What is debtor management?
Before we delve deeper into the benefits of debtor management and its various components, we briefly explain what exactly debtor management is. In a nutshell, it is the process of;
- granting credit to your customers;
- Setting payment terms so that they can pay their bills on time and in full;
- collecting payments;
- Check that customers (and employees) comply with your company's credit policy.
The procedures are effective only when they are embedded in the organisation and you continuously identify these risks.
What are the benefits of debtor management?
One of the main benefits of accounts receivable management is the ability to get a clear picture of your company's finances.
But there is more. You can;
- pay your bills and employees on time. After all, good cash flow ensures that your cash inflow always exceeds your cash outflow.
- reduce the number of overdue payments by detecting them earlier and preventing bad debts, reducing the likelihood that a default will adversely affect your business.
- Increase your available business liquidity.
- Perform collections faster and more completely.
- Improve your company's Days Sales Outstanding (DSO).
- Identify opportunities and free up your company's working capital for crucial business investments that can support strategic growth.
- Prepare financial budgets for the coming years by planning and analysing performance.
- reassure potential lenders financing your business expansion plans.
How do you create an accounts receivable management strategy?
Initially, you look at the current processes within your company;
- Who is responsible for credit management: a team, an individual, or a manager who may not have time to make the right credit decisions?
- What are the applicable rules regarding payment terms or your payment process?
- What does the dunning process look like and when do you hand over a claim?
You will need to ensure that the entire company becomes familiar with best practices in accounts receivable management including; optimising contract management and debtor collection, identifying and analysing the risk of new customers defaulting on payments and creating a proactive credit risk mitigation plan. You should define the actions you need in managing credit accounts from other departments and make people accountable.
Finally, your receivables management process should strike a healthy balance between avoiding risks and seizing opportunities. Being too cautious could mean missing out on some sales opportunities. But if you are too lax, you may overlook signs of a high-risk customer.
When is optimising receivables management advisable?
We regularly see that clients can make structural improvements that will help them achieve profit maximisation.
Examples of situations where debtor management advice come in handy are:
- You do not have (clear) debtor management processes or they do not function properly.
- Systems do not work properly or are not utilised enough.
- Processes are not well aligned.
- Departmental control is lacking.
- Competencies of (credit) managers are lacking.
- Cooperation with external partners leaves much to be desired.
- Improvement in the financial result is desired.
- Mitigation of debtor risks is necessary.
- Policy does not align with mission, vision and current business situation.
- Due to merger or acquisition, overall debtor management should be aligned.
Roadmap for optimising your receivables management
Every company is different and has its own needs and wishes. We naturally tailor our advice accordingly. Basically, our debtor management process looks like this:
- Step 1: Thorough analysis of the current situation based on data you provide and interviewing employees in key positions. We look at all aspects of the Order to Cash Cycle.
- Step 2: Credit Process Review of your buyers, giving each company a report grade that predicts its likelihood of failure. This analysis gives you a good idea about your customers' creditworthiness.
- Step 3: Comprehensive, detailed advice of the new structure based on analysis and objectives.
- Step 4: Proposed plan of action.
- Step 5: Upon agreement on the proposal Plan of Action: elaboration of strategic plans and implementation.
- Step 6: Monitoring progress.
Help from Xolv to optimise your accounts receivable management
Xolv's specialists assist you in optimising your procedures in the area of debtor management. We have already optimised these processes for several small and large companies. We also help implement these processes and train your employees. We can also deploy our specialists if you require temporary support. Think of understaffing, clearing backlogs, acute help during illness or holidays, etc.
More information
Would you like to outsource your receivables management and find out how we can help you optimise it? Then contact us with no obligation.
