Professional accounts receivable management is an area that many companies would like to avoid. This is also more than understandable. Because in the rarest of cases, it is a pleasant thing to inform the customer that his bills have not yet been paid and that this must be met immediately.
A lack of liquidity due to unpaid invoices, although the service has long been provided, is very dangerous for business. You can get into payment difficulties very quickly. That is why it is of enormous importance for the continued existence of the company to commission professional debt management or to install it by yourself.
Liquidity over profitability
The past few months have impressively demonstrated how important it is for a company to maintain liquidity. In times when there is great uncertainty in the market, every euro / Swiss franc is important in order to be able to pay your own bills. Companies that have provided professional debt management in advance were in a reasonably comfortable position, as it is very likely that not too many invoices were outstanding when the lockdown was suddenly announced.
Experience has shown that many customers experience a decline in payment behavior. For this reason, it is often vital to take care of the settlement of outstanding bills professionally, if only to protect your own business and its continuation. However, the situation of getting into an existence-threatening situation with your own company through no fault of your own can be avoided by professional debt management.
Serious accounts receivable management doesn’t just begin after invoicing
In order to avoid slipping into a liquidity bottleneck, companies have to do their homework well in advance of billing. In the ideal case, nothing is sold on account at all, but processed in cash as best as possible. If, for whatever reason, it is not possible to agree cash payments with the business partners, then at least a credit check should be carried out and the counterpart’s commercial register should be examined carefully. These are not always very current, but the history often shows very impressively how stable the company is, with which a business is to be entered into.
The following questions should be answered:
Did the company headquarters move frequently?
Is my contact person also authorized to sign?
How often has the management changed in the past few years?
These questions help to get a complete picture of the state of a company. The higher the sums involved, the more important the research.
Professional versus unprofessional debt management
Often companies are stuck with their own mindset. When thinking about debt management, images of a wild gang of thugs that intimidate the customer come to mind. Of course, no company that values its reputation wants that. The fear is too great that one could lose the customer to the competition forever.
However, this approach has nothing to do with professional debt management. This guarantees the establishment of a constructive dialogue with the customer in breach of obligations. Building up unnecessary pressure through threats usually generates the same resistance from the opposite side. A resistance that not only requires energy from all sides, but, above all, takes time. Thanks to professional accounts debt management, psychologically trained employees will convince the client to pay an unpaid bill from the very first phone call. Always in constructive dialogue, never through coercion or pressure.
The procedure of a serious debt management
If a company wants to outsource its debt management to another company, there are some criteria that should be observed in order to distinguish serious providers from dubious ones.
Every professional provider works according to a specific strategy and structure. The employees are trained in communication and psychology so that the conversation is always appreciative, but at the same time is focused on the end purpose – the settlement of the outstanding bill. In addition, the better the employees are trained, the higher and faster repayment rates can be achieved. Up to 30% – 40% higher rates can be achieved with well-trained employees.
Only when all attempts at contact by post, e-mail, SMS and phone are unsuccessful, the route should be taken via court, because then the customer cannot pay or he actually does not want to.
Time is money
Professional accounts receivable management ensures that companies can not only collect the maximum outstanding debt, but also get it done as quickly as possible. Companies know which procedures lead to success and how long it takesto receive money. This often depends on the type of invoice, the client and the amount of money. Thus, it is relatively easy to calculate in advance how much money will return to the company and when it will happen. This knowledge is of course worth its weight for your own liquidity planning, especially when situation is tight.
In short: professional accounts receivable management companies help their clients to enforce their rights as quickly and easily as possible. But they also help make it happen as rarely as possible by taking precautions that make it extremely difficult for customers not to pay their bills.
The 3 most devastating mistakes entrepreneurs can make when they have outstanding customer debt
In times of shortage of money, it is necessary to take precautions and measures to avoid liquidity problems. Companies often make life difficult for themselves because of misconceptions about accounts receivable management or because they don’t want to offend their customers.
In this blog post, I’ll show you the 3 most damaging mistakes companies make in relation to customer demands.
Mistake # 1: Wrong mindset about debt
It’s great when companies are selling a product or service. However, it is even better when they are also paid by the buyer. The payment behavior of many market participants sometimes plummets, especially in difficult economic times. Every company needs to counter this and rethink its payment strategy. But often, our own thinking prevents the company from taking the reins into our own hands. And yet it is the most normal phenomenon in the world when money is paid for a service rendered. Inappropriate decency can lead, for example, to the fact that companies will not introduce cash payments. This failure could even jeopardize the country’s very existence.
I can only emphasize that this is probably one of the most important steps in securing your own liquidity.
Milan Milic: Debt management is not always nice – but necessary
Many companies also have the wrong idea of modern debt management. You may have pictures in your head of tall and well-trained men knocking on the customer’s door to force him to transfer the outstanding amount – incidentally, it is legally prohibited to visit the debtor personally.
Modern accounts receivable management operates on a psychological and communicative level, with trained employees ensuring an increase in the willingness to pay. With well-trained employees, an average of 30-40% increase in repayment can be achieved. Increased willingness to pay never happens through coercion or pressure, but always through appreciation and respect. The more pressure is created, the more resistance arises.
Mistake # 2: Lack of strategy and structure
Having a plan that you follow with discipline is extremely important in the area of debt management. Many companies fail to define or adhere to processes when it comes to unpaid invoices. They believe that the customer will pay if you send reminders.
The main problem is a lack of overview and massive time delays that damage your own company. Carelessness in this area can be very dangerous for your own liquidity. The sooner a plan is put into action that you actually follow, the better. Practice shows that close communication helps massively to increase the payment behavior of the counterpart.
Structure leads to success
In practice, it has proven useful to contact customers who are in default through various channels:
- To write to three times by post.
- To contact three times by email.
- To contact three times by SMS.
- Attempts were made ten times to make a contact by phone.
All of these processes must be timed closely and therefore coordinated with one another. The customer should know that he has no possibility of artificial delay and that his debts will not be “forgotten” either. If the customer is not ready to pay after that either, the case must be submitted to the court.
There are only two possibilities why the customer does not pay:
- He doesn’t want to pay.
- He can’t pay.
The task of debt management is to find out which of the two options applies in the present case.
Mistake # 3: Lack of preparation
As the saying goes, preparation is half the battle. This also applies to accounts receivable management. Companies can take many precautions that will later save them from having to go to court.
For larger orders, there must be contractual agreements that clearly state when and how much is to be paid. So there are no legal question marks or gray areas
In addition, especially in the near future, you should pay attention to which industry you are working with. It can already be foreseen that catering and construction companies will have to go through very difficult times in the coming months. Wherever possible, orders should only be processed in cash. In fact, this applies to all industries, in particular only to those mentioned.
Credit check and background check
The relevant commercial register already provides good information on how companies have worked in the past. These excerpts are not entirely relevant, but the company’s past developments say a lot about stability. This is where companies and decision-makers need to develop an intuition for who they pay in advance and who they don’t. Small and medium-sized companies can, for example, personally ask others in their industry how the solvency of some companies is actually going. The higher the amount, the more thorough research is needed.
In conclusion, I can only give an advise to talk with debtors as quickly as possible. The longer and the more negligent you are, the more likely the payments will be delayed.