Cash & Liquidity Management

Improving your collections process

Published: Sep 2008

The financial supply chain is increasingly being seen as one of the main shareholder value drivers. Reviewing invoicing and collections processes is an accessible way for companies to accelerate the cash conversion cycle and generate competitive advantage. In this Business Briefing we discuss the current trends in receivables and explore how partnering with banks could provide practical business solutions and enhance working capital management.

Reviewing current processes

The recent market turmoil has given treasurers another reason to focus on releasing trapped working capital and improving liquidity management. Reducing days sales outstanding (DSO) by negotiating shorter payment terms with customers is one method that can potentially release liquidity, but some of the largest latent savings can in fact be identified by reviewing – and improving – a company’s invoicing-to-cash cycle.

This can be done by making a detailed process description, from the receipt of an order to the sending of the invoice and collection. The process description can be drawn up with the help of consultants if required, or using internal resources.

Factors to consider in such a review include:

  • How is the invoice produced – on paper or electronically?

  • What is the lead time on delivery of invoices?

  • Are payments usually on time?

  • What happens when a payment is overdue?

  • How are reminders or account statements sent?

This should help to identify where any bottlenecks might occur and ultimately where there might be room for optimisation. For example, companies may find that invoices are being held up in the bookkeeping system for several days or even weeks before being issued. Or invoices may contain errors, causing customers to query them and delaying the process further.

Once any such problem areas have been identified, the next step is to examine products and solutions which could be used to improve the collections process.

Addressing inefficiencies

The main improvements in terms of working capital can normally be achieved by addressing the company’s internal processes and the choice of collection methods. There are many products and solutions available which can be used to make the collections process more efficient, such as:

Direct debits

Using a direct debit system together with an automated invoice matching system can reduce the resources involved in the invoicing-to-cash cycle – in terms of time, money and personnel – as the manual balancing of payments becomes obsolete. Installing a direct debit system can also improve liquidity planning as the company itself debits the money and, barring any setbacks, the payments arrive on time.

The use of direct debits will also enable the company to identify bad debts at an earlier stage as the bank will reject payments due to insufficient funds.


The SEPA Direct Debit Scheme (SDD) is due to be implemented in 2009 and is likely to have a significant impact on corporates. With one set of rules and one format it will be considerably easier for corporate customers to use direct debit across the SEPA countries. However, a question mark remains over the level of acceptance of the SDD once it is launched, with many countries feeling that their existing direct debit systems offer a superior service.


E-invoicing is a process by which buyers and suppliers can exchange invoices and other financial information such as credit notes and purchase orders electronically. E-invoicing is designed to replace paper processes and facilitate real-time document management.

There are many benefits of using electronic invoicing, from the cost savings on paper, printing and postage to the possibilities of automating the invoicing process and not least cutting the lead time for invoicing. This, in turn, should result in quicker settlement and dispute resolution together with reduced data entry errors.

While the take-up of e-invoicing has been slower than many initially expected, it is now showing significant acceleration, with the total volume of e-invoices in Europe reaching 710m in 2007, 45% higher than the 490m sent in 2006. Adoption is greatest in the Nordic countries at 10%, with a more modest 2% reported in Western Europe.

Government support can play a key role in encouraging acceptance of e-invoicing. In Denmark, for example, development has been driven by the public sector, with the UBL format being adopted in favour of standards developed by local banks.


Many companies still produce and dispatch their own invoices, even though this is not necessarily their area of expertise. Traditionally, paper invoices were incorporated in a company’s marketing spend but in today’s corporate world invoices are really only seen by the employees who process them. With this in mind, many companies have started to outsource their invoicing and collections processes.

Partnering with banks

Banks have traditionally offered payment and cash management services. Most banks are also able to provide advice on working capital processes and can put forward off-the-shelf products that can effectively optimise working capital. However, in such a competitive marketplace, banks have to be increasingly forward-thinking and provide value added services.

Why partner with a bank?

Given the wide range of web-based technologies and improved payment methods now available, some of which we have highlighted above, some companies may be able to optimise their working capital through in-house drives alone. For other companies a partnership with a bank is a more attractive option. This may be the case for a variety of reasons, such as:

  • File formats and references.

    These vary between countries and payment systems, meaning that separate implementation methods and multiple interfaces may be required. Banks can offer conversion of collection files to the recipient’s preferred format and may also provide unique payment references, enabling the collection to be reconciled with the open account receivable more easily. This may in turn make it easier to identify and chase outstanding accounts receivable.

  • Cost of upgrading systems.

    Implementing new systems and processes, such as centralising accounts receivable into a shared service centre, can be extremely expensive. By partnering with a bank, the company may avoid the need to revamp company systems.

  • Compliance issues.

    Sarbanes-Oxley, International Accounting Standards and other regulations are pushing companies to achieve greater control, transparency and visibility of the processes. Simplifying the collection processes lessens the burden on the internal audit team.

  • Shortage of skilled staff.

    It can be difficult to find suitably qualified staff for specialist jobs such as accounts receivable, and costly to keep employees’ knowledge up-to-date. Banks have teams of experts at their disposal who are committed to delivering innovative value-creating solutions. Outsourcing such tasks may also enable staff to focus on more strategic activities.

  • Centralisation.

    If the company operates using a decentralised structure, its subsidiaries may manage their own receivables processes as well as their banking relationships. Outsourcing collections processes to a bank is an easy and cost-effective way of centralising them, thereby increasing visibility and control.

  • Customer disruption.

    Revising invoicing procedures is a two-way process as customers need to agree to the new format proposed by the company selling the goods. Using a bank to convert formats allows one party to change their procedures without forcing the other to do the same, thus maintaining established relationships.

In addition, formats and infrastructures in different countries may make it difficult for a company to improve collections in a market with which it is unfamiliar. By partnering with a bank that has expertise in such markets, these obstacles may be bypassed.

Case study


Portrait of Peter Hansen

Peter Hansen

Head of Payment Systems

Codan is an insurance company which provides personal and commercial insurance products to customers in Denmark, Sweden and Norway. The company also has offices in Finland where it manages a navy portfolio. Owned by RSA, which has over 20m customers worldwide, Codan operates under several national brands, such as the Trygg-Hansa Insurance brand in Sweden.

Codan has recently launched ATAVA, a self-service internet insurance brand. This required the development of a system to manage internet communications for the brand. From the perspective of Peter Hansen, Codan’s Head of Payment Systems, the most important aspect of this was how internet payments were to be handled.

In order for the company to receive direct debit payments from customers in Sweden and Denmark, several options were considered. “We analysed setting up the interfaces ourselves,” says Hansen. “However, because of the different payment systems – AutoGiro in Sweden and PBS in Denmark – we would have needed to have different interfaces and processes in order to handle the direct debiting of our customers. In order to avoid this, we were looking for a system that would provide a single interface for both countries. We looked at several banks but none of their solutions was as simple as Danske Bank’s Collection Service. Therefore this was our chosen solution.”

Collection Service is an electronic solution which allows customers to manage the collection of direct debit payments in a range of countries using a single interface. Rather than working with different systems and different formats, the solution enables Codan to send and receive collection information in a single format.

As Hansen explains, “If the customer chooses to use direct debit, then we will send a message to Danske Bank, which will set up an agreement with PBS in Denmark or BGC, the local clearinghouse, in Sweden. This agreement can then be used for debiting our customer in the future. When we have something to debit, we just send another message to Danske Bank. We then receive notification that the customer has paid, as well as confirmation that the funds have been received in our bank account. The simplicity of the product is its biggest benefit.” Danske Bank also handles all the relevant contracts and communications with the local clearinghouse.

The solution was initially implemented in Sweden in June 2007 and the Danish collections were added in August 2008. Codan was able to draw on Danske Bank’s knowledge of the local markets to ensure a smooth implementation. “There were some country-specific issues relating to direct debit mandates and how they are handled,” says Hansen. “Danske Bank helped us a lot with their knowledge and their experience with other customers in similar situations.”

Looking forward, Hansen believes that the solution will continue to meet the company’s needs: “We are confident that Danske Bank will keep this product upgraded and developments in payment methods will be incorporated into the solution so that we can benefit from them.” In addition to the direct debit services currently in use, Hansen is currently investigating the option of using Collection Service to take over the company’s invoicing process.

Benefits of an improved invoice-to-cash cycle for corporates

  • Improved working capital.

  • Processing efficiency for both buyers and suppliers, leading to better productivity.

  • Cost reductions resulting from processing efficiency.

  • Enhanced visibility and transactional control.

  • Improved opportunities for the use of automated systems.

  • Possibility to reallocate staff from manual to value added tasks.

  • Simpler processes.

Industry innovation

Whereas the invoicing and payment processes have traditionally been separate, developments in the e-invoicing area mean that companies may now have the opportunity to combine these processes. This is an area that Danske Bank has particularly focused on. Claus Flanding, Senior Product Manager of Danske Bank, explains: “In many companies the invoicing and the collections process are separated. But is it really necessary to handle invoicing and collections in two processes? What if companies would be able to send only one invoice-file to the bank and then let the bank handle the e-invoices, the paper invoices and direct debits? This is easy to implement and very efficient for the company.”

In response to a customer request, Danske Bank developed its Collection Service solution, which merges the normally divided invoicing and collections processes into one streamlined operation. Collection Service deals with all file formats but customers receive notification of payments in a single chosen format, making automated matching much more feasible. The system also keeps track of which invoice and collection format(s) each debtor can receive.

Danske Bank’s solution illustrates how the drive for efficiency can be realised in the area of collections. Future developments in this area may see corporates developing collection factories to centralise their collections, much as payment factories have been used to manage payments more efficiently.


In the current climate, corporates are more focused on cost savings and working capital improvements than ever before. The task of collecting payment from customers is of fundamental importance, yet processes are often inefficient, while variations between countries may make it difficult to adopt a centralised approach.

Although developments in the market can certainly help companies to improve their invoicing and collections processes, challenges remain and upcoming initiatives like the SEPA Direct Debit may take some time to become established. In the meantime, companies may have much to gain by adopting solutions that are capable of handling the various formats and infrastructures currently in the market.

Danske Bank Group – an international cash management partner

Danske Bank Group is a leading provider of financial services in northern Europe. We offer full-scale state-of-the-art cash management solutions to all types of business customers – particularly focusing on large and medium sized corporates operating either domestically or internationally. We provide our customers with solutions that match their complex requirements and add value to their business.

We offer our services and solutions through our extensive branch network in Denmark, Sweden, Norway, Finland, the Baltic countries, Ireland and Northern Ireland. Furthermore we have branches in Hamburg, London, Warsaw and St. Petersburg. Via our global network of partner banks, we offer comprehensive solutions to customers in other countries around the world.

One Bank – One System

Our services and solutions rely on our One Bank – One System banking concept. Our branches and offices in northern Europe operate on a shared IT platform, which means that all our customers meet the same online interface with access to real-time information about liquidity, interest accrual, currency positions, and incoming and outgoing foreign payments.

Danske Bank Group markets its cash management solutions under the brand names of Danske Bank, Fokus Bank, Sampo Bank, National Irish Bank and Northern Bank.

Contact details:
Inger Christiansen
Head of International Customer Solutions
+45 40 92 40 13

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