Managing collections efficiently is a vital part of accounts receivable (A/R) management, which is in turn crucial for optimising the financial supply chain, and managing cash efficiently. Used in tandem with extending days payable outstanding (DPO) the aim is to collect cash as rapidly and efficiently as possible.
While many companies are aware of the opportunities for optimising accounts payable (A/P), there is less familiarity with receivables management techniques. Receivables are fundamental to every company’s financial supply chain – improving the collection of cash and reducing the value locked in inventory and A/R processes is high on every treasurer’s agenda.
So what are the best ways to manage business-to-consumer (B2C) collections? One solution is establishing a reconcilation database, something offered by many financial services companies. Banks’ collection management services have evolved to present customers with in-depth data that then allows them to improve the efficiency of their cash management cycle.
Increasing automation in the reconciliation process allows timely updating of customer accounts so that overdue amounts can be followed up quickly. Improving transparency over the order, invoice and collections processes minimises invoice disputes and enables timely resolution. An efficient collections process also benefits customers. For example, without rapid reconciliation and invoice dispute resolution, buyers may be prevented from placing orders or receiving goods because credit lines are not promptly updated.
A reconcilation database will therefore go a long way to optimising a company’s cash management process, particularly in the B2C market part of the collections cycle. Depending on a corporate’s priorities, services range from solely managing standardised collection instruments, to additional services such as the financing and reconciliation of collections, the supply of customer data and the management of the ticketing of invoices. As well as its focus on the B2C space, UniCredit is concentrating on improving payments and collection for corporate customers in the business-to-business (B2B) space, where there is considerable scope to increase speed and efficiency as well as better improve liquidity management.
This focus on efficiency, in turn, requires bank-corporate relationships as a whole to become closer. For example, the management of active invoices, affords the bank an intimate knowledge of the customer’s finances – including their credit position – which in turn will have an impact on the lines of credit they are allowed. Understandably, companies are often unwilling to provide this level of disclosure to their bank. At most, they single out one of their banks out for this type of information. But in our experience, the possibility of full reconciliation has persuaded companies to provide more data.
Simplifying the Collection Workflow
One Italian life insurance company collects payments from each of its two million customers every month. Up to a couple of years ago, rather than paying by direct debit, many of these customers preferred to receive a visit from a salesperson to settle their dues. Only 20% of collection operations were therefore managed through automated processes, while the remaining 80% were fulfilled manually by the sales team. Collections were therefore not completed in a timely and efficient manner. In addition, the reconciliation process took place manually, leading to a significant risk of error.
The company therefore decided to introduce UniCredit’s solution. This end-to-end web-based product allows them to manage the whole active invoicing cycle directly linked to collections, from the issuing of documents to the management and automatic reconciliation of collections’ flows. This has simplified the collection workflow, which now involves a single counterparty, enabling the automatic reconciliation of outcomes and leading to a reduction in the overall resources needed. Direct debit now represents 80% of collection operations, with the remaining 20% managed via domestic bills, known as Mediante Avviso Versamento (MAV). All collections are now reconciled automatically.
Many companies are keen to outsource the whole collections cycle, from generation of the invoice to receipt of funds. One factor at play in outsourcing collections is the cost of reconciliation, which, however infrequently this process takes place, is still time-consuming and costly. Where this process is outsourced, the cost is fixed. In this scenario, the counterparty manages the whole process of customer invoicing, from receipt of a file with all necessary data to the generation of invoices. Once the outsourced company has provided its bank with all the necessary information, the bank can provide a full report on the whole collections and reconciliation process.
An Evolving Banking Enviroment
The value of a streamlined collections process is diminished if the larger banking environment does not offer the full range of payment options. The Italian B2C banking environment is similar to those of Germany and Austria – and will be affected by the Payment Services Directive (PSD) – in Italy, as in the other two countries mentioned, collection instruments are largely domestic. Italy itself uses RID for direct debit payments, while MAV, which can be paid at any post office or bank, is available to unbanked customers or those without a direct debit facility in their bank account. The B2C market in Italy is less automated than that of Germany, for example, where the use of direct debit is more prevalent.
Although the products for international payments are in place in Italy, following the implementation of the PSD, which came into force in Italy in March 2010, volumes of single euro payments area (SEPA) payments are still very low compared with domestic payments. The main concern in Italy is that the industry will lose some of its payments system functionality by moving to a European standard. However, the situation is slowly changing to include more of the SEPA instruments. And there are signs that the PSD is starting to close the gap between the usage of domestic payment and SEPA instruments.
In terms of collections, processing times, float and value dating using SEPA Direct Debit (SDD) are comparable with the Italian direct debit, RID, but big differences still remains mainly in terms of mandate management. The more this gap closes, due to the PSD, the more their popularity with Italian companies and consumers could grow. But without an end-date for SEPA, this situation will not change any faster. Despite this, financial services companies are starting to develop invoicing solutions that support the SDD.
The collections process is a crucial part of the financial supply chain that impacts a company’s entire cash management process and ultimately the amount of working capital at its disposal. Choosing the right technology to manage this frees up the treasurer to concentrate on higher-level decision-making. However, banks must also ensure that they are providing the products that best serve this need and the changing payments environment, especially in Europe. The introduction of SEPA and the PSD and the need for value-added services, such as financing and reconciliation, means financial institutions must run to differentiate themselves from competitors.
A decline in the return on capital employed of globally listed companies over the last decade has been noted in recent EY and PWC reports. This is despite businesses taking an increased focus on balance sheets since the financial crisis in 2008.
Global trends, technology and the role of the treasurer in 2025 were hotly debated by treasurers at this year’s Treasury Leaders Summit in London. A focus on technology and automation was universal, others argued over the impact of macroeconomic and global trends on treasury.
The benefits of an in-house bank are increasingly evident, but some treasury departments still hesitate to take the plunge. This article offers a step-by-step guide.
As the squeeze on banks intensifies, virtual accounts are a win-win by offering efficiencies and meeting the needs of their corporate clients.