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%|
|AR Financing cost||$90,000|
|Projected DSO reduction||10%|
|Projected Write-off reduction||5%|
|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.