The management tool “work in progress” (WIP)) is an important auxiliary means for managing the collection processes and their control. We will start with a brief explanation of the theory and move on to its applications in the collection world.
The WIP theory belongs to the “family” of models that examine the management of the production processes and supply chain management. Its main statement is that we must reduce to a minimum the number of products in the work process at any point in time. The reason for this is that products in the process require storage space, require financial investments in raw materials and multiples entail a long series of risks – from the possibility of interruptions to the normal production process due to the multitasking to the possibility that the products left the process after their expiration date.
We will now make it apply to the collection world, where our “products” are debtor customers. The less efficient the collection process is, the more likely it is that more customers will be in collection procedures at any given time – or in WIP jargon – the longer the work process will be.
For the sake of demonstration, we would like to follow the collection work process and monitor its effectiveness. The steps of the process are as follows:
- The customer is in arrears
- The client received an initial letter
- The customer received a warning letter before the termination of the commercial activity of the organization with him
- The commercial activity was stopped, and the customer received a warning before taking legal proceedings
- The client’s file is awaiting transfer to external legal treatment.
Any increase in the number of customers who are in the process of collection will result in a number of consequences:
- As the number of customers handled by the collection representative increases, the collection agent becomes less efficient in performing his work, and the time between handling and re-handling the same customer increases. As a result, the collection representative is required to study the case afresh each time.
- As the time between treatment increases, the clients continue to accumulate debts;
- As time passes, some customers run into financial difficulties and some go bankrupt (similar to the “expiration” of a product).
- If you do not measure the length of time the debtor customer “stays” in the collection process, you may miss debtor customers and forget to follow up and complete collection.
- Finally, the difficulty in supervising a long and task-laden collection process may prevent us from correctly assessing the ability of the collection department to complete its tasks on time. It is important that the size of the department allows quality performance of the tasks and compliance with the schedule, and we must have the ability to readily assess the lack or excess of the collection resources, in our case – the collectors.
Diagram 28: Graphical monitoring of the number of debtors in the collection processes as “work in process”
The chart demonstrates that there is a constant upward trend in the number of customers in the collection process: from 250 customers in the collection process five months ago to more than 350 debtors in the collection process in the current month.
NEXT: Focus matrix to manage debtor handling prioritization.