Collections – not everyone’s favorite task. The good news is today’s most effective collections departments are working smarter by focusing on the right customers over the quantity of calls. Smart companies are replacing the one-size-fits-all approach with carefully prioritized call lists that allow the collections department to focus on the most productive collections with the most effective approach.
The goal is to have collections employees working on value-adding tasks and giving them the opportunity to become analysts as well as collections callers. To achieve the goal takes some work so I am going to take you one step at a time. Let’s start with what doesn’t work very efficiently.
Out with the Old
One of the oldest, and perhaps most inefficient, collections methods is prioritizing your call list based on the aging report. Each day, the collections staff receives a list of people to call based on how past due each customer’s invoice or account is. The customer with the most past due invoice would be the first call of the day, while the customer who just entered the order-to-cash process is placed at the bottom list.
An aging report can useful in accounts receivable if used under the right circumstance, as it offers a snapshot of the overall health of a company’s customers. It can be useful in determine if you are accepting too much or extending too little risk. However, prioritizing your collections solely on an aging report is flawed, as it assumes the most overdue invoices pose the most risk. This is not always the case since customers with larger balances make up a bigger risk.
Invoice age and amount are only two of the many factors to consider when prioritizing collection calls. Start looking beyond due dates and look at overall risk by customer. Stay tuned for the next blog which will detail the steps to create a collections strategy based on your customers’ history.