## Innovations in Receivable Management
Modern businesses use new tools, technologies, and strategies to improve efficiency, cost-effectiveness, and control in managing accounts receivable.
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### 1. Re-engineering the Receivable Process
Re-engineering = Completely redesigning the receivables process from scratch to reduce costs and improve performance (not just tweaking existing systems).
Key Practices:
- Centralisation: Handle billing and collection at one central place → reduces errors, improves control, focuses resources on high-value or high-risk accounts
- Alternative Payment Strategies: Offering flexible payment methods speeds up collections
Modern Payment Modes:
| Mode | How It Works |
|---|---|
| Direct Debit | Customer authorizes auto-debit from bank account |
| IVR (Integrated Voice Response) | Customers pay over phone |
| Third-Party Collection | Banks or agencies collect payments |
| Lock Box Processing | Outsourced partner collects cheques, updates records |
| Online/UPI | RTGS, NEFT, Google Pay, PhonePe, etc. |
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### 2. Evaluation of Risk
- Identify weak spots in the receivables process
- Once risks are known: eliminate or reduce them
- Remove inefficient and outdated practices proactively
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### 3. Use of Latest Technology
- E-commerce platforms (EDI, Email, EFT, Electronic Catalogues)
- Automated Receivable Systems:
- Auto-update customer dues, inventory, and sales
- Track receivables and collections efficiently
- Process thousands of transactions accurately at scale
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### 4. Receivable Collection Practices
Aim: Collect money fast without damaging customer relationships.
| # | Technique |
|---|---|
| 1 | Timely and accurate invoice issuance |
| 2 | Open account terms (simple, trust-based) |
| 3 | Credit period with structured follow-ups |
| 4 | Periodic statements and reminders |
| 5 | Incentives (early-payment discount) or penalties for late payment |
| 6 | Continuous audit and monitoring |
| 7 | Export Factoring — outsource international receivables |
| 8 | BPO (Business Process Outsourcing) — agency manages entire collection |
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### 5. Financial Tools & Techniques
(i) Credit Analysis
Study customer creditworthiness using:
- Bank references
- Trade references
- Credit bureaus (e.g., Dun & Bradstreet)
- Past payment records
Once analysed → fix a credit limit; increase only after consistent good payment behavior.
(ii) Decision Tree Analysis (for granting credit)
- Weighs expected profit against risk of non-payment
- Calculate the weighted net benefit across all outcomes
- Grant credit if weighted net benefit is positive
(iii) Control of Receivables
- Continuously enforce the receivables policy through reports, follow-ups, and escalation
- Having a policy on paper is not enough — it must be actively enforced
(iv) Collection Policy
Define:
- How long to wait before sending a reminder?
- What steps to follow: letters → calls → legal notices?
- How to handle doubtful/disputed accounts?