Improve your processes with cash collection

The first objective of cash collection is to get invoices paid on their due date.

For this, it is necessary to streamline communication with customers, identify and resolve disputes quickly, and apply one or more recovery scenarios based on the typology of customers.

The dunning actions are conducted on time and in a neutral but demanding way, in a funnel to quickly eliminate any "reason" justifying the non-payment of invoices.

Chase up customers to improve your sales process

The potential of cash collection does not end at optimizing cash flow and Working Capital Requirements.

Indeed, this function represents an essential opportunity to improve the quality of its company, its products and services provided.

Late payments can be considered as a box in which there are all the invoices which are the object of a disquality in the broad sense of the term.

This disquality can have a material origin (delivered product which has a problem ...), immaterial (service not or badly realized ...) or results of a defective internal process.

Most of the dysfunctions of a company can be found in this box, which is an opportunity to identify and treat them..

Examples of "unpaid" - "internal cause" relationships

Unpaid reason	Examples	Causes
Incorrect or incomplete invoice	Problem of wording, price, missing purchase order number ...	Deficient invoicing process, contractualisation not clear enough ...
Customer cash flow issues	The customer does not have the cash needed to pay his bills	Gaps in the assessment of the financial health of its customers and the adaptation of payment terms (reduction of payment terms, obtaining guarantees ...)
Delivery not in accordance with the purchase order	Incorrect or incomplete delivery	Logistical problems. Gaps in the management and processing of orders.
Deficient quality	Defective product	Production problem or if it is outsourced quality controls on supplier deliveries
Invoice blocked by Accounts Payable (A/P)	Missing validation in a system, administrative blocking ...	Gaps in the quality of customer recovery. The recovery manager must understand the organization and validation process of the invoices of his customers in order to intervene with the right person at the right time to unlock the payments.
...

Believing late payments have external causes is a fault that has two major consequences:

• Nothing is done to improve the aging balance and the cash.
• The opportunity to improve internal processes with unpaid invoices is not used because it is ignored.

How to implement this improvement?

Step one: identify the causes of late payments

Identify for each late invoice the reason for non-payment. This work of qualification of the accounting documents is essential to evaluate the main issues.

1. Qualify late invoices with a "status" corresponding to the cause of late payment.
2. Quantify the statuses based on the amount of bills and their number.

Examples of statuses by typology:

A. Invoicing issues:

• wrong name on the invoice
• missing information (PO, ...)
• invoice issued too early or too late
• price issue

B. Dispute on delivery or service performed

• quality issue
• quantity issue
• does not correspond to the order

C. Administrative problem

• customer Accounts / Payable process misunderstood or not taken into account
• problem on the payment terms applied (sales conditions against purchasing conditions, special conditions set?)

D. Buyer creditworthyness issue

• cash issue
• financial dependence
• company in a situation of default or near default

E. No effective collection actions done

• laxity in debt recovery
• reminders directed to the wrong contact
• bad accounts receivable management

Step Two: Consolidate Results

Sample summary table

Status	Total amount	Invoices number	Customers number
A. Invoicing issues	16 500 €	20	10
B. Dispute on delivery or service performed	45 600 €	58	18
C. Administrative problem	2 500 €	4	3
D. Buyer creditworthyness issue	24 500 €	14	8
E. No effective collection actions done	32 400 €	56	34

Third step: correction and control

The details of the causes evaluated by amount and recurrence allows to launch an action plan to solve the problems identified.

Ongoing evaluation of the causes of late receivable will help to see improvement and guide new corrective actions. This work allows for continuous improvement of internal processes.

• 

  Qualify your invoices in My DSO Manager

  My DSO Manager is an innovative cash collection software that allows to associate with each invoice a status (promise of payment, technical dispute ... etc.) and a comment, then to see in the reports the result of this work.
  
  My DSO Manager keeps the entire invoices history and include a dispute workflow that makes possible to quickly resolve the causes of the outstanding invoices. See the online demo.

Conclusion

Whatever the terminology used to designate the management of receivables (recovery, credit management, credit department, etc.), this function, which is too often neglected, goes beyond the cash improvement. It is also an opportunity for continuous improvement of the quality of internal processes within the company.

There is a striking parallel between the quality of business organization and the effectiveness of debt collection. It is always the poorly organized companies that suffer from significant and systematic delays in payment.

Every business leader should be aware of this reality and act accordingly.