How many companies can say that all their invoices are paid on or before their due date and they have no irrecoverable claims? The statistics say, very few. The likelihood is that your business will also miss the benefits of higher levels of working capital.
When any company examines their long-standing or ‘older’ debt reports, one of the first things they look at is bad debt and, in particular, Age over 90 days old. These are generally considered to be areas of concern and so they are, of course, the accounts that are first chased for collection. Chasing the old accounts first (conditional value) is actually the correct action to take, but surely it would be better to avoid accounts coming to 90 days, 60 days or even a day exceeded in the first lap?
The next time you take a look at your old debt report, just don’t look at the value of accounts over 60 or 90 days old but calculate the value of all overdue accounts. Think for a moment how much better off your business would be if this money was available.
Consider what your business can achieve with it
Unless you are a financing house, you are definitely not in the business of borrowing money, so why not let someone else hold that cash that is rightfully yours and take advantage of it?
But you say, how can I prevent a debt an old debt incurs? The secret is, start chasing payment much earlier in the credit cycle and get credit processes started even before the sale is completed!
Before completing sales yourself, perform a credit check on your customer (depending on the value), especially if they are new and an unknown quantity. Providing any type of credit will expose your business to credit risk (such as a defaulted payment), so it’s clearly in your best interest to find out who your customer is and whether they have the option of paying rid of your invoice.
So your sales are completed and you now know from credit check that your customer absolutely has the means to pay your invoice. Now all you have to do is collect the money that is excellent!
As mentioned earlier, the best way to reduce your age debt is by operating early in the credit cycle. This is where an outsourced credit management service comes into its own as there are several steps involved in the process and your time is precious.
First, you must confirm that the customer received their invoice well in advance of the due date and determine if the invoice is to be queried in any way whatsoever. If a query is raised, report it on your sales finance management system. If this is something that cannot be achieved on your accounting systems, this is already an indicator that your business is one that would benefit from outsourcing to a collections agency that can.
By tagging queries/activities against all invoices, you can easily see if there are any issues that may result in late or non-payment, which highlights whether process improvements are needed in other areas of the business. This is a useful tool for any business!
At this point, you – or your outsourcing provider – can work to resolve any queries, or send copy documentation (so as to remove all valid excuses for non-payment). Once all issues are resolved, a commitment can be obtained from your customer, when and how the invoice should be paid (and they can be reminded of the payment terms). This results in support portal payments across sales Finance.
If you outsource this process
Keep in mind the quality of service will affect your reputation for good or bad. It is crucial to choose a provider whose staff is well trained, preferably with the Institute of Credit Management qualifications and has the necessary qualifications. They will then contact your customers on a confidential basis (in your name) or published basis. The only role a good debt collection team is to contact your customers, flag up any queries, and make payment commitments. If performed courteously, firmly and effectively, the results can be excellent.
Effective fundraising owes you that you have to rely less on external funding sources. This, in turn, will allow you to negotiate discounts with suppliers, as you are now able to pay them faster. Outsourcing is an added benefit, too, so the size of your debt collection team increased or decreased as a result of your busiest or slowest periods. This allows you to reduce costs when you do not need staff and only pay for extra help when you have increased sales.
Many companies that have not yet reaped the benefits of outsourcing
The credit function says they are concerned about communication issues or collectors’ clearly perceived lack of industry-specific knowledge. It is important, therefore, to outsource to a provider of industry-specialized teams assigned to individual team members to manage your accounts on an ongoing basis. A provider should be able to prove to you that industry-specific training is a key part of their staff training and development programs.
Effective outsourced credit management is about effective communication between organizations. You need to ensure that you have a dedicated account manager who stays in regular contact with you (on agreed timeframes) and disseminates information to you in ways that you will easily understand.
In addition, look for a company that can provide access to a wide range of information about your sales finance in real-time using a secure web browser. This ensures that you always know what’s going on!