Understanding the Cost of Collecting a Single Dollar – A Mid-Market Perspective

Recent studies have shown that the value of an uncollected dollar falls to 46 cents in a year. In this session, we uncover the cost of collecting $1 for a mid-sized business and how they could optimize their receivables process to minimize this cost.
Marinko Marijolovic

Marinko Marijolovic

Director, Corporate Credit Services, Shurtape Technologies
Lawrence Chester

Lawrence Chester

President, CFO Simplified
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Session Summary:

Takeaway 1
Insights on traditional approaches to collections in turbulent economic times and the cost of collecting $1

Key Points

  • Learn why businesses should acknowledge that the manual accounts receivables collections are now a thing of the past
  • Understand why the traditional collection process does not usually communicate or collaborate effectively with internal or external stakeholders
  • Analyze how it’s time to start addressing the operation components by integrating technology to manage collections better
Takeaway 2
A deep dive into the growth trends of Mid-Market in 2022 from a collections perspective

Key Points

  • Know what are the significant challenges that businesses face concerning collections during these uncertain times
  • Understand how growth in businesses leads to more transactions with an ever-rising number of customers with the increased collections challenge
  • Learn how companies need to take strategic initiatives to optimize their working capital
Takeaway 3
Ways to streamline your financial process and level up your collections capabilities with automation

Key Points

  • Know the benefit of adopting data-driven strategies for digitizing an existing collection recovery process
  • Understand why it’s vital for companies to choose a proactive collections approach
  • Analyze how the digitization of the entire process could be a game-changer
Show More

Kiran Bikash Rana 0:22
Topic for today. It’s understanding the cost of collecting $1 in 2022 as an interesting findings, and my team introduced me to the concept is pretty interesting right? So we looked at some studies it says, If you do not collect $1 on time, it reduces from being $1. About 67 cents in three months. Sorry, it’s at 73 months 67 In six months, and 46 in any area, right. So, since we collected time are given the pandemic, what happened with the turbulent times we all realize that the cost of collecting $1 is extremely important. When I kind of was regulating this idea across a lot of people that I spoke yesterday and today, a lot of people are surprised with what I was saying that it’s something that I’ve not thought about. So I introduced the first question here. I think it goes to marinko. I think that you know the world of collections, especially with what you’re seeing with this turbulent times, is manual collections a thing of the past,

Marinko 1:26
for the most part, and I believe it is, I mean, what you mentioned about the cost or the loss of value on your on your asset. Obviously that’s true because otherwise customers would not be asking for extended terms. But for us, you know, we’ve automated now for over seven years and when COVID We’ve had a lot of problems. We kind of our business tanked like immediately because we’re stopped worrying about everybody. I was seven one and extended terms, and you’re trying to figure out who really needed extended terms who was in trouble. So the speed with which the clutches process has changed is significant. Now, Uber in COVID, for me, at least in that first three to six months was asked me because we had to decide which account controller which account actually we’re going to get extended terms to which account we’re paying because they needed they thought they needed some customers and which accounts just didn’t tell you anything we just weren’t paying at all. So I was being asked for information immediately. I had put out like collection reports every week for the first time in my life. And without an automated tool. We would have really been in trouble. And to top it off, I was like most people we were sent home so now we had a workforce that was not even in one spot anymore. And that really made it made it difficult for us. So I would just say that. You know if nothing else speed come the biggest issue as far as trying to get you to get your money, not just from losing the value but just from being able to respond to the to the accounts, and then the assumption for me at least there’s a COVID clip now or MC COVID. Again for like, every time we do something else, you know something else will come up again. So I think everybody, let’s hear it was kind of runs out of reach to value, the speed with which you are addressing the issues and doing Fletcher’s on your account. Because in my case, my customers have improved their speed and automation and we kind of have to react to that.

Kiran 3:42
Right. Thank you for that intro. I was kind of talking to a lot of people yesterday. One thing that I notice is that if you have collections automation in place, even then, during the pandemic, it was a major challenge right so a lot of companies have gone through the challenges even before but the pandemic has really amplified the challenge of collecting, right so how important do you think is from your on the part about automation automating and so on so forth. I think

Larry Chester 4:18
obviously automation is a big issue for every company. Most of my clients are fairly small in the 25 to $50 million range. And I think collections becomes an issue as it relates to the complexity of the business and also the size of your customers. I was the CFO of a company that had two clients. You know, customer concentration. We didn’t really need to worry about trying to figure out what your client was leaving playing. But the number of influences that we should do each one of them create the same kind of problem is having multiple clients to have to deal with. So the issue of having an aging that’s multiple pages now on that having somebody with a highlighter and a ballpoint going through that circling the invoices that need to be reacted to the amount of time and energy being spent doing that and you see and the ability to follow up on that just becomes almost impossible. You know, looking at a 30 page aging report, and trying to figure out what you need to react to, and what the next step is with any of those client customers to deal with to do that collection. It’s the only effective way of really managing it is to do some kind of an automated process of doing it and situations where clients have you have literally sat down and used their aging in an Excel spreadsheet to sort by aging column to figure out which were the biggest invoices were outstanding. And go back. I mean, talk about having a Rube Goldberg method of trying to collect I think automated solutions are obviously the way the future and that’s, it’s, I’m surprised that there are more people implementing it right now.

Kiran 05:56
The next topic that I just wanted to catch. It’s about growth. Most mid market companies are looking to grow interesting in most of the sales conversation that our sales team is having, you know, after months of conversation when you’re looking to kind of go kind of close and start doing implementation. One of the challenges that comes back is, you know, how do we scale are you right now trying to get to 800 million a year right now? 50 million? I’m sure we want to get to 200 million, that’s five years. How would you have rates of growth has been an issue and these questions. So COVID is awesome, right? But the challenges of collection does not go away, right? So you’re growing you have a lot more customers, you have lot more transactions, but the problem of collections is real. Right. So how do we do well, in short, I know I know you’ve been you’ve entered set last six, seven years, but we want to talk about the evolution of your collection process in the last few years.

Marinko 07:00
So for us, one of the reasons that when I was hired at my company, now 11 years ago, was tasked with is how to improve our processes around credit and collections and deductions. So half our business units would industrial accounts, kind of like you know celebrate a program that was normal to turns and the other half is the big box guys the Home Depot’s the Walmart’s the world and so we use SAP but at that time it wasn’t robust enough to for us to be able to, you know, handle the volume especially with the we bought a company we had a disability. So my number one job was to get something and want to be the policy was to ensure that we don’t add headcount. And so we’ve been we were actually looking to hire yourself as a woman, the SAP modules, which we never did to this thing. We ended up using the house at the time it was a HighRadius enhancers, but it became the solution for us, we had the same number of people today that we that we had back in 2015 and our business has gone, you know, considered considerably, we’re probably 50 60% larger than we were back at that time. And without some form of tourism, that type of automation would not have it would not work. And as I mentioned before with the whole COVID thing was sent home it’s kind of hard enough to manage people to begin with and then you know, without a system we’d be doing the lay just mentioned which is the spreadsheet thing and kind of cascade down and hope you call it like people and stuff so but you know we’re a firm believer with technology to math like right now my boss especially me to automate further because he kind of sees that we’re again at that point we’re gonna either have to add some people or increase the usage of technology.

Kiran 08:50
Okay, all right. So I think coming back to this, which kind of introduced right at the beginning, which is the value of an uncollected dollar, after three months goes down to 87 cents. Six months appreciates about 67 cents and afternoons about 46 cents. The question is that initiatives as your take off, audit Acacia collections should move from being tactical to being strategic. Right? So I don’t think of collection as a process but I think of DSOs I think of how to optimize the working capital so on so forth, is that happening in the back pocket or is something that companies like Dr. Singh wants to go and kind of educate the market?

Larry 09:45
I think it’s happening but I think it’s happening slowly because the middle market companies especially at the lower end of the middle market, which is where most of my clients are, are very slim without technology. Because they have this fear of cost, without really an understanding of the benefit of it. An example is business that I was the CFO that had a $3 million urban balance and AR there was over 120 days, and there’s no effort being made to collect it.And so I hired a collector, a gal who sat on the phone and did nothing other than place phone calls to make collections.In six weeks, she collected a million and a half dollars of that $3 million outstanding and my boss turned to me and said okay, she didn’t you hired her to do now you can fire her.

Larry 10:49
Just a total lack of understanding of what the process was and how we got to the point where there was $3 million outstanding like that. I think the issue is that money depreciates over time for a number of reasons. If any of you are dealing with situations where you’re doing borrowing basis on a monthly basis, where you’re dealing with asset based lending. What happens when you hit that 90 day mark? What does the bank do? They take a knife and they cut your AR off and they say okay, everything beyond 90 days falls off the cliff. It doesn’t exist anymore. So that’s the first thing. The second thing is as, as those invoices go out longer, it’s harder to collect them. Okay. And which means that if you haven’t bothered talking to the client, to the customer to try to get that money by the time it gets beyond 90 days, they’re not interested in talking to you about their money. If there’s any disputes with regard to the invoices, the longer it goes out, the hybrid is to collect. If there’s any chargebacks or discounts off of it. The longer it goes on, the harder it is to collect. Can you imagine calling somebody who does shred paid an invoice six months after the invoice was issued, and telling them that they should pay you by $1,500 and you want them to pay the money? Six months later, they’re not interested in talking to you about that. So when we talk about depreciation of cash, it’s not just time value of money, which is certainly an issue. But it’s the practical side of dealing with those things that are outstanding. Because if somebody called me to get paid an invoice there was a year or six months. Excuse me, I got the problems that I’ve got to deal with today. It’s invoices that I’m issuing today. It’s not things that I’ve tried to collect out or pay on there six months two year old, you’ve lost your window of opportunity.

Kiran 12:33
So quickly one very important topic that Shashi brought up during his keynote, which is how you lead data and then data driven strategy and questions.So, given strategies for digitizing in existing collection decoding process, what do you think? Or where do you think we should go from here?

Marinko 12:45
So for us, basically on our collection side, you know, we have our two distinct businesses. So the industrial side on the CBD side, what we’ve done is we’ve actually tiered our customer base into three segments for each side, and then we’ve got a strategy and rules. We use the highway as worklist. In the background, the there’s those rules the list who’s going to be first on the workload, so you create consistency. You’re basically either adding a system that automatically or you get pictures done individually on those accounts, but you can be certain that these that that correct accounts are being prioritized, especially with the fact that we’re not in the office anymore together. And so you’ve went through that process, and I can review the calls I can see when the account was last touched and things like that. So the key is, how do you take the stuff in the spreadsheets and meld it all? Together? Especially if you’ve got different divisions or different locations across the globe that you’re working on and you’re in charge? Cycle, that data kind of took that big data, put it down into controller format, and then create your strategies and your rules for that were either you or your controller the system is doing most of that most of the heavy lifting every day but if nothing else, you may still have some slippage or whatever but at least you’ll know for sure that you know your process. You’ve got consistency throughout the collector, that people are just randomly slipping around and picking whoever they want to call and stuff. And hopefully through our strategy, you know, you’re bubbling up to the key accounts and things like that.

Kiran 14:33
Each time I advise clients, one of the things I keep telling them is the most futile effort the good thing is to find out who to call so come The day starts we’ll take a number the system will prioritize look at an aging report and they spend so much time deciding who to call by can have a system which is autonomous which kind of gives me about a day’s work is tells me which invoice is most likely collectible today and gives me a prediction for using the more advanced forms like the autonomous software that we’ll talk about. So, so I got 100% activity. So next year.

Larry 15:12
I think one of the things that is affected companies in the lower end of the middle market is the cost of technology. It’s not just that the I think part of it is that they’re not aware of the technologies available to do some of the things that we’re talking about here this week, but also that they’re concerned about the cost of that technology and the ability to implement it being in a position where hiring is not his product that is integrated with QuickBooks with Microsoft Dynamics allows you to very easily move into the lower middle market and to be able to do lists collections and provide that information to business owners who really up to this point haven’t been able to get data on collections on who to call on days, you know days outstanding for an individual customer. Because I think the one of the things that that’s facing every business right now is credit risk. You know, the history is that people look at credit risk of companies when they first put them on as customers and then what’s the next time they take a look at somebody’s credit rating to determine whether they should be maintaining that credit line with them. They don’t ever Okay, so having a policy of having that data and information available, to be able to look at that and know what your customers are doing in terms of individual payments and payment terms, I think is really key and having that available now is just really amazing.

Kiran 17:01
When you’re looking at the Lord and of the market totally acknowledge the fact that cost is a concern. Timeline of limitations are concerned, which is why despite being like 15 years in this business, and maybe like five, seven years handling with market trends, we still realize that there’s a need of a product, especially for the lower end of the market, which is more plugins, more integrations and you’re kind of given full bouquet of solution by making it affordable. That’s number one. Number two is not going to a pain of implementation of six months, over in some cases like 18 months is very, very vague and enterprise. So yeah, so that’s what we’re trying to address with our product. Which is the release one suite of products and specially designed for the lower end of the mid market. But what we’ll see is, you know, when you look at processes, you could have somebody who’s like a much smaller company, but much complex processes, and you’re gonna have like a much bigger company with much simpler processes. So you can actually choose and adopt from what you’re taking from the router solution that we have to offer. So thanks for bringing that up. Next question is do you know it’s a very interesting question that I kind of keep asking everyone, especially our product team, if you look at collections is a process that still reactive that happens after the fact. It’s time for the proactive Connections approach. Is this a good time?

Larry 18:02
I think anytime is a good time for proactive collections. I have as a consultant I’ve talked to my clients and have said that if you’re looking at a large invoice that is coming due in a week or two weeks, because the turns that you’ve given them, the best thing you can do is to call them a week before it’s due and say, do you have this in your system? Are there any issues? Are you planning on paying it on terms so that I can expect the check next week? People are embarrassed to call because they say you know, I don’t want to make them feel bad about the fact that I don’t trust them. You want to know something? The squeaky wheel gets the grease, and if you’re not calling them they’re not paying any attention to you. And they’re gonna pay when that money is available. They’re gonna pay the person that’s calling them and creating a hassle. So being in a position where you are proactively looking at things that are coming through especially larger invoices, or taking a look at clients that have typically been late in pain, and proactively call them before that invoice comes due to be able to say, yes, you know, pay attention to this. Are you going to be able to pay on time? If you have a large customer base, and a large accounts receivable aging, how do you go about identifying those invoices so that you can go in and make those phone calls to be able to get that money collected ahead? of time? Having an automated solution gives you really the answer to that problem.

Kiran 19:32
I get this questions. during implementation a client says, hey, you know what, I want to send a reminder, but I’ll make sure I’m not sending a reminder to everyone. Right so can I send a friendly reminder? Can there be various types of reminders and can my collection strategy really take care of the send reminder and will do or not? That’s where I think the collection strategies and the way the collection tools that I use has been built is that it can really help you with one bucket of customers and you want to do a certain strategy of collections on them versus the other so I can have bucket one that I want to send a reminder I can have bucket two where I do not want to send a reminder and you can configure it accordingly. So

Marinko 20:22
that’s why you want to have better notices either you or the system. Can console someone legislators kind of reminders is coming because that’s not there’s any issues to that tenacity ones. But the other thing I want to mention just even for large accounts so for example, we use artificial intelligence for similar accounts to kind of figure out when we’re setting the payment just for cash flow class and things like that. But we also have the system going out to some of our customer logic customers to appoint us to actually pull the exact due date. So for example, we do a lot of business with Walmart 1000s of invoices, and everything always looks good if it all goes through EDI issues, they’re similar shoes and presidency. This isn’t actually the date and so you see the ones that don’t have a date because after as soon as the item is seven days old, not pasty, but so this way you address that issue while before it comes. And you can kind of get your get your payments. So even on a small account, surely this will be a breeze but even larger accounts, I think these days with the value we kind of forgot how to cheat how to get how to figure out which account you have to address which items on your account if you just can’t You can’t look at all of them. I mean, there’s just too many transactions and stuff.

Larry 21:45
But it goes back to that management by exception. Being able to get that feedback from your customers allows you to identify those that don’t fit into the regular processing module. Models

Kiran 21:50
exited Okay, well shorter processes. Record the quantity question they’re automating or digitizing the entire process right order to cash can be a real game changer. I’m asking this question, because I think you implemented were back in 2015 January 15. But over the years to how do you think it does help you survive? All these business changes and especially during the pandemic?

Marinko 22:18
We’ve been the system for seven and a half years now. But for the epidemic. It did catch us off guard obviously, all of a sudden, like one. Customers want terms. Nobody wants to order anything. And then like 30 days later, we’re one of those customers that pandemic was good for. Our business just skyrocketed and sorted out. volume of transactions everything we went home so now all of a sudden folks had to work on their own. Had we not had any kind of system it would have been, you know, I mean, I don’t know what actually, he would have done. But we were able to scale up rapidly from that. And that’s kind of, I guess, almost what we practice that the first six and a half years or five years, whatever it was. You gotta gotta be prepared, I guess for the unknown these days, you know, the one thing to keep in mind is the cost about like, you know, automation and all that stuff. And it’s a valid point and everything but keep in mind that AR is usually the second or third most valuable asset a company has. We have to invest in it. The making a lot of my customers are automated with AP side. So the only way I can keep up with the Amazon bots is to create my own bots that will kind of talk to their bots back and forth. I cannot compete against bots manually. So if you’re working, if you’ve got a small business and things like that, yeah, you can try to get efficient and kind of invest in automation but if you have larger or like business, you don’t have any choice but to automate especially these days. Finding people is very difficult and like I said, hopefully Colin’s not coming back. But there’s all kinds of issues and then if the business does, business has now this year, let’s say flat, but it’s not going to pre pandemic levels. And it’s just we’ve just got transactions of all kinds from deductions to collections. And I, I would urge everybody, like, you don’t have to buy Iranian stuff. I don’t have any stake in it. But what you should do is, is look at whatever system you’re using or whatever system you can get out of at least a piece of it. You know, you don’t have to put everything in there. But if if collections is a big thing for your deductions or cash, whatever you need, data retrieval, whatever, look at that and look at the pinch point and look at things that people are doing that you’re like, I’ve got John and Mary doing this. So it’s not a big deal. I’m paying them anyways. But it’s like are you really using the true value? can you improve that? Pass value items? can we automate those and allow these people to do other things because I think we’re AR is heading is where you’re going to be managed to more than they do in a specific task every day with automation. I mean, Sasha show that the what 60 Something dollars invested in technology, guys when we first looked at an automation tool, but only a few players back in 2012 2013. Now, there’s a lot of players out there that tells you where this is. This is what I personally think you got two choices, one, eventually your employer will push AI to the outsource if it gets too costly to compensate internally, or you try to convince her Hey, automation is sped up that we can still control the asset and we can make improvements and it should you know, over time it should not cost us any more than it’s costing today.

Kiran 25:49
Thank you for bringing that up and just to kind of wrap it processes in the same way the collector will be making a phone call or sending an email the outcome is one of the five in the pain or the promise to pay the desk gasket required on a certain date. Now when I ask the processes, I think more or less everybody has the same thing. But it’s about the data. Where does it come in? Or do you get reminders of

Marinko 26:18
the job but the whole point is how many touch points. You want this you want a system that’s going to have the touch points. That guy sounds like how do we make your main touch points how to increase your automated touch points. Yeah, some customers will be like why do I keep getting these notices? You know, I pay you anything. Well, you know what it’s part of our current process. And as long as you pay you can ignore it but if you’re not paying and then we have to put your pen on hold. You can’t say knowing Toby because that’s always obviously that puts us on the buy when the first thing we get for sales as well. Did anybody talk to anybody tell him it was the last time but there was something notice that there’s this week you got persistent process the system you can set it up in the system, we’ve done these accounts and there’s no reason that hey, here’s the record of when, when they were notified and then if there’s any kind of you know, information back and they weren’t things that we’ve been kind of pushing lately as needed, send our emails out of HighRadius and then when the customer response, they will go into that account notes versus over, you know, an outlook where we’ve got folders and stuff. And it’s like one of the things that kind of will add up that’s what you look for is just how do you improve small things and how do you decrease your low value activity by your team that you could use them for? For other things?

Kiran 27:35
Absolutely no other activities. So if you break down the data collector, we ask them, okay, what do you do when you spend time or I spend 30% of my time, you know, figuring out who to call system then notice. What do you do next? We can send out a bunch of emails we’ll drop those emails, we use Outlook, or Google to read emails, incoming emails, okay, system can do it. So you just go through that and then just eliminate all of that but you’re doing manually and then you’re holding their hands through this process to kind of do

Marinko 28:07
a clerical system strategy. I think solves a lot of credit issues, wherever you want to call them. Okay. And a lot of collection issues. So when the bank does drop off the 90 Plus, no one’s not. No one’s saying, Wow, but I 90 Plus jump up. It’s like, we can kind of see it coming which way it’s going but it’s just basically educating your organization of various strategies that you want to put in. So your sales is your boss or the CFO, whoever, that they’re very clear what our processes are that people want to chime in. And so we need to switch strategy or you can see how the question is coming along. You can tighten it up, you can tweak it but you want to be able to do that rapidly. You can you can like say, let me do a three month analysis and I’ll get back to you on this change. It goes back to the speaker that I mentioned at the start of this for me the biggest change in the industry has been the speed with which our customers are coming at us with data and like in my case, I’m shipping directly to consumers. Now on behalf of my customers, I’m shipping to various performance centers. I’m actually selling stuff directly to consumers. I don’t have to deal with any of that stuff. So I got orders that I tend to our orders to orders that you know a million dollars in everything in between and trying to get a lot of these. It’s kind of like the loss of value and as dire as I’m going through this process, but it’s almost like I how do I how do I not invest in improving this process? I mean, I have like almost no choice just because it’s so all over the place. I deal with so many different industries. So if you’re that kind of boat, I would strongly recommend getting some automation. and one of the things about having a strategy and a selected process going forward is that everybody knows what they’re supposed to do. Everybody knows how the process operates. Was that a question? Who was supposed to handle that and take care of that? So having with technology and the automation eliminates a lot of that question of who’s supposed to be doing this, because you really have to find process to go through. That’s already been managed. Nobody has to wake up in the morning and so we have to do today because the system is going to tell you what you need to do.

Kiran 30:22
Perfect so thank you for the advice and the wonderful chat.
Perfect, thank you everybody. We call it a wrap up over time and I’m sure that you guys enjoy this discussion.

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