow-playing customers so that the company's credit decision
pays off. The right credit decisions should result in a
modest number of customers who can't pay their full bills on
time. Adroit collection work improves the chances that the
company will get paid eventually. It's smart risk
management. It's productive, profit-boosting activity.
The illegitimate side of collection works contacting
customers who have with held payment, made short-payments or
claimed unauthorized deductions because the selling company
simply cannot generate accurate invoices. Collections people
have to come along at the end of the commercial process and
fix mistakes made by their own teammates and systems so that
records finally will reconcile. This activity makes
virtually no contribution to the bottom lime.
Typically 26-27 percent of invoices go out dirty observes
consultant David. A. Schmidt, Principal of A2 Resources,
Yardley, PA. Clean invoices are paid on average, in 88 days.
If you can make the invoices accurate before they go out,
that's a big cut in DSO and a lighter load for the credit
and collections department, he notes.
Specialized deduction staffs with advanced software have
taken isolated prices automation about as far as it can go,
says Veena Gundavelli, CEO of Emagia Corp,. a Santa Clara,
CA, provider of cash-flow management software. Further
process efficiency depends on collaboration, she insists.
Deductions mangers or even credit and collections managers,
often don't have the skills to make a strong business case
and sell it to senior management she notes.
One company, a large software provider had so much DSO and
bad debt that executives were taking heat from Wall Street
and their own directors. So they bought Emagia software,
identified which units were dragging down corporate
performance, ser reason codes, changed processes, monitored
performance and cut bad debt 25 percent and trimmed DSP from
110 days to 60 days, Gundavelli reports. Another company,
Leiner Health Products, cut crippling deduction volume by 75
percent in just six weeks by attaching reason codes,
identifying root cause causes and rebuilding workflows
around pricing promotions she adds.
