5 ways automated collections management reduces DSO

Collections management - the overlooked cash cow

Collections management is one of the most important O2C functions. But despite its key role in financial success and stability, it’s often an afterthought for the architects of financial processes.

In most organizations, collections teams still carry out most of their job manually. And collections clerks must keep abreast of a huge amount of information from a multitude of sources. This can include everything from customer contact data (which may or may not be accurate) to other customer data like payment histories and credit scores, organization-level data like policies on reminders and debt recovery processes (all of which will be used to determine the exact actions needed in a given case), the invoice itself, and histories of contact attempts and other interactions. Not to mention timelines for next steps, policies on settlement agreements, and contact info for the right people to approve said settlements.

Keeping track of all this in a work environment dominated by emails, PDFs, Excel sheets, and phone calls is a mammoth task. And that’s only for individual cases. Manually tracking and actioning tasks across an entire portfolio can become potentially ruinous as a lack of standardized processes and information centralization leads to individual cases slipping through the cracks. Something as innocuous as a temporary absence can lead to disruptions that increase DSO and jeopardize your organization’s cash position and reputation. 

Considering collections’ most important job is reducing DSO, this is a big problem.
 

But there is a better way – and it’s collections automation

For the most part, this state of affairs is purely grounded in knowledge gaps. For many in collections and the wider finance department, there’s no point in trying to “solve” collections problems, because they aren’t problems, they’re simply the way things are – frustrating as that is.

But there is a much more attractive alternative. Collections automation solutions are now advanced enough to provide a clear advantage to the entire organization. They make the work of collections teams simpler and more effective – and as a result they help reduce DSO significantly and help secure working capital and day to day cash flow.

Here's a brief look into 5 reasons why collections automation solutions can do this.

1. Collections automation provides full visibility of every case

One of the most arduous parts of the collections workflow is the effort that clerks put in to ensuring the information they need to progress a case is accurate and accessible. 

Automations solutions eliminate this part of the process entirely by centralizing data.

Imagine having a single platform where you can access all relevant information like customer details, invoice details, outstanding balances, credit reports, payment scorecards, and contact records. One that allows your collections team (and everyone else) to instantly assess a given case and understand the best follow up action with just a few clicks.

Intelligent automation combined with central data storage provides this. It also allows all tasks to be ranked by priority and assigned to clerks as an auto-generated worklist. 

This means urgent cases get the right attention as soon as they need it – guaranteeing faster collections and bringing DSO down.
 

2. Collections automations mean your teams always know what to do next

A lot of different steps can go into collecting a customer invoice before you reach the “nuclear option” of stopping services, going to court, or selling the debt to a collections agency.

These usually take the form of date-specific reminders sent at policy-dictated intervals via a mess of different channels. All of which eventually culminate in either a modified payment plan and credit limit adjustments or further legal escalation.

Simple in theory. Not so simple in practice.

Even sending a reminder can be tall order in a manual operating environment. Different local markets and companies often prefer different contact channels. Inaccurate data can stop reminders ever reaching their recipients. Or cause them to be sent too late or too early to be effective.

Collections automation solutions remove this ambiguity by using AI-backed smart automation to generate suggestions for the next step at every stage of the process. While still giving individual clerks the flexibility to take this step in a way that fits the specific conditions of the local market and the case itself.
And after each action, the system immediately creates a follow up action with a definite due date based on your company’s policies and approval processes and enters it into the worklist.

This means cases never lose momentum or go cold – even if another clerk has to pick it up from a colleague when they go on vacation or call in sick. This helps processes move along and DSO come down.
 

3. Collections automation and pre-approved plans mean there’s always a way forward

At some point in the collections process your teams will have to sit down with customers who aren’t able to pay what they owe right away. This means figuring out a new payment plan and schedule – and usually an escalation to senior managers for review and approval. In serious cases, this can even mean getting the CFO involved. And after an agreement’s reached, collections and the credit team will have to work together to create new credit terms for the customer that reflect the increased risk of doing business with them. (Which will likely also require some senior approval).

This kind of back and forth obviously wastes time. It also slows down the process of realizing revenue from a delinquent invoice. This is a big problem because the likelihood an overdue invoice will ever be paid drops with every day.

A collections automation solution eliminates this waiting period by allowing your organization to create pre-approved terms for distress payments. Your clerks can present these to the customers as an option in complete confidence they’ll be accepted without any delay ¬– increasing the likelihood of a swift payment and, as a result, reducing DSO.
 

4. Automated collections solutions mean no need for spurious escalations

The fact that clerks can access pre-approved terms also allows your organization to create a clear, logical pathway for escalations. If clerks find that customers need terms that are “out of policy”, they can send approval requests directly to the necessary individual without the need to refer to anybody else.

This means clerks can request bespoke terms in confidence that they’ll be approved or rejected quickly. But it also means individual approvers – from the CFO down – can approach these requests safe in the knowledge that their input is really necessary.

This helps keep DSO down by both expediting the collections process allowing people at every level of your organization to concentrate on the areas where their input adds value.
 

5. Automated collections lets the organization apply experience instantly

An automated collections solution keeps every action, approval, and resolution from every collections case documented and easily reviewable. Allowing the team to reference previous similar cases when they need to in order to apply institutional knowledge directly where it can be most useful.

What’s more, advanced automation solutions that incorporate AI into their workflows can apply previous learnings without the need for anyone to actually look them up – suggesting adjustments to workflows and policies, prioritizing cases, and creating follow up actions automatically to expedite processes and improve outcomes.

 This means that all the accumulated experience and data available to your collections teams is always at their fingertips. Empowering them to do everything they can to ensure quicker resolutions and payments – and by extension lower DSO.
 

How can Serrala help you automate collections management to realize these improvements?

Our FS² Collections automation solution is a cutting-edge solution fully integrated with your current SAP environment (S/4HANA or previous systems like ECC) and embedded in SAP, compliant with clean core standards, and designed for highly automated collections management with real-time updates and insights. Leveraging artificial intelligence (AI) and machine learning (ML), FS² Collections Automation achieves unprecedented levels of automation, minimizing manual efforts and proactively managing high-risk accounts.

By adopting FS² Collections automation software, organizations can efficiently integrate automation technology, reduce costs, foster growth, enhance workforce efficiency, and optimize working capital processes. Automation streamlines collections operations, reducing Days Sales Outstanding (DSO), improving liquidity, and freeing up personnel from repetitive tasks. This results in a significant reduction in collections lifecycle, improved visibility into key performance indicators (KPIs), and enhanced customer satisfaction.

Experience the future of collections management with FS² Collections automation and drive your financial performance to new heights. 

Read customer success story from Merck.

If you’d like to see what our FS² Collections solution is capable of, please get in touch.

Serrala’s AI-powered automation solutions are trusted by over 2,800 world-leading brands to achieve automation rates of up to 99% in their AR processes.

FS² Collections is part of our triple offering for AR Automation. Combining FS² AutoBank, FS² Credit, and FS² Collections, creates a powerful synergy between automated reconciliation, efficient collections, and comprehensive risk analysis. Together, the power of three helps your organization with real-time visibility into payment statuses and credit risks, enabling proactive decisions and faster resolution of overdue accounts.