CFOs are responsible for every aspect of their company’s financial operations. While CFOs in small companies generally oversee debt collection, CFOs in big corporations often have little to no responsibility/concern for the collections department.
For example, according to the Wall Street Journal, CFOs’ top three priorities have nothing directly to do with debt collection.
However, CFOs shouldn’t underestimate the importance of debt collection as it plays a crucial role in determining the company’s financial performance and the CFO’s capital allocation, which are both in the top 6 priorities.
The more successful a company’s debt collection performance is, the more cash CFOs would obtain both from their customers and from the release of provision. In other words, CFOs will have more capital to invest in other profitable projects.
What are the common pitfalls in debt collection?
CFOs should make sure they avoid the following debt collection pitfalls at all costs.
- Collections processes start too late
Many financial institutions consider debt collection to just be the process of communicating with overdue customers. While this is partly true, corporations can better resolve their debt issues by seeing collections in a broader view, one that also encompasses the pre-collection stages.
There is no point in companies waiting until customers are past-due before engaging them in the dunning process. Instead, collections departments should start as early as they initially invoice customers. By providing regular nudges alerting customers to their payment date, the amount they owe, or available payment options, collections departments can help to reduce default rates.
- Lack of customer behavioural insights
Many collections departments have no idea if their collections messages (whether they send snail mail or digital messages) have ever been read by customers. Without customer’s behavioural insights, agents have no clue about which messaging works for which segment, meaning they can’t personalise their text accordingly or optimise the debt collection process.
So, how can collections teams overcome this problem? By implementing smart debt collection software. This type of software provides critical insights into customers’ behaviour, demonstrating the communication channels they use, which messages they interact with, when they usually open these messages, and so on. Collections teams can analyse this data to predict customers’ behaviour and assess an adequate amount of provision.
What KPIs can CFOs use to evaluate the collections department’s performance?
CFOs should keep a close watch over their collections department’s performance at all times. By monitoring the following metrics, they can stay on top of their collections success—and can promptly step in to take action when results aren’t going as expected.
Actual cash collected is the most important collections metric for CFOs, showing just how much cash the collections team has collected from its customers.
Cost of collections
CFOs also need to monitor the cost of collections, including employees’ salaries, recruitment costs, infrastructure, software costs and other potential expenditures. This allows CFOs to accurately determine whether leveraging a collections platform will reduce the overall cost of the collections processes, for example.
Impairment occurs when a company’s asset reduces in value. For example, when an individual owes a company €1,000 but cannot repay their debt. The less impairment a company has, the less provision CFOs need to prepare—and the more capital they can spend on other projects. According to IFRS 9, financial institutions are required to account for expected losses from the first instance that the loans appear on their books. Hence, CFOs need to focus on reducing impairment efficiently and effectively.
The key? To have full control over your debt collection data
Many CFOs wonder whether they should resolve debts internally or externally (such as outsourcing to a DCA).
However, the most important factor that helps CFOs optimise their debt collection processes moving forward is to have full control over their collections data. They should gather and analyse a wealth of data that includes customers’ contact information, historical payment history, favourite payment methods, and any key behavioural insights. Having access to this data means CFOs don’t have to worry about allocating debts, and they can choose to either use third-party agencies or resolve debts in-house.
CFOs must leverage collections software to gain full control over their customers’ data. The alternative—to manually collect this crucial data—is time-consuming and inefficient. Therefore, CFOs need to partner with software providers whose product boasts the following features:
- Capable of connecting to APIs, allowing collections teams to interact with different data, devices and applications;
- Allows customers to self-serve their debts online without having to talk to agents;
- Provides detailed insights into customers’ behaviour, allowing collections agents to determine how effective their collections processes have been;
- Boost dunning processes automation, reducing redundant processes to boost collections productivity.
By implementing a collections management system with the above capabilities, CFOs will provide their collections department with all they need to collect debts efficiently, cost-effectively, and in a customer-friendly manner.