Manual accounting processes today are inefficient. Teams must rely heavily on email and spreadsheets to manage an organizations outstanding invoices and cash flow. At a time when companies automate everything from the IT helpdesk to sales tracking to human resources, the average accounting team is still using the same software stack from 2002. Accounting workflows consists of emailing PDFs and spreadsheets back and forth. These then need to be opened, read, and hand entered and updated in the spreadsheets. This creates disparate, static information that is impossible to keep track of. There’s a better way to manage accounts receivable (AR).

Credit and Collections Management (CCM) is a suite of integrated business applications that extend a company’s accounts receivable and accounting system to facilitate credit management, billing and invoicing, remittance processing, dispute management, and collections processes. CCM extends the AR module in your accounting system to effectively manage credit and collections activities. This allows for a more efficient accounting practices, while integrating reporting and business metrics.

Credit and Collections Management System Functionality

CCM system functionality varies widely by publisher but typically supports six key functional areas – credit facilitation, billing and invoicing, remittance processing, collections management, dispute resolution, and reporting and analysis.

Credit Facilitation includes several key functions around credit, such as: credit scoring, credit application processing, reference checking, ordering credit reports from credit bureaus, financial statement analysis, new account approval, order approval, credit limit decisions, accounts receivable portfolio monitoring and credit risk management.

Bill Management and Invoicing involves identifying invoice errors, ensuring vendor compliance, generating an accurate invoice; generation, transmittal and distribution of invoices and statements; trade promotion planning; contract management; Electronic Invoice Presentment and Payment (EIPP); and Electronic Bill Presentment and Payment (EBPP).

Remittance Processing includes financial EDI (Electronic Data Interchange), EFT (Electronic Funds Transfer), auto-cash algorithms and routines, payment-to-invoice matching, cash settlement, and cash forecasting.

Collections Management includes workflow automation driven by a collection strategy engine, prioritized collection activities, integration of A/R data, a reminder system, activity logs, account and invoice level notes, integrated communication tools, faxing capabilities, e-mail, invoice reprinting, other forms of data export, payment plan calculators, imaging tools, and auto-dialers.

Dispute Management focuses on dispute and deduction resolution, chargeback processing, exception reporting with automated escalation processes, a routing engine, collaboration tools, document sharing, and tools for root cause identification.

Reporting and Analysis incorporates cash forecasting, dashboards, email alerts, query capabilities, out-of-the-box reports, report generators, workload balancing, exception reporting, cycle time analysis, portfolio risk management, customer intelligence, and month end reporting tools.

Why Credit and Collections Management?

According to Suzanne Sabharwal, accounts receivable is the most valuable asset for most businesses. Many ERP and accounting systems include AR modules. However, most provide only minimal tools to support collections and dispute management processes. A major way finance leaders can effectively develop efficiencies and implement cost savings is through AR workflow automation.

Companies across several diverse industries are challenged to manage outstanding accounts receivable. Industries with the highest median percentage of uncollectable receivables include manufacturing, specialty trade contractors, business services, engineering services, and wholesale distributors. Today, about 17% of business customers do not adhere to supplier credit terms. Most (61%) companies delay or deny payment due to compliance or administrative problems such as incorrect invoices or receiving the invoice too late to process payment on established credit terms.

This shows that companies can benefit from an integrated CCM application coupled with formalized business procedures to streamline credit and collections activities. When asked about their key drivers for automating, senior executives name control over cash management and reducing processing errors as their primary drivers.

There are many benefits to implementing a CCM application to improve and extend accounts receivable functionality and processes. Some of these are reduced transaction costs, improved cash flow and cash forecasting, optimized staff productivity, and reductions in bad debt and write-offs.

Through automating ONLY collections, companies are seeing a significant return on investment, including:

  • 20% + reduction in days sales outstanding (DSO)
  • 25% + reduction in past due receivables
  • 15% + reduction in bad debt reserves

Award-winning Lockstep connects the world’s finance teams so they can work better together. Lockstep eliminates cash traps and leaks created from manual synchronization of books between B2B trading partners. High-performance companies large and small run their collections with Lockstep. Visit Lockstep.io for more information.