Introduction

1.What is the broader context in which these needs have emerged?

It is important for a company that is struggling in their cash flows, with high amounts of debts
and delinquent payments to improve their efficiency in cash collections and manage the
process.By utilizing company’s historical, geographic data such as customer payment delays,on
time payments, customer background information and past events to improve and efficiently
manage the process of invoice to cash collection . This is highly important for a company which
is facing difficulties in maintaining a healthy cash.In the case of Direct Mailing Services, they
have ended up in utilizing the banks overdrafts over the limits and resulting in to paying an
average interest charge of Rs. 700,000 to the banks.
The company generates an average of 300 invoices for a month. Therefore, the collection
process is handled by the department managers of HR Services and Operations Division. This
has directly impacted their operating performance as they have to allocate much of the time for
collections from 65 customers. By looking the at the nature of the Bulk Mailing Business , the
company also provide stamps on credit with a period of 14 days to customers. The lending of
stamps and postage charges has no return for the company as it does not generate any income.
Therefore for a company handling 300,000 registered letters at a rate of Rs.45 will have to
allocate 13.5 Million from the funds to post the letters. This in return does not generate any
revenue. Therefore , impact to the cash flow from this aspect is high and and if collections are
not made on time, they will end up in bad debts.The real scenarios is that customers enjoy this
benefit and take more than months to settle these invoices. As a result the cash fow is stagnated
resulting in paying high interest charges to the bank.
The company mainly focuses on it’s staff outsourcing business as need for companies to
outsource personal has become increasingly beneficial due to cost savings. For a Company who
handles outsourced staff over a 1,000 will generate a minimal revenue worth of 30 Million . The
company provides a credit period of 21 days to their customers to recover the payroll cost.
Therefore , it is imperative that the invoices are collected on time.High debts accumulating on
Account receivables can be a reason for companies to face financial difficulties if they are not
managed efficiently.
By using predictive models, the company is able to generate useful information in evaluating the
best practices to improve the cash flow.

2. What factors are likely to influence these needs? Prediction of Imvoice payment date
The company folows a basic process flow from generating a purchase/service order to receiving
payments with respective to the core collection activities handled by HR Services and
Operations Depatment. The deals with customer relationship activies, collection calls, Timely
delivery of invoices, dispute handling and account prioritization.The complete process is handled
manually apart from having late payments categorized to 3 different sections namely, 1-30 days,
31-60 days, 61-90 days .The processed used is done manually is very inefficient and slow. All
invoices are delivered physically to ensure the customer has received the invoices on time which
has become a cost generator.Despite the inaccuracy and inefficiency all these steps are much
important to the business to manage the cash flow.
the collection actions are typically generic and do not take into account customer specifics, e.g.,
all customers are contacted at fixed intervals, even though some have always paid on time;
while it is generally true that the later a customer is contacted the less likely the invoices will
get paid on time, repeated contacting of “good” customers may lead to lower customer
satisfaction. Such inefficiencies in current practices lead to significant delays in AR
collections or even to failure to collect before considering them as write offs.
The effectiveness of AR collections can be significantly improved through better management
of the collection steps. For instance, taking preemptive actions on invoices that are likely
to become delinquent can drive down the collection time. Furthermore, by prioritizing
delinquent invoices for actions based on the expected time of payment, one can optimize the
use of collections resources. By using predictive models and machine learning payment
outcomes of newly-created invoices will enable the business to manage the collections
effectively.

3. How would you try to measure some of these factors?

It is important for the company to identify which invoices are going to be delinquent at the time
of creation . This will give more time for the collections to take action and prevent the event.The
usual process is where collection deparrtmen wait until the invoices become delinquent and
initate the process in taking actions such as sending letters, making phone calls.

But if predictions are made the company could benefit in avoiding the invoice becoming
delinquent.If the outcomes provide a classification or a timeframe that a invoice is settled the
company will not need to use more workforce in collecting these invoices as the prediction
outcomes will provide which invoiced are likely to be paid immediately, late, or become
delinquent. By using these results the account collection managers can prioritize their tasks in
which more time will be saved in utlising them for other activies.Further, the will be able avoid
delinquency by taking preemiptive measures to prevent delinquencies.

Based on the past outcomes of invoices, nature of the customers,age of customers,history of

payments and company credit history a model can built to predict when a new invoice will be
paid Below criterias in table 1 should be evaluated to generate a appropriate model to predict the
invoice payment date .Another model that can predict if the payments are most likely to
delinquent or not. Direct Mailing usually use a report to classify account receivables to 3 sections
which are due 1st month, 3months, ]and more than 3 months.The company carries a policy of
having 10 years of historical data in their databases . These data for the last 10 years can taken
to generate patterns and trends in payment for customers. By using the data different types of
models can be implemented to rank customers by credit riskThe data sets can be broken in to
two types of data where customers who has age history of 1 year and more than 1 year . These
are classified as newly created customers have a more risk and different payment behaviours
than existing customers.One of the critical measurements of collection performance is
Average Days Delinquent. When building the model it is important to predict an outcome for
the expected time in payment.

Question 4
What are the potential decisions you might take based upon the results of your analysis?

- Implement of software to predict invoice payment dates in A user friendly dashboard

should be avaible where AR is managed.
- Embed Machine Learning in the predictive models to further improve the product.
- In order to apply correct information should be available in databases. Suggest a better
software that can automatically input variables to the system with less intervention of
human.
- Automate collection system to generate notifications at different intervals to customer
through email/other based on the obtained patterns.
- With predictive models , the invoice delays can be predicted at the time of generating an
order . If the predicted delay is on the higher side , an upfront payment or payment
commitments can be requested from the customer.
- Focus should be made on the more critical account with higher invoice values which
poses a risk based on the outcomes where losses can be avoided.
- IF the current ERP applications are outdated and not efficient enough, they should be
updated to more comprehensive customer centric software.
- Prioritation of the customer collection list upfront based on changes and insights provided
by AI/MI.
Conclusion
Artificial Intelligence and Machine Learning are already changing our lives. The Uber ride taken to work
and the Amazon products bought online were all enabled by Artificial Intelligence. Apply this technology
to create AI-powered Collections Management which continuously monitors customer data and predicts
customer default well before an invoice is due to advance collections customer contact activity by five to
fifteen days. In essence, change collections operations from reactive to proactive with an ability to
further impact DSO and working capital by another 10% simply by empowering collections with Machine
Learning

Conclusion
This study on predictive analysis have given knowledge about that havingt enhances the
prediction accuracy signifWe demonstrate that by using cost-sensitive learning, we are
able