For business owners, smooth and even cash flow is crucial for the growth and success of your operation. However, when faced with challenges like late payments on outstanding invoices, businesses may experience disruptions that ripple through operations, hindering growth opportunities, increasing exposure to bad debt and jeopardising their chances of success.
Accounting software packages like Xero and MYOB have become staples for many organisations but they only scratch the surface when it comes to comprehensive debtor management. Relying solely on traditional accounting tools may not be enough to mitigate the risk of late payments to your cash flow.
Let’s explore why the old methods of debtor management are allowing your revenue to fall through the cracks, and what best practice debtor management looks like.
Why it’s time to update your debtor management strategy
Why it’s time to update your debtor management strategy
Australian Small business owners may find themselves relying on outdated or inefficient debt management strategies for a range of reasons.
Firstly, a lack of awareness about modern financial technologies may be keeping you in the dark about more accounts receivable tools. Additionally, a “better the devil you know” mentality is commonplace, particularly when managing costs are a major concern.
Unfortunately, by not proactively updating your debtor management strategy, your business may suffer financial consequences, such as:
- Irregular cash flow
- An increase in bad debts
- Delayed payments to suppliers
- Challenges meeting financial obligations
- An inability to grow, including stalled or reduced operations
- Difficulty weathering economic downturns.
What inefficient debtor management looks like
The traditional practice of managing debtors generally involves manual, labour-intensive follow up processes that are time-consuming and prone to human error. These methods lack the automation needed for systematic and timely follow-up on overdue payments and adjustments to your credit policy. Inefficient debtor management typically features:
- Manual correspondence
Inefficient debtor management often sees time-poor business owners manually typing reminder letters, emails and other correspondence to late paying customers and/or trading partners. By not streamlining this step, you’re taking away precious time that could be spent on other tasks that could be generating revenue for your business and helping it grow.
- Strained business relationships
You may strain crucial relationships by actively engaging in the debt management process as the business owner (as opposed to automating or outsourcing this step). One of the benefits of automation of debt recovery is that businesses can take a more diplomatic stance, while utilising technology and processes that take a more assertive approach. Businesses can essentially distance themselves from the role of the ‘bad cop’ that is traditionally associated with debt recovery efforts.
- Lack of record retention
Without records of follow ups and reminders, business owners may not be able to escalate recovery process issues, such as lodging a default, engaging lawyers or simply engaging a debt collection agency to assist. Whether you retain digital copies of collection letters sent to customers and debtors, or maintain email records, it is important to make them easily accessible.
- Limited automation
The absence of automated tools means that debtor management relies heavily on human intervention. Tasks such as identifying and prioritising overdue invoices, creating reminder letters, tracking payment dates, and updating records are performed manually, making the process more time-intensive and inefficient. Further, there is an opportunity cost to manual processes. Work hours and resources you spend in debtor management could have otherwise been directed toward revenue-generating activities or creating value for your business.
- Poor data management
If your business does not keep data up-to-date, it can come back to bite you when it comes to chasing late payments.
Having incomplete or incorrect records will impact the overall accuracy and reliability of your debtor information, potentially leading to disputed invoices or invoices being sent with incorrect contact information. These issues may further delay payment from your customer so it is critical to keep data accurate and up-to-date at all times.
What best practice debtor management looks like in 2024
Updating your debtor management strategy is crucial for business owners to ensure streamlined operations, minimise risks, and optimise their cash flow. A ‘best practice’ debtor management strategy should include:
Reducing manual tasks
It’s no secret that as a business owner, you do not have a lot of time to also wear the hat of ‘debt collector’. It’s time to embrace automation and technological efficiencies where possible to reduce time-wasting manual tasks. Minimising manual tasks will also reduce costly human errors.
Centralised dashboard
A simple, easy-to-use dashboard provides business owners with an intuitive space for managing accounts receivables. You should be able to quickly gain insights on your customer payments and identify which debts to pursue first for a greater likelihood of payment.
Prioritisation of risk and value, not just age
Older systems tend to prioritise debts based on age, however, this alone may not be comprehensive enough. Advanced debtor management strategies are instead based on an in-depth assessment of both risk and value. Risk prioritisation allows you to identify debtors facing heightened financial challenges to adjust payment terms or credit limits and get on the front-foot with collections. Value prioritisation means you may recover debts with a greater impact on overall revenue, optimising your return on investment.
Consistent reminder letters
It’s not enough to follow a one-size-fits-all template for customer reminders. ‘Best practice’ debtor management should involve regular communications tailored for each customer across different stages of debt.
Efficiency, efficiency, efficiency
The debtor management process does not need to drag on for months or years. With the power of new technologies, debtor management instead becomes a quick and routine process, creating significant results for your business.
Upgrade your debtor management strategy today
Now is the time to level up your debtor management strategy. This is where CreditorWatch’s can help.
Stay on top of overdues by centralising collections activity and automating your personalised approach to invoice reminders with CreditorWatch Collect. Maintain case notes, view communication history, and prioritise collections lists to optimise your resources and maximise recovery.
Debtor Management helps businesses escalate unpaid or overdue invoices with ease. Instead of juggling between your accounting software, spreadsheets, and your inbox, you’ll be able to see all of your overdue accounts and comprehensive customer insights in a single dashboard so you can prioritise which customers to download ready-to-send collection letters for first. It’s as simple as three easy steps:
Step one: Connect your accounting software to CreditorWatch’s Debtor Management tool. Your invoice and accounts data will sync regularly to keep you up-to-date with your customer payments and let you know if you need to make adjustments to credit terms.
Step two: Choose which customer to chase and send reminders to. You can easily sort outstanding debts by the overdue amount, the level of risk, days overdue or simply by the account name.
Step three: Download your ready-to-send collections letter. Sometimes a friendly approach using email and SMS reminders aren’t enough. You need a range of collection letters to get your debtors’ attention. Debtor Management will populate the necessary information into your chosen letter template and include a prominent ‘CreditorWatch member’ logo that is proven to improve days-to-payment.
The content and tone of each letter you send is tailored depending on age and stage of debtor. Customers do not want adverse events on their credit file as it may impact them negatively in future. As a result, our logo prompts action.
To learn more about how we can help you improve your debtor management process, get in touch with our friendly team at CreditorWatch today.
accounts receivable
automated accounts receivables
cash flow
cash flow issues
collections
credit management
debtor
Head of Product Marketing
Agnes brings expertise across credit risk management, fraud, identity verification and compliance. She is passionate about helping businesses minimise and manage risk in an efficient manner while also improving customer experience. Agnes shares insights on best-practice processes and solutions that will deliver meaningful results to businesses.
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