An Overview of Debt Collection, Credit Management, Outsourcing, and UK Credit Reports for Businesses
Getting to Know It and Understanding the Dos and Don'ts of Sales Ledger Management and Credit Management Department Outsourcing from www.thecreditagency.co.uk
How many companies can honestly state that they have no bad debts and that every invoice is paid on time or in advance? According to statistics, not many. It's likely that your company is missing out on the advantages of having more working cash.
One of the first things any corporation looks at when reviewing its "aged" or long-standing debt reports is the bad debt, specifically the debt that is more than 90 days old. Since they are typically seen as the areas of concern, it makes sense that accounts in this category would be pursued for collection initially. It is true that the best course of action is to pursue the older accounts first (based on their value), but wouldn't it be preferable to avoid accounts from ever becoming past due by 90, 60, or even just one day?
The next time you review your aged debt report, figure out the total amount owed on all of your past-due accounts rather than just the ones that are more than 60 or 90 days old. Take a moment to consider how much more successful your company would be if you had access to that money. Think about what your company could accomplish with it.
You're not in the business of lending money unless you're a finance house, so why give away money that is legally yours to someone else and profit from it instead?
However, you ask, how can I stop an old debt from happening? The key is to initiate the credit procedures even before the sale is finalized and to begin pursuing payment considerably earlier in the credit cycle!
Let's take a closer look at this.
You should run a credit check on your consumer (depending on value) before even finishing the sale, especially if they are new and of unknown quantity. It's in your best interest to ascertain your customer's identity and ability to pay the invoice amount before extending any credit, as this will expose your company to credit risk (e.g., a late or missed payment). (You may order credit reports and find out more about reading them at www.online-credit-reports.co.uk.)
Now that the sale has been completed, you can be certain that your buyer has the funds to pay your invoice thanks to the credit check. All that's left to do is go after the unpaid money!
As previously shown, taking advantage of early credit cycle activity is the greatest strategy to lower your old debt. Because there are additional phases in the process and time is of the essence, this is where an outsourced credit management solution excels.
First and foremost, you must make sure your client has received their invoice far ahead of the deadline and determine whether any questions should be raised regarding the invoice. Mark any questions you receive with a question in your sales ledger management system. If your accounting systems are unable to accomplish this, it is already a sign that your company would profit from outsourcing to a collections firm that can.
You may easily identify any problems that might lead to late or non-payment by marking inquiries and activities against all invoices. This makes it clear whether process improvements are needed in other parts of the organization. Any organization can benefit from having this product!
You or your outsourcing provider can now attempt to address any issues or resend copies of the supporting documents, eliminating any legitimate justifications for nonpayment. After all questions are answered, you can ask your customer to commit to paying the invoice on the agreed-upon date and method (and to remind them of the terms of payment). As a result, payments are made throughout the sales ledger more quickly.
When outsourcing this procedure, keep in mind that the level of service you receive will either positively or negatively impact your reputation. It is essential to choose a provider whose employees are skilled and have had proper training; ideally, they hold certificates from the Institute of Credit Management. After that, they will get in touch with your clients either on a disclosed basis (under your name) or a confidential basis. A competent collections team's only responsibility is to get in touch with your clients, address any concerns, and get payment commitments. When executed with grace, firmness, and efficiency, the outcomes can be extraordinary.
You will need to rely on other funding sources less when money owing to you is efficiently collected. Because you can now pay your suppliers more rapidly, you may be able to negotiate savings with them as a result. Another advantage of outsourcing is that it gives you the flexibility to adjust the size of your collections team in response to your busiest or slowest times. This enables you to pay for more assistance just when sales improve and to cut expenses when you don't need staff.
Many businesses that have not yet experienced the advantages of outsourcing the credit function will claim they are worried about imagined communication problems or the collectors' lack of industry expertise. For this reason, it's critical that you outsource to a provider that has teams with industry-specific expertise, each of whose members is tasked with continuing account management. A provider should be able to show you how important it is for their staff training and development programs to include industry-specific information.
Efficient communication between organizations is essential for effective outsourced credit management. Make sure you have a dedicated account manager that communicates with you on a regular basis (during prearranged times) and presents information in an understandable manner. Additionally, search for a provider that can offer real-time access to a wide range of data on your sales ledger via a secure web browser. This guarantees that you are always aware of what is happening!
Outsourcing all or a portion of your sales ledger has several advantages, not the least of which is that it frees you up to focus on your strengths.
Your Checklist for a 10-Point Improvement in Sales Ledger Management:
• Prioritize the oldest accounts based on their respective values.
• Promptly pursue payment during the credit cycle.
• Begin the credit application process even before the sale is finished.
• Check the customer's credit, particularly if they are a new one.
• Verify that the invoice was received; if not, send it again.
• Link inquiries and actions to invoices
• Draw attention to any advantageous enhancements to related business processes.
• Address any questions.
• Get a commitment regarding the time and method of payment for the invoice.
• If required, reminded them of the terms of payment
Your handy 5-point checklist for spotting quality in an outsourced service
• Staff with ICM training
• Knowledge of industry-specific collections
• Committed account managers and consistent staff development
• Consistent communication at predetermined intervals
• Information access in real time through a secure web browser
