Collection Management Steps: The Path of Institutions and Enterprises to Financial Stability

Collection Management Steps: The Path of Institutions and Enterprises to Financial Stability

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Collection management is a process involving the collection of funds due from customers who have purchased products or services on credit from a company. This process is aimed at improving the liquidity of the company and reducing its risk of financial losses. In this article, we will discuss the importance of managing collection and best practices for its effective and efficient implementation. We will also review some of the most important strategies, tools, and techniques that help improve the collection process and increase company cash flow rates.

The importance of collection management

Collection management plays a pivotal role in the financial stability of the company; if the collection is effectively managed, the company can achieve many advantages, including:

Increase cash flow: If funds are raised at a suitable time, the company’s cash flow will increase, and you will be able to finance its future activities and investments easily.

Adjust customer relationships: Collection management helps monitor and analyze customer behavior and market trends, thus helping the company make better strategic and operational decisions.

Collection management steps

Collection management is an important and sensitive process that requires planning, organization, and follow-up. In order to carry out this process effectively, some basic steps must be taken, including:

Processing of collection management steps

  1. Analysis of prior collection

This step is aimed at determining the status of collection in prior periods, identifying strengths and weaknesses, opportunities, and challenges. Therefore, the collection manager must:

Collection of financial statements: This includes statements on future sales, debits, payments received, discounts granted, lost discounts, default debts, etc.

Analysis of results and reports: This includes the use of key performance indicators to measure the level of effectiveness of collection in prior periods and its comparison with established targets and industry standards. It also includes preparing detailed reports on collection results, identifying problems and the reasons for them, and proposing recommendations for their resolution.

2: Development of the collection strategy

This step is aimed at defining an action plan to improve future collection and increase recovery rates. Therefore, the collector must:

Identification of key targets and indicators: This includes setting targets for collection and identifying key indicators to measure the achievement of these targets, such as the number of calls, visits, letters with debtors, or the response, adjustment, or reduction rate.

Selection of appropriate methods and tools: This includes the selection of the best methods for the collection process, such as telephone, postal, electronic, or direct communication with debtors, and the determination of the appropriate timing, language, and tone for each case. It also includes the selection of the best tools to facilitate collection, such as the use of electronic payment services to facilitate payment.

Implementation of collection management steps

  1. Improved collection processes

Collection processes can be improved by the following steps:

  • Identify target clients according to specific criteria, such as the duration of the delay, the value of the debt, or the type of contract.
  • Use appropriate means of communication with clients, such as telephone, e-mail, text messages, or site visits.
  • Provide flexible payment plans appropriate to client circumstances, such as reduction or postponement.
  • Follow up on outstanding payments and ensure that they are received in a timely manner.
  • Use advanced programs and systems to manage, record, and analyze collection data.
  1. Development of collection policies and procedures

Effective collection management policies and procedures can be developed through the following steps:

  • Establish clear and measurable targets for the performance of the collection process, such as the rate of collection, the number of closed cases, or the average period of collection.
  • Define the responsibilities and powers of each member of the collection team, such as the number of daily contacts, the amount of debt responsible, or the modalities of negotiation allowed.
  • Develop a mechanism to evaluate, stimulate, and develop the skills of the collection team, such as periodic reports, financial incentives, or training courses.
  • Establish controls and standards to ensure the quality and transparency of the collection process, such as using a centralized system for recording all collection processes, following the Consumer Rights Protection Act, or taking legal action in case of failure to collect.

3: Team training

The collection team could be trained on how to implement this process effectively and professionally by following the following steps:

  • Identify the training needs of each member of the collection team based on his or her level of expertise, performance, and weaknesses.
  • Selection of training sources and methods appropriate to each collection team member, such as videos, workshops, or briefings.
  • Organize a training schedule commensurate with the working hours and core tasks of the collection team.
  • Evaluate the effectiveness and results of training on a regular basis and make the necessary adjustments to the training plan.

4: Communication with customers

The collection team must clearly and accurately clarify the terms and conditions related to the debts owed by the customer. This includes:

  • Determine the value of debts, maturity, interest rate, and penalties for late payment.
  • Clarify the rights and duties of the customer as a debtor and the rights and duties of the debt collector as a creditor.
  • Explain the possible consequences of non-payment of debt on time, such as the impact on credit valuation or legal action.

5: Support for clients

The collection team shall provide support to clients facing difficulties in paying their debts, including:

  • Listen to the problems and circumstances of the client with understanding and respect.
  • Provide possible solutions to facilitate the payment process, such as rescheduling outstanding amounts, reducing interest rates, or granting grace periods.
  • Encourage the client to comply with the agreed payment plan and remind him of the benefits thereof, such as avoiding further delay or improving his credit record.

6: Follow-up of payments and debts

The collection team must collect the outstanding funds from clients in a timely manner, including:

  • Send an invoice or payment notice to the client before the due date.
  • Ensure that amounts due are received by checking bank accounts or other payment modalities.
  • Issuance of a receipt or payment certificate to the client after receipt of the amounts due.
  • All collections are recorded in a centralized collection data management system.

7: Problem management and inquiries

Problems and queries that may arise during the collection process must be managed. This includes:

  • Answer queries and complaints from the client about the value of the debt, the method of payment, or the collection policy.
  • Dealing with special or difficult cases such as defaulting customers, evaders, or deceased.
  • Coordination with external cooperating bodies such as banks, subsidiaries, lawyers, or collection agencies.
  • Settlement of disputes and disputes that may arise between the client and the collector of debts in a friendly and legal manner.

8: Establishment of periodic reports

Periodic reports on the results and performance of the collection process should be prepared. This includes:

  • Compilation and analysis of collection data such as the number and value of debts received, outstanding, or written off.
  • To highlight achievements, challenges, and recommendations for the development of the collection process.
  • Reporting to senior management or stakeholders on a regular basis in accordance with established criteria.
  • Audit the collection plan and strategy based on the results of the reports and make the necessary changes to improve them.

How is the performance of the collection management steps assessed?

To assess the performance of collection management steps, some key indicators reflecting the effectiveness and efficiency of this process could be used, such as:

Days Sales Outstanding (DSO): It measures the average number of days it takes a company to collect money owed from customers. The lower this indicator, the better for a company’s liquidity and cash flow.

Collection Effectiveness Index (CEI): It measures the percentage of funds successfully raised out of the total funds due during a given period. The higher this indicator, the more it indicates that the collection process is effective and successful.

The turnover rate of the debtor’s accounts (ART): It measures the number of times the debtor’s stock has turned into cash during a given period. The higher the index, the more this indicates that the company can quickly convert its debt into liquidity.

Average late payment (ADD): It measures the average number of days when invoices are overdue. The lower the indicator, the more the clients comply with the agreed terms and conditions.

RPC and PTP measure the proportion of communications that succeed in reaching the debt payer and the proportion of communications that result in a debtor’s promise of payment. The higher these indicators are, the more this indicates that the customer communication strategy is moving in the right direction.

Number of invoices disputed: an indicator that measures the number of invoices rejected or contested by the client for various reasons. The lower the index, the higher the quality and accuracy of the billing process.

In conclusion

So we have seen how important it is to take collection management steps for companies and institutions in the financial and commercial sphere; these steps constitute an integrated strategy that protects the financial interests of firms and enterprises and increases their cash flow rates. However, successful management requires accurate and documented data; for this reason, Qoyod has dedicated its services to its clients in the best way possible to facilitate the recording of accounts and financial information for any enterprise. What are you waiting for? Try Qoyod now for free for 14 days and start your journey towards better financial management.

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