Leverage Oracle Collections to Minimize Customer Delinquency

Customer Delinquencies is a common problem in today’s world. Delinquencies and delayed payments adds stress to the balance sheet, has a negative impact on the cash flows and gives a direct hit to the investors and promoters of an enterprise.

Given the impact of this problem, Oracle has a dedicated module called Advanced Collections to address these concerns. This module provides a holistic solution to segment customers based on multiple factors and accordingly design collection strategies. Advanced Collections is tightly coupled with Receivables module and in Oracle Fusion Cloud, is part of the ERP Cloud license. Hence, there is no need for any additional licenses to be procured.

The solution can be broadly divided into the below:

• Customer Segmentation – Customers can be grouped into different categories based on a set of parameters. Some examples are: size of the customer, value of transactions with the customer, percentage of delinquency, number of years of relationship with customer etc. Collection strategies must take into account all of these parameters. For eg: if the percentage of delayed payments is minimal and in most cases, the customer pays on time, regular follow ups and stern reminder letters will prove to be counterproductive. On the other side of the spectrum, a mild strategy for a customer who has not paid for a long time with plenty of overdue transactions will not suffice.

• Customer Scoring – For taking critical decisions, it is always necessary to evaluate all the options available and then take a decision based on data. Oracle gives a scoring engine that calculates a score for a customer based on the parameters discussed above. Each of these parameters can be given weightages with the total weightage being 100%. For eg: an organization may give more weightage to the total transaction value with a customer and less weightage for history of the relationship. The score thus derived for a customer forms the basis for the collection strategy.

• Collection strategies – Oracle has a concept called customer profile wherein multiple customers can be grouped into a profile and these customers would have a common strategy. Larger customers like Amazon, Uber etc would not need reminders to be sent and hence can be grouped under a single profile. Every profile can be assigned a collection strategy and in the strategy, it can be mentioned that it is applicable for customers having a specific score range. A strategy would have tasks within and would be executed in a particular order. For example, during the initial stages of a default, a soft dunning letter can be started with. A soft dunning letter’s tone would typically be mild. As the days progress and if the customer has continued to default, the tone can be made harsher in a moderate letter and even harsher in hard letter. Tasks can also be manual. For example, making a phone call to the AP team of a customer can be a manual task. Besides these, Oracle also gives the flexibility to record promises made by the customers and taking stock of how reliable a customer is in keeping up promises. There are standard reports available that give details of customer promises.

• Dispute handling – Disputes with customers are very common occurrences and there may be multiple areas of disagreements. Some of the common causes for disputes are shipments not meeting the customer’s quality check, shipments not delivered on time, destroyed contents due to logistics issues etc. Because of these, the customer may be unwilling to pay the full amount that was billed. Oracle has a feature to record disputes and if the organization is in agreement with the customer, a credit memo can be automatically created and routed for approval.

Additional capabilities that can be built on top of Advanced Collections module:

While the standard functionalities of the module are powerful to improve the collections, below are some of the add-ons that can further enhance the process and can be helpful in measuring the performance of the collectors:

• Collections Effectiveness Report – A custom report giving the details of collectable items by collectors vs the total collected amount. At the beginning of a month, the total collectable amount for a collector would be given as a target and this report would be run every month to get the details of what amount has been collected and what is the percentage of collected amount against the collectable.

• Manual Activities Report – In addition to the dunning letters that are sent, manual activities like calling the AP department of the customer, recording promises etc form a crucial part of the collection process. A report giving details of the manual activities can be used to measure collector performance.

• Dispute report – A report capturing the details of all disputes with customers along with major reason for dispute can help in looking at the underlying problem and resolve any quality or logistics issues that may be prevalent.

Recommendations and Best Practices:

• Thinking carefully about the tasks in a strategy before assigning strategy to a customer profile: Once a strategy is assigned to a customer, Oracle does not allow deletion of tasks from the strategy although tasks can be added.

• Start slow and have dunning letters sent to a select few customers – Dunning letters are sent to customers and an incorrect letter will not help in maintaining relationships with customers. Hence, it is recommended to start slow and have these letters sent to a select few customers first. Having the organization’s IT team process owner in BCC email during the initial days will help in understanding if the letters are being sent as expected.

• Scheduling of jobs: There are a series of jobs that need to be scheduled one after the other for the dunning process to work.

  • Refresh Receivables Transactions for Customer Account Summaries

  • Collections Delinquency Management

  • Collections Scoring and Strategy Assignment

  • Process Strategy Tasks

  • Update Collections Summary Data

Monitoring these jobs and having an email sent out to the IT team on job failures will help in ensuring that letters are sent on a timely basis.

Conclusion

Oracle Advanced Collections is an excellent tool that allows organizations to improve collection results and enhance collections efficiency. A well thought out implementation methodology incorporating the key considerations and enhancing the solution with certain additional reports will help organizations collect more money faster and with less effort.