SunGard Report Evaluates Risk Grade as More Effective Collections Benchmark versus Aging Alone

A SunGard report on strategies corporations use to place debtors with collection agencies, challenges the practice of sending B2B trade receivables to an agency based on age alone. While only 38% of the respondents state that they incorporate risk into their decision-making, an overwhelming 96% cite “age” as the determining factor. The report, which surveyed 189 global participants across 19 industries, examines the practicality of this approach and challenges corporations to also consider inherent risk as a key factor.

Of the organizations using age as the determining factor, 80% stated they do not send invoices to collection agencies until they are 90 or 120 days past due. The report looks at how companies can improve recovery rates by sending high risk customers to an agency sooner. This is accomplished by leveraging statistical models to help identify high risk customers for earlier placement with collection agencies versus relying on age as the only determining factor.

“While some organizations now engage in risk-based collections, which is the practice of modifying a collection strategy based on the inherent risk of the customer, many still do not use risk as a factor when determining which customers to place with a collections agency,” said Jim Mangano, senior vice president, receivables solutions, SunGard’s AvantGard business unit. “Statistical modeling is a method that helps corporations make this decision by using a combination of behavioral analytics based on years of aggregated data and transactions, combined with payment history details to determine the likelihood of customers’ delinquency in the future.”

Best practices dictate that beginning the collection process earlier leads to improved days sales outstanding (DSO) and reduced bad debt expense. The report also looks at other factors impacting the effectiveness of collection agencies, which include the ability to easily transfer data, view information in real-time and track performance.

Emil Hartleb, executive director at The Commercial Collection Agency Association – Commercial Law League of America (CLLA), said, “Collection departments are challenged to find more efficient and effective ways to collect on monies owed. Many organizations are incorporating risk as a key factor rather than simply relying on age or dollar value. This method can facilitate earlier identification of high risk accounts, and initiate a quicker and often less costly recovery process. This can help protect organizations from future loss by identifying the customers that have the highest likelihood of becoming delinquent.”

SunGard’s AvantGard is a leading liquidity management solution for corporations, insurance companies and the public sector. AvantGard provides chief financial officers and treasurers with real-time visibility into cash flows and increased operational controls around receivables, treasury and payments. AvantGard helps companies drive free cash flow and reduce inefficiencies across the ecosystem of suppliers, debt buyers, banks and other trading partners.