Streamlining the Bill to Decrease Days Sales Outstanding

Getting revenue in the door is entirely dependent on getting the bill out the door. Delays in the document management process can significantly impact days sales outstanding (DSO). According to an annual benchmark survey performed by Kiesling Associates LLP for the Rural Cellular Association (RCA), days revenue and accounts receivable has shifted up and down in the last five years. That measure stood at 43 days in 1999. While it dropped between 2000 and 2002, from 34 days to 31, in 2003 DSO jumped to 37 days. The study participants included about 20 percent of RCA's 100 members.

Market manager Richard Langan at DST Output points out that, as DSO increases, so does bad debt. "Cash flow is always a concern," he notes.

Langan says the consistent timing and delivery of the bills is important. The printer must turn around the bills quickly within a certain number of hours or days to avoid payment delays. Sometimes, DST Output will actually start processing a data stream before a transmission is complete. But often, a provider will encounter special projects or circumstances that disrupt bill processing. Rate increases and acquisitions are but two of the disruptions that can bog down a provider's bill production.

A DSO Example

Some providers still have highly manual tasks in their invoice print, production and mail processes. This can dramatically slow them down and add days to the companies' DSO. As a result, many try automating to shave days from the production and mailing time.

One of Johnie Johnson's first memories of when he began working as vice president of sales and operations at Mid-Missouri Cellular (MMC) is the women who sat around a table hand-cutting and stuffing customers' bills into envelopes. Prior to arriving at MMC, Johnson had clocked 12 years of experience at companies like AT&T Wireless and US Cellular. He admits this type of bill processing was a whole new way of business for him. Moreover, it was a step 20 years back, in both process and technology.

When Johnson arrived at MMC, the company handled billing for its 14,000 subscribers completely in house. This meant printing the invoices for its pre- and postpay customers on a laser printer and cutting the bills in half with a paper cutter to stuff in the envelope. To handle this process, MMC employed local community organizations, which supplied volunteers to stuff the bills for the company. MMC would pay the community organizations, including local church groups, which used the bill stuffing as a fundraiser. Each volunteer was asked to sign a confidentiality agreement regarding the content of the bills, but Johnson says, in a small town, people were not too focused on privacy concerns. Thankfully, MMC ran only one bill cycle each month, but the process took three days to complete, impacting the company's days sales outstanding.

Sending the Bill Out

Mid-Missouri Cellular decided to outsource its bill printing process to OSG Billing Services. Johnson says MMC has cut costs 5 to 10 percent by employing the document management provider and has reduced its bill process time from three days to one. Gone are the days of loading up high-speed laser printers, leaving them to print overnight and hoping that there would be no mistakes to slow the process down. The printers held too little paper to print the full bill run and could run out during the night. This and any additional mistakes could slow down the operations staff or force them to some of the bills.

From the beginning OSG sat down with MMC, looked at the elements of the bill and discussed what the company wanted to convey on the new bill. They set out to determine the new look and feel of the document, considering its main purpose—to receive payment.

First, the company sought to achieve a consistency in the layout. The bill now includes the logo, which had not appeared previously. Johnson says branding was key for the company. "The monthly invoice is just another opportunity to get your name out there," he says, "and to remind [customers] that you're their choice."

OSG's Ron Whaley, vice president of sales and marketing, agrees that consistent branding on the bill is critical, but despite this, many companies do not use the same look and feel of the corporate marketing on the bill as in other areas such as advertising.

MMC also looked for and removed duplicate information to streamline the invoice. Previously, the company had listed out all the call detail on the bill twice, once in a chronological order and then broken out by the type of call—mobile to mobile, night and weekend, and so on. However, the company noticed that this caused a lot of confusion for customers and drove in calls to the call center.

Sometimes, customers can be confused by inconsistent terminology as well, such as when a company uses several different terms on the bill to refer to the same item, Whaley says. Often just including a message about a new surcharge or fee levied by a state or the Federal Communications Commission can decrease calls to the call center, he says. Customers simply need an explanation of what the new fee is. MMC paid a lot of attention to the terminology on the bill in an effort to cut call center traffic.

MMC also added highlight color on the due date and boldfaced text. "It's a night-and-day difference," Johnson says.

The wireless provider also gained the ability to more proactively market to customers, offering promotions and discounts via messages on the bill for handset insurance, directory assistance or ring tones, which drive in additional revenue. The company even teamed with a local concert venue to include messages on its bill about upcoming concerts in exchange for advertising at the venue.

Whaley adds that the correct use of graphics, such as a credit card graphic to drive in electronic payments, is just as critical as is stating clearly to whom the payment should be made.

DST Output's Langan believes companies have to be just as judicious with highlight color as they do with graphics. Using the color red, for example, often makes customers believe the highlighted information relates to a past due bill. Sometimes, he says, using red will actually even drive calls to the call center. Above all, Langan says, "you always want to make it clear to the customer, so they can act and self-serve."

Although the overall transition to OSG bill processing was smooth, Johnson says, MMC did have one hurdle to overcome: data translation. MMC uses Martin Group's billing system, and the bill data did not translate into OSG's systems. Martin Group contracted with a company called Kansas, which developed a third-party tool to translate MMC's data for OSG. After overcoming the initial translation issues, Johnson says, the process ran smoothly.

The Automated Lockbox

In the past, MMC processed all remitted payments internally. CSRs often juggled customer care, assisting the community groups with bill mailing, and processing remitted payments. MMC contracted with a Kansas City lockbox company, which now receives and processes all customer payments. It sends a file electronically to MMC daily to keep the company current regarding payments posted to customer accounts.

Johnson states that MMC has seen an improvement in its days sales outstanding because of the expedited bill process and the automated lockbox. If MMC gets its bills in to OSG by 11 a.m., they are out by the end of the day. If the bills arrive after 11 a.m., they go out the next day. Either way, it is a time savings compared with the previous manual processes. Johnson says the company's DSO prior to the new format and lockbox processing hovered at around 25 days. Now, it is about 18–20 days.

Whaley says a realistic DSO that many CFOs strive for is around 20 days, but he suggests that many telcos' DSO is about 35 days.

Collections and Dunning

The ultimate goal of an effective bill is to decrease secondary notices and the associated costs that go along with these reminders. MMC sends out its bill with a due date. The company allows a five-day grace period. On the sixth day, it begins its bill reminder process and can send out a letter to late paying subscribers through OSG. Additional dunning letters go out at 14, 30, 45 and 60 days. On day 72, the customer account is sent to collections.

Johnson estimates that sending out these dunning notices costs about 50 to 75 cents per mail piece. The expense of these reminders coupled with the slow turnaround on the payment is not insignificant. MMC is giving thought to assessing customers a late charge of $1.75 to make up for the cost of repeated reminders.

Whaley provides another example of one OSG customer that would mail three different payment notices to customers, including the bill. The customer went from a high of 6,000 second and third notices a week down to 2,000 notices. This was in part also because it employed lockbox services, and the number of processed items that went through increased. The OSG customer estimates that it saves $7,000 a year just from the lockbox services.

Some customers will figure out how to push the collections process to the fullest extent. Some providers even have customers call in and ask why their reminder notices are running late in a particular month.

Electronic Bills

Many agree that moving to an electronic bill would help decrease DSO. Short of that, though, Whaley says the goal is to focus on what you can do on the printed bill that will be the impetus to make customers pay sooner.

Currently, MMC does not offer an electronic bill process to its subscribers. The company's goal, however, it to have electronic bills available sometime in the first quarter of 2005. "I think it would probably have a positive impact on DSO," says MMC's Johnson. The reason is that customers can schedule payments in advance to pay on time.

Whaley believes "having an electronic solution will have an impact sooner," and will help decrease DSO. With business customers, a provider could streamline the delivery of that information by sending a one- or two-page summary of the bill and offering the detail electronically, thereby greatly saving on production and postage costs.

Whaley explains that one OSG customer sought to install an electronic bill payment and presentment (EBPP) product for a single business customer. The implementation cost of the EBPP product was about $20,000, but the provider was willing to spend it to retain that one customer, which alone spent about a half-million dollars a month in telecom services.

Langan agrees that many electronic payment options—such as credit card on demand, preauthorized recurring automated clearinghouse payments or voice recognition systems that accept phoned in payments—can increase timely cash flow. But often, he says, people who pay online may be doing so to pay at the last minute.

With phoned in payments, providers will often outsource processing to a company that facilitates the actual payment. This company will charge a fee that can be as low as $1 or as much as $15 in some industries, particularly mortgage lending. Wireless carriers usually charge between $3 and $5. The model is a revenue share in which a portion of the fee goes back to the carrier and the outsourced provider keeps the remainder.

Providers who use this payment method, Langan says, are focused on one goal: "They don't want to charge the late fee, they want the cash flow."

Tracking DSO

DSO can be managed not just in the bill print process but also the mail stream, Langan explains. DST Output uses the U.S. Postal Service's PLANET codes to track inbound information about remitted payments. Each inbound mail piece includes a barcode that the Postal Service scans, allowing the provider to know exactly where the mail piece is and when to expect it in.

This scanned information is sent to a national data center, and companies can tap into that information. This helps providers model their cash flow and measure when the peaks and valleys will be. It also helps the call centers when customers call in to ask if the company has received their remitted bill payment yet. A provider that employs this tool can tell customers that, even if it has not received a payment, it knows one is coming. This is particularly useful to catalog companies and the credit card industry.

To employ this service, DST Output purchases a license from the postal service and DST customers pay an extra fee. The company began offering PLANET code bill tracking this summer, and three customers are using the service to date. "I would imagine you'll see [the number] grow," Langan says, as providers begin to recognize that this technology can give them insight into their cash flow.