At a Glance
Through better credit scoring and targeting of collections resources, communications & high tech companies can reduce bad debt and reduce the costs of collections. Shortcut to:
Align Credit Control and Marketing
Don’t Chase Non-payers
A Lifecycle Approach
Pick a Partner and Prosper
Putting It All Together Posted: October 22, 2003 Throughout the communications and high tech sector, companies are working hard to reduce costs. Non-core activities such as credit management and revenue collection are often seen as unglamorous areas ripe for downsizing and outsourcing. But simply chasing cost out of these functions may be self-defeating. Not only does it strip the organization of valuable skills and expertise, it leaves the organization in a position where it may be unable to take advantage of the opportunities for value creation that exist throughout the customer lifecycle. Accenture has discovered that employing a value targeting approach in the credit management and collections processes can produce a return outperforming simple cost cutting measures by a factor of nearly four to one. In other words, one would have to reduce the cost of credit and collections to nearly zero to achieve the same impact as an approach targeting value creation. Align Credit Control and Marketing Why are these opportunities for value creation not being realized? The answer lies in the pressures and incentives that operate within organizations in industries such as telecommunications. Marketing and credit control often find themselves pulling in different directions. Marketing wants to acquire every customer it can, while credit control wants to reduce the risk of bad debt. Indirectly this implies that credit control is encouraged to suppress revenue, while marketing is pressured to maximize risk. The solution is to find a way to align both objectives to what really matters: maximizing the cash that is actually collected. Don’t Chase Non-payers—Work Out Who Will Pay and How The credit scoring approach available to most telecoms and consumer-facing electronics & high tech and media & entertainment companies is better suited to the risk associated with credit cards and car loans than, say, monthly phone bills. Credit scoring needs to be fine-tuned to the types of customers and levels of potential debt appropriate to individual industries and companies. Only then can companies accurately segment customers by risk, design appropriate offers, and assign the correct treatment strategies. This new approach to credit scoring will typically identify multiple tiers of potential customers, with associated risk profiles. Unlike banks, companies such as telecoms often cannot apply risk-based pricing methods, such as interest rates, to different customer segments. Instead they must rely on differentiated terms and treatment strategies to mitigate credit risks. Different payment plans, such as pre-payment or automated credit card payment, can be applied to higher risk customers. In both cases revenue is assured, and risk transferred to the customer in the case of pre-payment and the credit card company in the case of credit card payments, in return for its transaction fees. Different automation and sourcing options can also be applied to collections for each customer segment. These can be further fine-tuned to the amounts involved. This assures an appropriate and cost-effective response to collection issues whether through automated reminder letters, taking no action at all, or call-routing which ensures that enquiries are handled by an appropriate representative in terms of skills, cost and location. A Lifecycle Approach Creating value through credit & collections is not about doing one thing radically differently, but lots of smaller things a little better. There are typically very few “silver bullets” here. The improvements will come from a series of small to medium sized initiatives which, taken together, will generate big benefits. This is not to say that in-house collection organizations or their outsourcing partners are performing poorly. But pressures on in-house management and outsourcing margins mean it is unlikely that either can invest the time and resource to significantly improve performance. Only an organization that is attuned to both sides of the equation, both cost and value, is likely to achieve the best results. Pick a Partner and Prosper Even given the opportunities for value creation through credit & collections, this is always likely to be a low priority for communications and high tech companies. Credit & collections processes are not generally viewed as a core competency and are unlikely to compete successfully for investment funds with new product development, growing the customer base or making acquisitions. As a result, companies are more concerned with reducing the cost of operations than activating the—largely unused—value levers it controls. A partner with the proper incentive (sharing both the risks and the value) will not only give credit & collections the attention it deserves but potentially the investment needed to make it work. Putting It All Together Through better credit scoring and targeting of collections resources, communications & high tech companies can reduce bad debt and reduce the costs of collections. Furthermore, by infusing credit decisions with insight gleaned from collections experience, companies can potentially increase revenue and reduce bad debt exposure. Accenture has the experience and resources to help companies accomplish these objectives. Our Insight Driven Credit & Collections services can help you understand the customer diversity in your customer portfolio and vary your approach based on differing levels of risk and of expected future value. For more information about our Credit & Collections services, please contact us. About the Author: Troy Barton is a partner in the Accenture Finance & Performance Management group deployed to the Communications & High Tech group. Related stories: Catalyst for Change
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Accenture helps clients to understand customer diversity in the collections queue. Talk to someone about this topic  To Top
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