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June 6, 2019
Good receivables management is crucial for companies to survive in the market. The goal is clear: to prevent payment defaults and quickly collect overdue amounts.
It's a give and take – at least ideally. A business relationship follows a simple principle: one party provides a service, while the other pays for it . However, a business partner can also be unreliable, for example, if they fail to deliver ordered goods on time or don't pay for services on time or at all. If the latter occurs, outstanding invoices can disrupt your operations and cause financial losses. With a few organizational steps, you can counteract such negative consequences.
It all starts with binding tasks and responsibilities within receivables management. The lines of responsibility between sales and accounting should be defined by management. This includes regular discussions of existing receivables, systematic handling of these, and reviewing previous measures. In this context, a thorough reporting system that documents the current level of receivables is also advisable.
To define your financial leeway, payment delays and defaults should always be factored into your financial and liquidity planning. This way, you won't be caught off guard in an emergency, and you can identify risky transactions before the contract is signed. In this context, services should never be provided without an official order or a written contract. Legally, you are only on the safe side if you have been guaranteed binding payments.
Acquiring new customers and retaining existing ones are crucial for revenue growth. Nevertheless, it's advisable to have the creditworthiness of potential new customers assessed in advance and to review all customers' solvency annually. Finally, you should avoid unnecessary risks and be aware of any significant changes or negative characteristics. It's also advisable to set a credit limit for all customers and customer classes and not grant payment credit to customers with a poor credit rating.
Operations management
Operations management
Operations management
When preparing quotes, you should always factor in all costs that will arise from the supplier credit and base your calculations on standard industry payment terms. Also, agree on contractual security: With a so-called "extended retention of title," delivered goods remain your property until the customer has paid in full. For larger orders, it is always advisable to agree on down payments or interim invoices to cover certain costs and parts of the service. This way, you can reduce the amount of damages and the impact on your business in the event of missed deadlines or non-payment.
Another measure concerns the maintenance of your customer data: With specific customer numbers, known as debtor numbers, you ensure the correct assignment of customers. This makes all business transactions – from checking solvency and posting outstanding amounts to monitoring due dates – clearly traceable. For this purpose, all customer information, such as master data and contractual agreements, should be collected in a central database.
To expedite payment, you should always send invoices immediately after the service has been rendered and specify a fixed payment period. Regularly check receipts until the payment is due: This is the only way to verify that deadlines are actually met and amounts are paid in full. Another way to encourage customers to pay more quickly is to offer optional payment terms such as installment payments or discounts.
If payment deadlines are missed despite this, you should promptly remind customers of overdue invoices. This can be done initially via a telephone consultation or a written payment reminder. However, for one-off orders or larger amounts, it is advisable to issue reminders early. After the first reminder, you can initiate legal dunning proceedings to encourage your customers to pay – a second or third reminder is not legally required, by the way. Throughout the entire process, you are free to seek professional support from an external service provider and commission a debt collection agency. This agency will then be responsible for all dunning matters and will handle the collection of overdue debts on your behalf.
The online portal Meine Creditreform provides comprehensive support for your day-to-day business operations, offering everything you need for effective work – around the clock and conveniently on the go. You can view important information about your customers, retrieve credit reports, submit debt collection orders directly, and much more. This ensures you are always well-informed and can react quickly should a customer's financial situation change.
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