But what steps can you take to ensure your invoices get paid, and get paid on time? David Taylor, Chairman & CEO of OnGuard says that taking a proactive approach to managing debtors and bringing credit management into the heart of business processes can be key to keeping cash moving.
Nip bad debt in the bud
Credit managers are in contact with customers every working hour of every working day, and this close relationship effectively works as an ongoing customer satisfaction survey.
The credit management department is therefore well positioned to spot any red flags indicating that customers are not in control of their own cash flow and are struggling or not willing to meet pre-agreed payment conditions.
These red flags include widening or fluctuating gaps between payment, arranging a scheme but defaulting within the first few payments, re-requesting invoices already sent and recurrent querying of invoices.
Break down communications barriers
Good credit management is no longer just about chasing debt, but understanding the customer. It is not uncommon for 80 per cent of a company’s revenue to come from 20 per cent of its customers.
Therefore it is common sense for firms to have the greatest understanding of their top tier customers, discussing invoices before they are issued to iron out any potential problems and highlight any challenges around cash flow.
Credit managers ought also to focus on actively building relationships with their customers and their finance departments. These efforts will encourage customers to communicate with suppliers about their cash flow situation and keep them informed of any problems on the horizon.
Such relations not only prevent more remedial action at a later stage, they also keep the supplier at the forefront of the customer’s mind, ensuring that if a customer should run into difficulties, the company’s invoice will be settled as a priority over those of other suppliers.
Keep tabs on behavioural patterns
A classic tactic among customers aiming to withhold or delay payment is to raise spurious queries or complaints around invoices. A root-cause analysis of these complaints creates transparency by tracking the number of complaints raised by a particular customer over a set timeframe against the percentage that were proven to be unfounded.
Software solutions can build a sophisticated profile of customers including payment terms, historic payment behaviour, disputes raised and credit scores. It can help companies predict when customers are getting into difficulty by spotting – and anticipating – early warning signs.
Weigh up the cost of pursuit
Today, simply invoicing a client for a product or service is no longer a guarantee of payment. The process by which late payments are collected can be an unnecessarily lengthy and drawn out one.
Defining these processes requires a certain amount of foresight and pursuing these processes tends to be time consuming – time which could otherwise be utilised building up important business to customer relations.
By understanding and identifying the tipping point whereby the cost of chasing customers outweighs the benefits of keeping them, a good credit manager can reduce the wasted resources invested in such customers and ultimately prevent write-offs.
For most companies, the path to payment is unfortunately littered with obstacles. Effective credit management is about clearing these obstacles to enable CFOs to make accurate assessments on value and risk and allow them to react swiftly to the rapidly changing customer and market environments. As a discipline, credit management focuses on giving CFOs the insight they need to safeguard their bottom line by identifying and anticipating tomorrow’s risk.
At a time when cash counts, companies with the strategic foresight to integrate credit management systems and procedures into the heart of their business processes will find themselves first in line when it comes to being paid, and being paid on time.
