Making Collections Count

An effective A/R strategy enables managers and employees to follow a transaction throughout its life cycle for betterment of the bottom line.

When companies look to boost working capital, they generally focus most of their energy on increasing sales. Something about sales figures grabs executives' attention in a way that collections never will. Maybe it's the sheer joy of closing a deal or the rush that comes from eyeing money that will soon come streaming in. Or maybe collections doesn't enjoy the glamour of sales because it's often easier to sell a product than it is to collect on it.

"Credit and collections is inherently complex and challenging," says Annemarie Earley, a vice president and research director at Gartner Inc., a Stamford, Conn.-based market research and technology consulting firm. "Too many companies have disjointed processes that lead to errors and inefficiency. The goal of any company should be to consolidate and coordinate collections so that it's possible to follow a transaction across its life cycle."

Companies that reach this goal can knock down functional silos and open up enormous opportunities. As Earley describes it, "The ability to access and share information allows organizations to become far more adept at running the business. They're in a position to transform credit and collections from an administrative burden into a strategic tool."

Today, a growing number of companies are developing such an integrated credit and collections strategy. They're adopting specialized software from enterprise resource planning (ERP) vendors as well as best-of-breed providers. They're also revamping business processes to cut costs and boost administrative efficiency. By taking these steps, businesses are improving revenue-risk management; trimming days sales outstanding (DSO); increasing operating efficiencies; and, ultimately, boosting cash flow and the bottom line. "Fortune 2000 companies are recognizing that credit and collections is a key element of improving working capital," says Veena Gundavelli, CEO of Santa Clara, Calif.-based Emagia Corp., a provider of cash-flow management software.