Estimated reading time: 6 minutes
In Belgium at any given time there are billions of euros in unpaid and open invoices. Those outstanding invoices are one of the less enjoyable parts of running a business, but they need to be closely monitored.
Efficiently setting up debtor management – the process of ensuring that customers pay their invoices – should therefore be a priority for every business.
After all, the customer has already received the product or service, but has not yet paid for it. Such customers can jeopardise the health of a business and dry up the necessary cash flow.
Cash flow is the “artery” of every business. Without cash flow, it becomes difficult to pay invoices to suppliers, pay employees’ salaries or make investments.
In this article:
- We provide the most important tips on how to set up debtor management efficiently
- We emphasise the need for automated debtor management
- You will see that issues such as customer relations and risk management also play an integral role in debtor management
- We make it clear that debtor management is a dynamic process, which needs to be analysed and adjusted on a regular basis
1. Draw up a debtor management plan
Everything hinges on having a good plan. The design of the debtor management process is always very personal, and varies depending on the company, the specific customer relationship and the customer profile.
Evaluate the procedures in place within the company. You can start by asking yourself the following questions:
- When will you send out payment reminders?
- Are you going to send a friendly reminder even before the invoice due date?
- What do you do with late payers?
- Can you segment certain customers within groups?
- How will you distribute the workload?
- What do you do with special cases such as customers who make a payment pledge or want a payment plan?
- Take a broader view. Does the sales department perhaps make promises that are not kept? Are your deliveries of a high standard?
Automating debtor management makes a lot of things possible. Therefore, choose the right tool to facilitate the debtor management and, by extension, the order-to-cash process.
2. Analyse the invoicing process
Pay close attention to when your invoices go out. Maybe they are sent out a little too late? Or do too many invoices go out at the same time?
Perhaps you should switch from sending out invoices twice a month to a weekly or even daily cycle? The fact is that creating, checking and sending out a whole bunch of invoices at a fixed time is an enormously time-consuming process for the credit controller. And this will potentially also extend to the following days and weeks, when responses via e-mails and telephone put a heavy strain on employees. And this process repeats itself with each subsequent dispatch of invoices.
3. Segment debtors
Good classification or segmentation of the debtors already forms a large part of the work. This not only provides more insight but also helps in making decisions. After all, some customers require more time and resources.
For example, a distinction can be made between new and old customers, smaller customers or larger companies, different sectors, and so on.
Segmentation also makes it a little easier to assign customers to a specific procedure.
4. Automate your communication channels
We have recently spoken about the importance of automation, which can reduce costs and improve results. A lot of automation is also possible when it comes to communication with your customers.
Once debtors are segmented and associated with a specific procedure, you can set up a very efficient communication process. For example, thoughtful templates allow you to address customers in their own language and vary the tone of communication based on numerous variables, such as company size, type, sector and corporate culture.
These communication messages should be tailored according to the communication channel used. After all, a letter, a registered letter, an e-mail or text messages all require specific communication.
5. Check the financial health of customers
A sound acceptance policy can eliminate many problems. Various external sources can be used to find out the financial health and creditworthiness of a company you are dealing with, making you better able to assess the risk.
However, it is also worthwhile engaging in continuous risk management for existing customers by regularly reviewing credit scores and other external trading information. This gives you insight into your customers’ potential risk exposure and keeps you constantly up to date with their risk profile – based on current figures and formulas.
6. Provide general conditions without loopholes
It is best to arrange the general terms of sale and payment conditions well in advance, especially the payment term and the non-payment clauses.
7. Make payment as easy as possible
Make sure that customers can pay as easily and efficiently as possible. For example, by offering a payment option on the invoice or reminder. This can be done via a payment link or a QR code, which allows customers to pay via an app on their smartphone.
8. Make sure everyone knows what to do
Make sure the tasks are well distributed. When it comes to a considerable number of outstanding invoices, it is recommended that this be done on a daily basis. That way, nothing is overlooked.
In iController every credit controller can easily follow up open tasks daily via a personal worksheet. Tasks are prepared automatically as much as possible, but manual tasks can also be created from just about anywhere in iController. For example, to make a phone call or to follow up internally.
9. Check regularly for arrears
A check set up to run automatically prevents overdue payments from being detected too slowly and arrears from mounting rapidly. By being on top of things as soon as a deadline has passed, you can prevent customers from repeating this behaviour in the future.
10. Focus on the problem cases
In order to recapture a lot of cash flow, it is important to know which customers require the most attention. These may be accounts with the largest outstanding amounts, customers with broken payment promises or customers with abnormal payment behaviour.
But how do you know which customers are involved when your company has issued so many invoices? In iController this is quite simple, because lists and reports in automated dashboards make you aware of these “problem cases” every day, and you can take appropriate action quickly.
11. Every conversation counts
If everything is set up properly and you have chosen the right tool for debtor management, a lot of things are already automatically logged and tracked. However, it is also convenient to keep adding notes manually. A lot of things can come up, especially in a personal conversations about a complaint. With the help of such notes, all employees will be informed, and better conclusions can be drawn afterwards.
12. But are you still in arrears?
If so, please contact us personally as soon as possible. Show understanding for any problems and try to find out the reason for non-payment to the best of your ability. It is often a case of force majeure, such as unforeseen circumstances or unexpected costs, and not of unwillingness.
Creating a payment plan can be a good solution. With iController you can also optimally allocate and follow up on these kinds of plans.
13. Set stricter payment terms for some customers
For bad payers, it may be advisable to set stricter payment terms. For example, asking for a prepayment or payment in advance and emphasising the payment term in every communication.
14. Adjust regularly
No one gets debtor management right from the start. It is a dynamic process that must be adjusted on a regular basis. Procedures need to be set up differently: you can create new procedures, make existing procedures stricter or less strict or assign customers to a different procedure.
