Seven Things to Consider When Implementing Credit and Collections Software
By Veena Gundavelli and Harnish Kanani

Careful planning is essential for any successful corporate endeavor, and deploying accounts receivable software is no exception to this rule. The benefits from these solutions include significant reduction in DSO, cash flow acceleration and reductions in operational expenses. However, to maximize the return on investment in a collections software package, you'll need to understand and follow these seven principles.

 

1. Get the Credit and Collections Team Involved from the Beginning
The most important part of any software implementation is to build the procedures and technologies around the team that needs to use them. For this reason, the collections software implementation plan should include collections personnel at critical points during the project.

Users need to be an integral part of the requirements definition phase, where the business processes and department goals are examined. As the project progresses, the end users should be involved in various validation activities to ensure that the software deployment meets their needs. And finally, they should be included in a final user acceptance test before going live.

The purpose of involving the collections team throughout the project is two-fold. First, it increases the chances that the implementation will be a success because users will be comfortable that the software has been implemented in a manner which best meets the business requirements.

Similarly, as more companies look to reduce operational expenses, a clear preference is emerging towards automation of routine, non-value-added and repetitive business functions. Hence, companies are faced with the challenge of incorporating best practices into their accounts receivable departments within the parameters of an automated rather than manual environment.

Secondly, as users get involved in defining the requirements, they will begin to take on ownership of the new collection software and understand the impact on their current processes. This helps to ensure that the collections staff will continue to utilize the software long after the implementation has been completed.

2. Focus on Forward-Looking Best Practices
One of the hardest things to do is to move away from the old ways of doing business. Manual activities, which were fine when your company was in earlier stages of growth, may be insufficient during later stages of corporate expansion.

Similarly, as more companies look to reduce operational expenses, a clear preference is emerging towards automation of routine, non-value-added and repetitive business functions. Hence, companies are faced with the challenge of incorporating best practices into their accounts receivable departments within the parameters of an automated rather than manual environment.

If you find yourself in this position, you should start by looking at benchmarking data within your industry to first identify the gaps within your processes. As an example, accounts receivable metrics such as industry-specific DSO levels, collection-efficiency metrics, and historical bad debt write offs can be used to determine whether certain aspects of your collections department need to be retuned or updated.

Next, armed with this industry information, you can delve into the details of specific business processes to understand where improvements can be made. In the A/R department, high DSOs in certain customer segments can be driven by a lack of timely access to consolidated receivables data and automation tools to drive proactive collections activities.

3. Follow the 80/20 Rule for Business Process Modeling
As the old saying goes, the best way to eat an elephant is to do it one bite at a time. The same is true for implementing collections software. Over time, the ways that companies do business with their customers has become complex and varied. Companies may extend different types of credit terms to different customers, have different types of payment discounting programs and may deal with different types of disputes in unique ways.

If you have this level of variety in your customer transactions, it's sometimes tempting to build the same level of complexity into the collections software tool from the very beginning. Typical examples include trying to build a large variety of rules-based collections strategies and workflows to cover all possible business scenarios. This quickly becomes a very unwieldy task as implementations become bogged down trying to define a myriad of business conditions and alternate strategies instead of focusing on completing the project and getting users quickly up to speed on the software.

A better approach is to first understand at a high level what the company needs to do to achieve its goals. In many cases, 20 percent of all customer transactions make up 80 percent of the total revenue volume.

What this means is that if you are trying to deliver rapid, high impact results in your collections activities, you can do so by focusing on the 20 percent that make up your key customers and transactions. This will translate to a smaller set of business rules and conditions that need to be modeled in the collections software to address the needs of this customer segment. With this approach in mind, you can quickly deploy the software, train users and start seeing rapid results while continuing to develop more complex rules for the remaining 80 percent of transactions.

4. Make Sure You Validate the Data
Credit and collections software will typically extract data from the various back-end financial systems that companies use to run their day-to-day operations. These systems can i nclude ERP systems, imaging systems, external order entry systems, etc. The problem arises when, due to the complex mapping of business data such as invoices, payments, credit memos, etc., errors are introduced in the data extraction process. Errors can include duplicate data records, missing data and field mapping errors. If the data extraction process isn't perfect, financial data becomes distorted.

It is important the collections software reflect complete, timely, and accurate financial information so as to be a reliable source of information to the collections team. When data is suspect or inaccurate, collections personnel and customers will abandon the collections software tool and revert to using older manual processes that are more trusted.

Data validation can be performed efficiently by utilizing test plans during the implementation. Test plans should reflect typical accounts receivable scenarios and contain a set of expected results based on certain conditions. For example, a set of test plans can be created to measure the accuracy of receivables balances, aging summaries, detailed invoice amounts, etc. Ideally, these test plans should be approved and executed by the end users to increase their confidence in the software.

Additionally, a good collections software package will have pre-built diagnostics in the data extraction kit to identify and eliminate data errors. A full set of error-checking activities needs to be performed ranging from identifying missing data and erroneous values to correcting data mismatches. These diagnostic functions will reduce the chances of error and can be automated to run on a daily level to relieve collections and IT staff from the tedious task of monitoring data extract processes.

5. Enforce the Adoption of the Software
Oftentimes, companies buy software to automate different business functions, but end up stowing it away as "shelfware" due to improper implementations or non-usage by end-users. These software purchases are costly to companies, both in terms of money wasted as well as time and resources expended on the project. If you purchase software that is difficult to use, built using outdated technology, or unable to scale up to your global business needs, it will never be used effectively by your staff.

In addition, if you have gone through the due diligence of carefully assessing a credit and collections software package to implement, it is also imperative that you properly train, incentivize, and ensure that the collections team use the software. This is best done by first weaving the software into the daily routine of the collections staff. Good collections software vendors will provide a "Day In The Life of a Collector" approach during the software training and implementation phases. This will typically entail mapping daily collections tasks and scenarios to a clearly defined process that includes usage of the software.

Training by itself is not enough. You should also mandate that the software be used as much as possible. Some of this is addressed by automation functions in the software itself. For example, retrieving and faxing of old invoices is often a manual process in many companies. These activities, however, can be automated and scheduled within the software package, thereby eliminating the need for personnel to spend time on these non-value added tasks.

Similarly, a robust collections software package will include a set of management reports that measure ongoing collections activities and performance. These reports can be used to gauge whether or not the collections staff is using the software and how efficiently they are completely their tasks. If the management team dictates that collectors will be measured and rewarded based on the results from the software reports, then you can guarantee that your investment in the software will not be a waste.

6. Have a Clear Software Upgrade Path
The very nature of collections software, and the software industry as a whole, dictates that new features and functionality will continue to be developed as time progresses. These new features can be a set of capabilities around specific industries, upgrades to the technology used, or even changes to the look-and-feel of the software itself. Companies that have implemented collections software need to have a clear upgrade path in mind that will allow them to easily take advantage of newer releases which contain additional useful features.

Too many times, collections software vendors will sell companies an existing version of their solution, but not alert their customer that new powerful capabilities are just around the corner in a soon-to-be-released version. When the time comes for the company to require these new features, they get hit with hidden charges for upgrades. It is important for you to have a clear discussion with your software vendor to understand the costs and feasibility associated with upgrading their software to newer versions.

Leading collections software vendors are very open and explicit about the costs of upgrading their software to newer versions. They typically discuss the company's current and future business needs and clearly articulate a path forward over multiple revisions of their software. Critical issues that are discussed include new functionality, upgrades to the integration to back-end systems as well as user training on new features.

7. Demand the Highest Level of Support from Your Software Vendor
Finally, as a follow up to every successful collections software implementation, a comprehensive customer support program needs to be in place. This program should offer you a "turnkey" solution for additional training, product questions, problem solving and technical support. It should be provided by the collection software vendor to ensure their product continues to operate at peak performance and your collection personnel remain comfortable using the software on a daily basis.

Collections software vendors should provide these turnkey services after the implementation is completed. Clearly defined Service Level Agreements around customer support such as response times, trouble ticket submission and escalation processes should be established and adhered to in order to provide the highest levels of support.

Veena Gundavelli is chairperson and CEO of Emagia Corporation. Harnish Kanani is the senior vice president of global operations of Emagia Corporation. Visit www.emagia.com for more information.