Save Money through Collection Automation

Businesses that extend credit to their customers incur operating costs as a result. This includes billing and collection expenses, as well as the cost of the working capital needed to finance the receivables. According to industry analysts PayStream Advisors, companies that employ collection automation technology such as Anytime Collect can realize: 

  • 10 to 20 percent reduction in Days Sales Outstanding (DSO)
  • 25 percent reduction in past due receivables
  • 15 to 25 percent reduction in bad debt reserves
  • Increased cash availability
  • Increased productivity and ability to hold down staffing costs

Here is an example of the savings a typical mid-sized business could achieve though automation.

Current A/R Balance $1,500,000
Annual credit sales $12,000,000
Borrowing cost of working capital 6%
Write-offs as a percentage of sales 4%
   
Calculated DSO 45.00
AR Financing cost $90,000
Write-off amount $480,000
Write-off percentage 4.00%
   
Projected DSO reduction 10%
Projected Write-off reduction 5%
   
New DSO 40.50
Estimated annual saving in financing cost $9,000
Estimated annual saving in write-offs $24,000
Estimated additional cash availability $150,000
   
TOTAL ANNUAL COST SAVINGS $33,000

 

Your actual performance improvement may vary, and it’s somewhat dependent on how effective you are currently – if your DSO is already at 32 you can’t expect a lot of improvement but if it’s 60 then there’s lots of room. An interactive ROI calculator that lets you set some of the key parameters in this analysis is available at http://www.anytimecollect.com/AnytimeCollectROICalc.html.

This calculator also makes some assumptions about the cost of acquiring and implementing collection automation software to estimate a Return on Investment and Payback Period. The cost estimate is based on a typical configuration of Anytime Collect for different numbers of users in a credit or finance organization.  Using the above example, a two-person team could achieve ROI of over 800% with a payback in less than two months.  Having three users increases the cost but the ROI is still about 300% with a payback in approximately three months. There are very few IT investments that generate this level of return this quickly.

One final thought: in collections, if you don’t ask for the money, you don’t get the money. Doing it efficiently and effectively contributes directly to the bottom line in more ways than one.

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