Manual collection processes, including the many companies that still use spreadsheets to aid the process have performance problems, including very low productivity, errors, and poor cash collections.

Perhaps the best investment you can make is licensing an advanced SaaS system which will give you the structure to implement real discipline in your collection operations. It will improve cash flow, reduce bad debts, eliminate manual work, and slash overhead. An example of this would be Carixa™.

If you think your accounting system offers the necessary features to boost your cash collection results, you had better look more closely. If you believe, as our B2B collection agency does, that collections are a “production” function, it needs a production engine.

Features of an Effective Collection Software

A great SaaS collection system incorporates best­ practice policies, business rules, scripts, contacts, escalations, automated letter campaigns, and workflows into the collection process.

Just as you should not do business without a CRM system to manage customer relationships and sales follow-ups, in today’s business environment you simply cannot get by without a collection management system to manage your cash flow.

By implementing automated workflows, companies can unlock cash, reduce bad debts, and improve customer service with greater visibility. A good system can also prioritize collections for more targeted collections.

By implementing a collaborative accounts receivable workflow system such as Carixa any customer facing staff can initiate a solution for payment, deduction, dispute, or credit-related problems rather than delaying action with callbacks and emails.

Using a system for timely identification and validation of disputes and deductions, the process must include timetables, routing of collection problems and deductions, and management escalation for serious issues. Tracking of collections and deductions with a robust deduction system will provide valuable insight on gaps in compliance or service levels versus customer expectations — particularly useful in identifying systemic, recurring problems.

Use a collection system that can adapt to your policies and use credit and payment scoring models to trigger workflow actions; for example, which customer segments should  be a priority, and at what point should you commence collection action? The scores should reflect credit risk, industry payment data, as well as your own experience with a customer.

What You Can Accomplish

With the right system, you can initiate all actions automatically based on a customized workflow

timeline that details specific action steps for the identification of delinquent accounts based on

customer credit rating/payment histories or customer risk class. This allows you to manage the company’s accounts receivable investment more efficiently. You should look for a system

that:

• Can handle all categories of transactions on­line, without resorting to off­line manual activities or patches. If you need Excel downloads, it’s the wrong system.
• Incorporates your business policies and best practice rules for standardized process.
• Offers a collaborative resolution platform for employees, partners, and customers.
• Offers customized workflow, so every transaction is handled by the right person at the right time.
• Incorporates both credit and payment scoring, so your staff works the priorities.
• Drives credit and collection department “production” so that your investment in people delivers the results you need.
• Has detailed audit and reconciliation tools built right in, vs. using Excel offline.
• Provides a 100% cash application hit on the most complex receivables, while automatically initiating deduction and dispute transactions.
• Has features that provide automatic access to customer data and documentation over the web.
• Can seamlessly work with outside agencies and services.
• Empowers management with a reporting window into performance and daily operations down to the customer level.
• Is Software as a Service (SaaS) so it can be implemented quickly, with no hardware or software to purchase.

Outsourcing Your Collections

At Leib Solutions, we provide B2B collection services for companies whose collections are too much to handle for an in-house team. We’re a top-rated collection company trusted by businesses around the world.

Ready to generate more working capital for your business? Contact us today for a free consultation.

The basis of our accounts receivable management services is the prioritization of collection activities around the money and the priorities instead of an “alphabetic order” type of collection effort.

1. Create a Plan of Action using situational strategies based on the accounts and circumstances, but remember that measuring collection metrics is not the same as following the strategy.

Collection Strategy and Corporate Goals. Even if you do not have a modern collaborative collection system, you can still incorporate many elements into your manual process.

1. Manual collection processes and spreadsheet collection management are very inefficient and ineffective, very low productivity, and error-prone. 
2. Your process should require you to think about and choose collection “strategies” (vs. the usual A-Z collection approach) which will create an environment where performance matches the corporate objectives for cash flow.
3. Your process should incorporate an easy-to-modify “rules-based” action driver that takes into consideration your corporate objectives and policies and manages collector activity and priorities. It also will adjust collector actions based on changes in customer risk.
4. It should support simple-to-assign alternative collection strategies, or a combination of strategies, depending on the collection staff expertise and customer risk categories.
   1. “Risk Scores” strategy, attending to the riskiest customers first to avoid bad debts.
   2. “Payment Scores” strategy, using your historical payment information to re-train customers payment habits.
   3. “Payment Gap” strategy, which benchmarks your customer aging against your industry to (ask Smyyth for more information on this).
   4. “Cash Goal” strategy to focus on maximum cash goal for a month or quarter, which could mean focusing on the largest dollars regardless of age.
   5. “Delinquency Reduction” strategy, which focuses on reducing the number of accounts past due aging buckets.

Workflow. System rules should establish workflow, as well as escalation to management, which will change according to the circumstances, age, number of collection calls, etc. A collection strategy can include (automatic) collection call reminders, system collection emails, letters,etc., all determined based on what the result of the last action was and a timetable. For example, if the customer made a promise to pay, the system should generate an email confirming it, and then set up an automated follow-up on the appropriate day.

Standard Documents Library. Not only can all collection documents can be standardized and then customized if needed, but also automatically transmitted. Letter campaigns, for example, can be outsourced to mailing companies, without any manual intervention.

2. Prioritize Collection activities by size and risk, and around the resources and time available to do it, for the biggest return. Whether this is controlled by your collection system (the best way) or by manual ledger review, the priorities would include:

3. Monitor all accounts receivable at least on a weekly basis and follow up on those customers when due, or in the case of very large invoices, a few days ahead of the due date as a friendly reminder to them that it is important to you.

4. Define Responsibilities and roles of the collection department around skills

• High volume, quick-hit collectors
• Complex account collectors
• Final demand – tough collection negotiators
• At what point are accounts “escalated” to a higher level
• Dispute resolution specialists

5. Schedule your calls by time zone, and try to catch decision makers earlier or later than you would accounts payable department. Note: west coast companies often start at 8AM.

6. Quickly Resolve Disputes .The timely management of invoicing problems and disputes can make a dramatic difference in your ability to collect outstanding balances, as it can affect your customer relationships.

Our Best Practices

While this blog does give you a detailed rundown of what we find to be collections best practices, sometimes you can’t do it on your own. When you’re looking for AR outsourcing that produces results, turn to the experts at Leib Solutions.

Insurance executives are familiar with subrogation, the insurer’s legal right to pursue damages after paying a claim. However, it turns out that many insurers are unable to or neglect to pursue their subrogation rights.  If they do, they may not be using best practices in doing so. This results in profit opportunities lost forever, as well as inefficiency and excess overhead expense in the recovery effort. In both ways, it hurts insurers’ profits.

Every dollar of subrogation you capture goes to the bottom line, and every dollar that ages out and gets written off is profit lost forever.

Focus

Subrogation is an integral part of the insurance process – not an afterthought – and should be managed as such. It is worth millions or even tens of millions of dollars in profit opportunity. When a subrogation recovery function is optimized, it can have a material effect on the insurer’s operating ratio.

Perhaps as much as $1 of every $4 paid in claims can be recovered through subrogation. Many, perhaps 1/3 of all potential claims, are never handled at all, representing a unnecessary revenue loss.

This area is a huge opportunity for every insurance company and requires a greater level of focus and management (or expert outsourcing) in order to capture the opportunity.

Processes and Systems

Clear and well thought out processes must be developed so that the subrogation effort  is efficient and timely, and produces the desired results. There is too much money involved to ignore this process. This includes well-crafted demand letters. Here are some quick tips:

Documentation

Documentation must be secured and organized for quick analysis of the potential. If there is a lot of money involved, it may be helpful to check to see if the party from whom you are attempting to collect has the funds before you invest too much in the recovery effort.

Systems

You need smart systems to track claims, their status and all collection/resolution activities. A collaborative system is the key, since you should be able to escalate a case internally or for additional input or advice. This system should include automated workflows, follow-up protocols guaranteeing that no claim ever slips through the cracks, and automated claim communications. A plus would be the ability to push a button to assign a claim or category of claims to an outsourcer/agency, and continue to track the results through your system.

State of the art web-based software, such as that used by Leib Solutions, includes all this, plus uses robotic processes that replace repetitive and error-prone manual work with automated error-free and on-time solutions.

Tips

• Re-engineer processes from beginning to end
• Automate systems eliminating repetitive tasks
• Install management oversight dashboards
• Have a collaborative system so that resources throughout the company can be  accessed according to the circumstances.
• Use performance tracking

The system, of course, should track the performance of individual subrogation analysts with concise management reports. You will find that in a staff of ten, the success rate can vary wildly, with some more than twice as effective as others. Smart performance reporting can identify areas of success or weakness; it should be used to initiate a virtual feedback loop and training for staff.

Statute of Limitations

While a majority of states allow subrogation claims for either two or three years, or even longer, after the incident, there are a few that allow only one year so you need to aware of state laws in this regard. Allowing subrogation claims to age out so far – which many insurers do – is a bad practice on all accounts and will reduce the ultimate recovery. If you can’t get to them all promptly, by all means outsource collection to an agency.

First-Party Payments

When making first-party claim payments, you will need to prove that the amount paid was reasonable and well documented. It’s on you to prove the payment was appropriate. Further, you cannot recover Replacement Cost, even if you paid it, only Actual Cash Value.

Advise of Subrogation

Advise the insured as soon as possible that you are going to pursue subrogation to preclude them taking actions which may hurt your case, as well as to elicit their cooperation. Early notice should also be given to your insurance counterpart, along with documentation supporting your case. The faster you start the process, the sooner you will achieve a successful outcome.

“Tort” Vs “Debt”

A subrogation claim is generally considered a “tort” – not a “debt”, so it has been found by the courts as not subject to the FDCPA. This is important as defendants have in the past tried to use assertions of FDCPA violations as a potential hammer against collectors.  Note: there are some state laws that go contrary to this. It’s important you have this knowledge so you can protect yourself.

Expansive Rights of Insurer

Remember that you have all the rights of your insured against responsible third parties, even if those rights are contractual rather than founded on tort law.

Lawsuit vs. “Amicable” Resolution

The expense of litigation should give one pause. Sometimes lawsuits (or the threat thereof) are required. However, claims most often remain unresolved because of lack of attention and the inability to give the issue the time and focus needed. That is where an agency comes in.

Conclusion

Subrogation claims come in all sizes and varieties so you have to balance the potential recovery vs the amount it costs to get it. This is called the “netback”; how much do you end up with after labor, agency or attorney costs. If you engage a professional agency, the expense may (or may not) be higher, but the old saw applies: 65% of something is better than 100% of nothing.

However, every insurer has limited expert resources, so the more time you spend on any function (such as subrogation) that is tertiary to the core mission, means less time spent elsewhere. Frequently, we find that when subrogation issues get less attention than they need and require, they age out and become more difficult to resolve as a result.

In addition, complex disputes such as subrogation are hugely expensive to handle; often on average hundreds of dollars per claim. Managing subrogation is a balancing act, and this is where an experienced outside agency can be very helpful.

Fortunately, there are professional organizations such as Leib Solutions that enable you to cost-effectively outsource subrogation claims and accounts receivable management services. What Leib offers include:

• Expert staff
• Maximum recoveries
• Top customer service
• Commission based on results vs. overhead expense
• State-of-the-Art collaborative collection technology
• Client performance dashboards
• Legal forwarding (when required)

Please contact us for more information on all of our AR outsourcing services.

Every company needs a collection agency, since there will always be customers that default or who will not pay under the normal terms. Hiring the best commercial collection agency is in your best interest, so here are some factors you should take into consideration when choosing an agency for your company:

1. If you are B2B, you must receive commercial collection services for bad debt, as commercial specialists have experience dealing with corporate debt matters and bankruptcies, and their collection approach is more specialized. A good commercial agency may only assign 300-500 accounts per collector since a more consultative collection approach is needed. A consumer collection agency may assign a couple thousand accounts to each collector and are often use “dial for dollars” call-center operations, using collectors with little experience.
2. Every collection agency will receive occasional complaints from debtors — it’s just part of the business. But, if you see there are too many, or there are complaints of unethical practices, look elsewhere.
3. Most business debts fall into the same categories of reasons for non-payment, including:

• Cash flow problems
• Disputes on pricing or product to be worked out
• Confusion on contracts or documentation
• Client failure to follow-up frequently enough

However, if your business is not the typical commercial transaction (insurance, deductions, subrogation, online services, etc.), check to see if they have experience in what your line of business.

4. It’s very easy to get into the collection business so to feel comfortable, you should be focusing on companies that have been in business for 10 or more years.
5. Agencies in most states must be licensed and/or bonded. In the end, everything comes down to character, so check out the management of the firm. If they are not shown on the website, move on.
6. A good collection agency will have strong internal controls and operating procedures to ensure high-quality results and customer service. This includes recording all telephone conversations for both staff training as well as compliance with collection regulations.
7. If your internal staff needs in-house training to motivate and equip your collectors, the agency might have the resources to help, so ask.
8. Although the Fair Debt Collection Practices Act (FDCPA) relates to consumer collections (not B2B), the agency should have their collectors trained to comply, since there are times when a commercial debt might morph into one with consumer attributes.
9. If they have association accreditations, it is a good sign. Leib Solutions, for example, is a member of numerous industry associations. We have also been awarded an A.M. Best Expert Service provider badge for seven years running.
10. If you place only a few accounts, the method of placement and reporting is not an issue for you. If you are a large organization, however, you need a firm with secure electronic placement, communications, and web-based reporting to streamline management.
11. The age at which accounts are placed for collection is an important predictor of collection success. All too often, companies will hem and haw, hoping something will happen, and let a debt languish because they do not want to pay 1/3 of the amount to collect it, and by the time they contact an agency, the debtor may well be out of business, or beyond hope.
12. Always focus on the successful “net-back” — the cash you get back — and not what you are going to pay the agency. It’s better to recover most of the bad debt, rather than take a total loss.
13. The most successful companies use automated placement by established time-parameters to avoid uncertainty and to keep collectors focused on the current accounts. With this method, you decide in advance at what age you will assign accounts to an agency and stick to it. Ninety (90) or 120 days is a good starting point for this. Wait much later, and the collection value declines precipitously.

14. First party collections: You want to select an agency with both the technology and experience to handle “first-party” collections (using your name, as invoices come due, or special projects) to give you operational flexibility. This requires the ability to quickly and simply exchange information between their systems with yours, to keep both up to date. Leib uses the remarkable Carixa Credit-to-Cash Platform for this. The system is collaborative, giving the client a view and opportunity to participate in solving problems.

Estimating your corporate Bad Debt Allowance (BDA) is a fundamental job of the Credit Manager. Doing it right will help your company prepare for the expense and possibly enable you to head off losses. This infographic offers five factors that can help you keep your company’s Bad Debt Allowance within a predicted threshold:

To learn more about Bad Debt Allowances and how to predict them more accurately, check out our previous blogs. If you’re in need of collection services, Leib Solutions has you covered. We offer first and third party collection services as well as a range of other related solutions to help your company get the return on the profit you deserve. Want to learn more? Call us at +1-855-509-6607 (US) / +1 856-439-1179 (Int’l), or fill out a contact form.

Best Practices to Include in our Credit and Collections processes include

1. All employees need to understand the mission and objectives of the credit department, so they deliver a consistent message to customers and properly represent the “culture” of your organization. Just as with customer service, the mission of the credit department has to be to make it easy to do business and to enhance – not get in the way of – the company’s success.
2. Draft a Credit and Collection Policy manual that incorporates the department mission and objectives, credit approval limits, reviews, and responsibilities, as well as laying out the collection policy, including impact on credit lines, dates for assignment to agencies, etc.
3. Start new customer on-boarding with a fully automated online credit application that captures all the information you need in one step and integrates with your enterprise financial and CRM systems. A best-in-class system will be automated “end-to-end”, eliminating the dozens of manual tasks and hand-offs, emails, faxes, off-line agreements, etc., and can save you over 80% of the labor and slash processing from many days to hours.
4. Make sure that your processes are flexible and do not get in the way of on-time payment. For example, do you offer options of credit card, ACH and have you considered cash discounts (enforced) for early payment?
5. Examine the causes of invoice payment delays and disputes, as they often have their root-causes embedded in your own operations.
6. Make sure that your customers know who to contact with customer service or payment problems. They should have a single point of contact if possible, who has immediate access to the customer records, using an on-line CRM or enterprise system that has all records of business and contacts.
7. Monitor your accounts and update credit reports regularly, no less than once a year, for changes in their credit risk profile, so you can raise credit lines when appropriate to increase sales, or are not blindsided with a preventable bad debt. Use payment and credit scoring systems to prioritize collection work to the customers most at risk, or those that do not pay on time unless you contact them. Set up collection strategies in your collection system, with pre-set collection steps and workflow so nothing gets overlooked.
8. Measure your staff performance for DSO and delinquencies monthly. You should prepare cash flow and delinquency targets for all collection personnel, and they should be held accountable.
9. Separate disputes and deduction resolution and management from invoice collections as they have a different experience, workflow, and resolution characteristics from the straight-forward routine collection work.
10. Acquire an automated cash application system (“auto-cash”) that applies remittances in real-time. Cash should be applied and reconciled daily so backlogs do not accumulate. Use a system that assures 100% auto cash application.
11. Evaluate and compare your outside agencies for collection rates, as well as customer complaints. Pay more attention to the net you get back and less to the collection percentage they charge. A more expensive service often delivers the best net return to you.
12. Get training for your staff in collection techniques and psychology and, if you deal with consumers, the Fair Debt Collection Practices Act (FDCPA) is very important.

This is not meant to be a comprehensive list but a quick summary of common best practices for credit, collection, and accounts receivable management.