Collection Management Tips to Maximize your Debt Recovery
Many businesses sitting on outstanding receivables are missing significant growth opportunities. With their receivables generating low or no returns, they lack the capital to invest in equipment, launch new products, or meet the salary and benefits expectations of their employees. In addition to missing these opportunities to grow their revenue, for some companies their unresolved receivables create real cash flow problems.
How do the best companies solve these problems and make their receivable recovery process more efficient? Unfortunately, there is no one-size-fits-all solution to optimizing the collection of debt. But we have six tips that can help.
1. Understand your receivables
First, roll up your sleeves, examine the problem, and then seek to fully understand both your receivables AND the challenges facing your customers. You will never collect 100% of the accounts, but if at the outset you take the time to examine and understand the issues your customers are facing, your path to collections success becomes considerably easier. To maximize your receivable collections, you need to understand what is outstanding and have a clear strategy for collecting. You need to know metrics such as the number of customers paying late, the number of invoices issued to each customer, the volume of unreconciled accounts, and your collection rates and percentage of write-offs. Knowing these key metrics and understanding what is driving each of them allows you to understand where to focus your collection efforts and where to improve processes. Among other things it will guide decisions related to issues such as whether you should tighten operating standards, increase automation, or enhance the number or channel of contacts.
2. Implement and track KPI performance
Second, once you have researched your accounts to better understand the issues facing your customers, what your receivables are, and where your processes can be improved, you must set actionable KPIs. These KPIs, in turn, need to be distributed to your team so that performance can be measured daily, weekly, or monthly. For example, your team must have insight into the number of past due accounts, collection rates and amounts, and accounts sent to outside collectors as well as the collections performance of those collectors. If you are using an internal collections team, be explicit about their KPIs and enforce them. Make your expectations clear with tangible outcomes if not met. Importantly, continuously communicate with your team and make sure to both celebrate successes and discuss the challenges related to those KPIs.
3. Pressure Test your Strategies
Third, you need to constantly pressure test your collections strategies. We all perform better in competition, as it forces us to find the most efficient processes and innovate our practices. Through champion vs. challenger comparisons you should continuously test your collection methods against each other. This means more than simply setting your internal team against your external collectors. Also be willing to try creative approaches on distinct segments of accounts. Pair off different methods within your organization and strategize with your employees to implement and compare different approaches. These measurements will ensure that you are using the best of all your available resources to maximize your collections. It also ensures you continuously examine performance and don’t rest on your laurels.
4. It is all about the ROI
Fourth, never forget that your receivables - - like any other business asset - - are an investment. And like all assets, you should never lose focus of your ROI (Return on Investment). One of the most important measurements when examining your collections on receivables is whether your ROI is in line with your budget. When you start spending more time, money and resources collecting on your receivables than you have in your budget (or than they are worth), it’s time to take a new approach. Bottom line, you must know when the expenditure of resources and the cost of tied up in capital exceeds the recovered collectables. At that point you need to determine whether it would be cheaper to outsource a larger part (or all) of the collections servicing process, or whether you should sell the debt to a receivables management company. Is collecting your receivables, or certain segments of them, hurting your bottom line? Ask these questions and perhaps it is time to refocus your efforts.
5. Never lose sight of your Customer
Fifth, setting aside for a moment the KPIs, ROIs and other metrics, always remember that your measuring and comparing include the impact of your activities on your customers. Do misaligned systems mean customers are being hounded by your company for accounts that are already paid? Are they being called by both internal and external teams? Is the means of communication their preferred method? Is the payment framework imposed too punitive? Collection methods that hurt customers create churn. More importantly, they damage your reputation. Don’t sacrifice a relationship over an account.
6. Consider all your solutions
Six, and finally, keep in mind that debt collection is a process and an expertise. There may come a moment when you have exhausted your best efforts and are still not meeting your objectives. There are other options and it may be time to consider selling your debt. When you partner with an experienced, responsible, and compliant receivables management firm, you receive instant cash and they assume the responsibility and all risk of debt recovery. In addition to an immediate upfront payment, this solution offers operational efficiencies as others take on and manage your debt recovery efforts.
Managing your receivables is an important part of any business. Just like your careful oversight of all of your other corporate assets, your receivables must be managed properly and this can sometimes be a difficult task to manage internally.
Outsourcing your debt recovery can offer some smart and timely alternatives. Jefferson Capital is a leading buyer and servicer of charged off and bankruptcy receivables across the United States, Canada, and the United Kingdom. Our expert valuation team can work with you to size the debt recovery potential for your organization and find a solution that works best for you. If you, or someone on your team, would like to find out more, please contact Penny Campbell, email@example.com or Bob Maisel, firstname.lastname@example.org. To learn more about Jefferson Capital please visit www.jcap.com. As a receivables management company celebrating its 20th year of business, we have a proven track record of being able to listen and provide solutions that work for you and your company.