Credit and accounts receivable management: a year-round task
The end of the year is approaching: time for a look back. However, it's important not to be too rosy-cheeked. Anyone who still has large outstanding payments that have already been dunned and are standing in the way of a positive financial statement is doing something fundamentally wrong.
Of course, a reminder does not mean that a payment will not be made. But if such payment arrears accumulate to such an extent that the result is even severely reduced due to the necessary value adjustments, then this can put the liquidity of the company at risk. The daily business routine primarily revolves around acquisition, order processing, cost control, personnel and innovation. Liquidity is virtually taken for granted in many commercial enterprises. Problems are only recognized at a late stage. This is especially true for impending payment defaults. People are convinced that they know their customers and their financial situation well. Delays in payment are sometimes not seen as an alarm signal, but as a good opportunity to show the customer that you are standing by him. In fact, around 70 percent of all bad debt losses are incurred by regular customers. People trust each other. The signs of impending payment bottlenecks are literally ignored. After all, things have always gone well.
Credit and accounts receivable management as a permanent task
Credit management is therefore part of the daily bread of every company. It begins at the acquisition stage, when the seller gets an initial picture of the customer's financial situation. A credit check is mandatory at the latest when the contract is signed. And even after that, it is important to monitor every customer relationship on an ongoing basis and to evaluate events that are relevant to their creditworthiness and, if necessary, to draw consequences from them. This does not necessarily mean that the contract is cancelled, but it can mean that deliveries are no longer made on account. Those who do this will avoid a significant portion of potential bad debt losses at the source. This can easily amount to one percent of sales that are realized and not written off.
When a specialist is needed
Accounts receivable management is just as important. Anyone can overlook an invoice or delay a payment, for example, if there is something objectionable about the supplier's performance. But you can expect a reminder to be responded to quickly. If this is not the case, action must be taken. The spectrum ranges from an immediate delivery stop to professional enforcement of the claim. This collection requires a certain amount of expertise. Small businesses in particular often have a hard time with the legal process. They let valuable time pass or make mistakes. A receivable that could have been collected with strict accounts receivable management may then have to be written off. In many cases, it is worth handing over debt collection to a specialist.
Author:
Raoul Egeli has been President of the Swiss Creditreform Association since 2008 and President of Creditreform International since 2014, as well as a member of the Chamber of Commerce of the SGV. He is also Managing Director of the Creditreform Egeli companies in Basel, St. Gallen and Zurich. From 2009 to 2013, he was the central president of TREUHAND|SUISSE. Raoul Egeli is the author of several specialist books on the subject of credit and receivables management. www.creditreform.ch
