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You can spend a fortune on management consultants to tell you where the problems lie within your business, but few people appreciate that the overdue list contains a great deal of information on where a business is not performing. Specifically, if you want to see in detail where a business is going wrong, a careful look at the overdue debt and that part of the debt that is in query will highlight precisely where the real problems lie.

John Charles, managing director of software author, Credica, argues that UK businesses don't give a high enough priority to the cause of queries that tie up so much cash in high invoice volume businesses.

A typical management response to mounting overdue debt is simply to set targets for reduction - targets which, in the end, are passed to an already overworked collections team who has limited resources and insufficient authority to address the actual problems. A lack of visibility at board level of the causes of overdue debt means that management has no awareness that they are being repeated, month in month out, across the customer base. Senior management only tend to get involved at the point at which there are serious problems and some form of negotiation is involved - for negotiation read "lost profit".

Vicious Circle
Why do UK businesses fail to recognise that debt in query provides key indicators of operational problems? The problem lies with both cultural and technological gaps that leave collections teams effectively isolated from the rest of the business.

Too many businesses treat overdue debt as a black hole - invoices are thrown 'over the wall' to accounts to be resolved by a collections team often overwhelmed by the volume of work and with no facility to resolve the problems that have led to payments being withheld.

Surprisingly, given the importance of cash, manual systems are still prevalent and, where there is access, the collections team find no supporting functionality in the Enterprise Resource Planning (ERP) and Customer Relationship Management (CRM) systems that have been expensively rolled out. Similarly, there is often no visibility of causes for withheld payment outside the collections department, and with no consistent method of communication with other parts of the business, the collections team are often working in a vacuum.

This isolation means that despite the current vogue for investment in customer facing systems, an organisation cannot have a complete picture of the customer. For UK businesses that pride themselves on improved customer understanding and excellent relationships, a lack of visibility of business and operational problems that are causing customers to withhold payment is extraordinary: these issues are undermining customer satisfaction and may ultimately be driving business away.

Cultural Gap
The problem is also cultural. Those individuals required to resolve the issues that have led to an unpaid debt - from sales to distribution - are forward focused, concentrating on achieving the next sale or delivery. They have little incentive to assist in resolving the problem and, hence, smoothing the collections process and improving operations.

Furthermore, the 'over the wall' attitude of most organisations to the collections process ensures that while collections teams are repeatedly being told by customers why an invoice is unpaid, that information remains isolated. Management has no recognition that these issues are directly and adversely effecting revenue and profits as well as cashflow.

The result is that mistakes continue unchecked; the collections team remains isolated; overdue debt levels persist and customer relationships are undermined. Fundamentally, the business is unable to recognise, let alone respond to, its recurring problems.

Bridging the Gap
Many organisations in this position turn to expensive management consultants to ascertain just where the problem lies. Yet simple analysis of reasons for non-payment across the business and customer base can provide a platform for business change.

For example, if 6% of all non-payments are due to incorrect delivery or 2% is due to damaged goods, the business can focus its attentions on the distribution process. Not only can this information highlight the problems and set realistic targets for improvement but it also enables the business to monitor the performance of departments - from warehouse to marketing. It also allows the business to take real information into discussions with suppliers - such as courier companies - to support contract renegotiation.

These problems not only undermine business relationships but also indicate a huge cost to the business. For example, one distribution organisation had, on average, £10 million in queried invoices at any one time when using a manual system. An automated approach not only enabled the company to release £4.3 million, freeing working capital and reducing credit notes but critically, also addressed the problems that caused the non-payment so they didn't recur.

Consistent Platform
Information about the reason for debts remaining in query does exist within most organisations. Indeed, many can provide a top 25 list of reasons for non-payment. But it does not exist in a way that can be meaningfully utilised by the business.

The collections team cannot possibly resolve the overdue payment/collections issue on their own, without cultural change and consistent reporting. What is required is a consistent way of recording the reasons for unpaid invoices and a simple, effective means of communicating these problems across the business. Once this information is available in a meaningful form it can be analysed, communicated and operational issues targeted for improvement. Integrated with ERP and CRM it delivers the complete customer view that many organisations mistakenly believe they already have.

And supporting this integrated approach must be cultural change. Problems will only be resolved if forward facing departments are incentivised to buy-in to the process of problem resolution while addressing the cause to ensure these problems do not recur. That places the focus on a different set of people, and management, who need to be mobilised to resolve the problems and take the business forward.

Approach overdue debt in this way and the issue is no longer cash collection but an integrated approach to improving service where payment within terms will be a natural outcome.

Closely monitoring the business in this area provides insights that would take management consultants' considerable time and money to deliver. Close integration with key business systems makes the business self-tuning and provides an open platform for invaluable customer feedback.

John Charles

Sales Management Training - Keep Your Team Motivated

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