How to oversee collections effectively (even if it’s your first time)
The scope of the Chief Financial Officer (CFO) role has greatly expanded in the last several decades. Gone are the days of simply tracking corporate dollars. Today, CFOs are expected to have a strategic vision for growing the business using all the tools at their disposal. According to McKinsey’s “The Role of the CFO”, 66 percent of executive-level respondents believe that CFOs can best contribute to corporate success by investing more time in strategic decision-making.
One of the more recent responsibilities (among many others) added to the CFO’s sphere of influence is collections. What percentage of a company’s invoices are paid in full? How fast do those invoices get paid? And at what cost to the business? The answers to these questions are heavily influenced by the everyday practices of collections staff.
Collections may seem to some like an obvious part of a business’s financial operation, but many CFOs many be new to it for various reasons. If you’re a CFO with a long history working with a brick-and-mortar or e-commerce store, all payments are made up front, so there’s no collections function required. Moving to a B2B business where there are limited to no upfront payments might throw you for a loop. Or, maybe you’re a newly-promoted CFO with no background in collections.
Either way, there are options to improve collections efficiency that could positively impact your company’s bottom line. So what should CFOs consider if they’re new to collections management?
Review collections processes and metrics to understand current performance.
The first step to managing a staff of collections specialists is understanding their processes from start to finish. CFOs will be best equipped to make improvements when armed with information. Start with payment terms as outlined in the sales cycle, stipulated in customer contracts, and/or listed on invoices.
If sales staff are providing customers with big payment delays up front, one way to improve collections may be to request shorter payment terms. Can we work to migrate all customers to NET 30 as opposed to NET 60, for example? Alternatively, could we require a percentage of fees up front, in exchange for a longer runway on subsequent payment? All of these factors can be negotiated.
Next, look at processes in place when invoices are submitted to customers. Are invoices sent electronically or via snail mail? Are there ways the business could make it easier for customers to pay, or incent them to pay faster? What are the edge cases that are big time-sucks for collections staff - things like disputing invoices, credit extensions, and changes to payment terms?
Look for places where collections staff are spending big chunks of time on the phone. Those areas are ripe for exploration. Automated processes can help collections staff save time, improve the customer experience, and focus on more proactive tasks.
Once you understand how collections processes work, take a look at data the business is capturing on collections performance. Looking at collections data, in addition to processes, can help CFOs identify any gaps they might have missed during the initial exploration.
CFOs can improve collections outcomes by evaluating the current state.
Collections is like any area of the business. In order to move the needle on financial metrics, CFOs must invest time and resources in understanding existing practices and introducing new ones. The best way to do that is to arm themselves with data, and decide on some new tools to test. And who knows? They might just win big. Through improved processes, Invoiced customer AJ Tutoring now achieves 97% collections efficiency.
Want to learn how Invoiced’s suite of automated features supports a healthy collections strategy? Contact us for a customized demo.