Receivables Management: “Find your cash leaks!”
A large number of adjusting screws in receivables management have an influence on working capital and DSO. Companies that implement the right processes and automatisms can gain a major advantage over competitors. The right software solution can help to achieve this. Geert Corbeel, Collenda’s Senior Sales Executive in Belgium, has many years of experience in this terrain. We talked to him.
Collenda held a Webinar together with the credit management consulting firm CRiON about working capital performance, do you see a lot of need for improvement?
Geert Corbeel There is indeed a great need for improvement in many companies. There are many levers that receivables and collections managers can use to improve performance and liquidity. The quality of those decisions is ultimately reflected in the Days Sales Outstanding (DSO). So, in my mind, the DSO is not only a very important KPI but also a figure defined by dysfunctions. I can only advise every company: find your cash leaks!
Can you name a few “dysfunctions” please?
Geert Corbeel Of course. In risk and contract management for example there is insufficient credit screening, the lack of credit limit management, no automatic order stop or flagging in place, re-active milestone management for project invoicing, poor communication between Sales and Accounting to name just a few.
What about dispute management?
Geert Corbeel This area is of course all about communication with the customer. It is important to keep an eye on the following weak links and improve them as quickly as possible: Poor customer service, high level of credit notes, no in place, no root cause analysis/ resolution, impaired and delayed collections, undefined escalation procedure. During the development of our software solutions, we thought about these weak points and implemented the corresponding functionalities.
Can you give a more concrete example?
Geert Corbeel An invoice is sent with the incorrect amount – there is a problem. The invoice is sent to the wrong address – there is a problem. Even after the money has been received, there can be a problem if the money cannot be attributed to the right invoice or the right debtor. These problems add up. In addition, receivables managers are often dependent on other people in the company, which can lead to a chain of errors. Automation helps to minimize these errors. Thus, it’s all about the process.
Is DSO the most important metric that you recommend keeping an eye on?
Geert Corbeel It is undoubtedly an important metric, but receivables managers should also look at other KPIs, for example: probability of default or the profitability of customers. In our view, it is also very important to keep an eye on the spread of risk across the entire portfolio instead of just looking at individual debtors separately. All this is f.e. possible with the monitoring tools within our software suite Open Credit 4.0 and there are even more options due to the Integration of several external service providers with specialized monitoring products and flexible scorecards for portfolio overviews help the companies to find and control risks.
In summary, what can receivables managers do to improve the working capital?
Geert Corbeel There are some clear guidelines that should be taken into account. My recommendation: Think in in short periods of time, even in days; challenge and identify key drivers within the Cash Conversion Cycle; define relevant KPIs cross-functional; document your KPI tree (what, how, when, who); drive root cause remediation through direct method insights.
Info: The topic above was explained in detail by Patrick Vercammen, Senior Management Consultant in Finance & Business Transformation, during a webinar organised by CRiON together with Collenda for the Credit Management Circle expert forum.