The Four Pillars of Cash Collection
By Prashant Ranjan, Sr. Business Analyst
- Time management
The time factor is an essential and decisive element in the success of this mission. Indeed, there is a direct link between the time spent and the probability of recovery of a bill, whether for customer solvency issue or because administrative reasons (loss of information, change of contacts,…).
After 6 months of delay, only 50% of the receivables are recovered while the time and energy needed to try to obtain the payment is increased exponentially. For this, it is necessary to apply a collection strategy that includes a progressively in the actions performed.
- Adapt to the customer’s organization.
Sending blind robotic reminders to a generic address (for example, mass mailing) has never been effective, and is less and less efficient. The search for the right contact(s) as well as the understanding of the internal customer-side invoice management process is essential.
Thus, the recovery action is oriented successively depending on the identified problem (a late payment = a problem) to the right person or department, who can unlock the situation, and move on to the next step. To be effective, the action, must be done at the right time, to the right person, with the right information
- The quality of Accounts Receivable management on a daily basis.
Agree with your customer on the invoices to be paid if the customer account is not perfectly clear in your accounting system, updated day by day? Any discrepancy between customer accounting (AR) and supplier accounting (AP) leads to late payments, time lost on both sides to reconcile and loss of credibility towards the customer.
Debt collection is a matter of communication between two organizations (those of the seller and the buyer) that are not natively made to talk to each other. The natural divergent elements (information systems, corporate culture, management rules, … are different) are sufficiently numerous not to add a layer of accounting mismanagement.
The accounts receivable must be kept daily as soon as the payments are received. Any discrepancy must be fixed immediately in order not to allow a drift, rendering the accounts illegible and ultimately irreconcilable.
- An excellent relationship
The quality of the relationship established with customers contacts is essential. The objective is to build a balanced relationship over the long term, just like the business relationship, both cordial and demanding (an iron fist in a velvet glove).
Conclusion:
It is not so simple to combine these four pillars, sometimes complex, often contradictory. This is a real art, done by the collector who, depending on the customer and the commercial situation, makes a careful mix so that the financial interactions between the two actors are fluent.
Those who do this help to solve problems and obtain payment of bills, improving the cash flow and profitability of their business, while contributing to the quality of the customer relationship.