A brief overview of Debt Collection
When you speak of debt collection it is not just financial institutions recovering debt from individuals. B2B businesses often establish a rapport with their customers by offering them goods and services on a credit basis. Debt collection or collecting dues hence becomes an important part of their daily operations.
Recovering debts from customers is extremely important because the cash from debt collection can be effectively used as money for business operations. Besides, a company that does not collect its debts on time is often viewed as one that could quickly run into losses as they write off huge amounts of money as bad debts.
Many companies often draft a contract while trading on credit. This lists how the payment should be processed for the order-to-cash transaction. If you have customers owing you money, then you must have a stringent debt collection strategy in place. This will not only help improve your cash flow but will also help build better relationships with your customers.
The importance of debt collection strategy
As the saying goes, prevention is better than cure, what better than to prevent your collections from becoming bad debts? Bad debts not only add to a company’s liabilities but also put it into a bad reputation. A better collections strategy will also help in quicker recovery of collections from customers which will improve your cash flow.
7 Strategies to streamline the debt collection process
1. Send invoices on time
While lack of funds can be one reason why customers delay their payments, not receiving invoices on time is another. Many businesses fail to send invoices on time or draft error-free invoices which can result in delays in payments due to disputes in invoices.
If you want your customers to pay quickly, you should ensure everything from your end as a business is proper and free of any complications. You could use an invoice solution that loads invoices based on the purchases made and sends them out to customers as you fill in the details. Also, having a dedicated set of people in the collections team to resolve disputes can also help speed up the process.
2. Upgrade your A/R management software
Having an AR management software that will automate your collections process is the primary step you take to make your debt collection better. An updated AR management software will help reduce the time spent deciding between what customers to prioritize and what disputes to manage. According to Paystream, updating your collections software can help increase the time spent on soliciting customers for payments to 62% from 20%.
3. Review your invoices
Before sending your invoice to your customer, double-check all of the details. Checking your invoices thoroughly can help reduce errors that can cause payment delays. Here are a few things to double-check before sending an invoice to a customer:
- Ensure the unit price and rates are correct.
- Make sure you are addressing the right person. This includes double-checking the surname and initials
- Check the items and the description. This will eliminate any confusion about what product/ service the invoice is for.
- Cross check the contact details.
4. Enforce proper debt collection terms
Quicker collections can promote better cash flow. This helps businesses manage funds efficiently for working capital needs. But it is not always that customers pay on time. One way to prevent this from happening is to study a customer’s creditworthiness before extending a credit sale to them. A strong credit check policy can help prevent onboarding customers who default payments. The most common way of assessing a customer’s creditworthiness is by following the five Cs.
5. Send reminders to your customers
Customers must be constantly reminded of their late payments. They have a lot on their plates, and remembering late payments isn't one of them because they've already used your services. A good debt collection strategy includes a follow-up schedule for different clients based on their due dates. Send out emails at regular intervals to remind your customers about upcoming due dates. You can also charge late fees or limit credit availability for clients who are frequently late. This will ensure that they take payments seriously and begin paying promptly after the next payment cycle.
6. Have a strategy in place
The inability to prioritize is a major issue for collectors. They most often don't know which accounts to follow up on and which do not need to be at that time. A proper strategy is required to prioritize. Going through countless excel sheets and tabs to predict a collections strategy is not a practical possibility.
This is yet another reason why having automated accounts receivable collections software can assist in reducing the complexity of this problem. Growfin's AR automation software, for example, can assist you in developing collections strategies based on your customer's payment history and behavior.
This will save time that would otherwise be spent in lengthy discussions. When you have a strategy in place, even your collection agents know where to go. This will help to expedite the collection process.
7. Be proactive, adopt a collaborative collections process
Being proactive can help you save a significant amount of time. If you believe that the number of people on your collections team is insufficient, you are mistaken. The issue is not with the people, but with the process that is being followed. Be proactive and implement automated debt collection software to improve the efficiency of your collection process.
Another critical step is to ensure that the sales and collections teams are on the same page regarding their customers and payments. This not only helps to eliminate the problem of duplicate work, but it also improves customer satisfaction. No customer wants to be called several times to check on payments. And one solution to this is getting your company an AR automation tool that helps channelize the collections process.
Better collections need better practices. Growfin ensures an effortless solution to collections processes across mid-market industries and enterprises. If you are looking for a solution that can improve your debt collection, then you should talk to us. Book a demo call today!