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How better debt recovery processes improve business cash flow

At its most basic form, running a business is essentially about the bottom line: – the profit. Does the sales revenue exceed the costs to achieve said profit? In making a sufficient sales revenue, a business owner can pay off his expenses and thus maintain the business as a going concern.

However, with the introduction of credit as a means of improving business flexibility, a complication now occurs in managing business cash flow. A business owner needs to be able to time the business inflows to match the business’ outflows (expenses). Of course, credit management offers businesses the option of obtaining credit but also means that the business needs to offer its customers sales on credit and therefore their income is delayed; cash flow management is certainly much more important in this situation.

It follows that a business needs to be wary about who it offers credit sales to since bad debts (credit sales that you offer a customer who fails to pay you for the goods/services offered) make it harder for your business to meet its obligations.

Therefore, a business needs tight debt recovery processes (or, a customer screening process).

 

Efficient Debt Recovery Process

 

Efficient Debt Recovery Processes

Screening your customers

The first filter to avoid problematic customers is by screening your customers. Consider this a due diligence conducted on your prospective customers. The purpose here is to establish the creditworthiness of your customers. You can achieve this is a number of ways: you could ask around in the industry about the reputation of your prospective customer or use indicators such as the number of years the company has been conducting business. If the company is publicly listed, then this makes the work a bit easier since you can obtain the company’s credit scores easily as well as utilise financial ratios to establish the same. This can be determined by ratios such as debt ratio or the company’s quick ratio. These are indicators of the company’s ability to pay its short – term liabilities.

Clear payment policy

A second manner through which to improve your debt process is by having clear policies when it comes to payment of debts by your customers. One such policy could be giving limited credit to first – time customers, regardless of apparent financial clout. This could give you time to assess your customer’s creditworthiness. It’s also an opportunity for your customers to take your credit management processes seriously. Another policy would be a clear payment schedule for your customers based on your own company’s financial ratios. A good financial ratio would be the receivables days of your company. This ratio is an indicator of how long your customers take, on average, to pay your debts. Different businesses have different receivables days. Typically, large businesses have longer receivables (because they can afford to have longer deferment with their capital base). A good payment schedule should strive to take, at most, 75% of average receivables days. In addition to this, your company should strive to insist on a deposit from prospective clients before delivering goods or services.

If your courteous efforts are not bearing fruit, then (depending on how crucial the outstanding amount is to your cash flows) you may want to get a debt collection agency involved in the matter. Boston Commercial Services, in particular, specialise in the effective collection and repayments of customer debts.

 

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  • I have worked closely with Boston Commercial Services for over twenty years across four different companies and would not work with anyone else in regards to helping me with my outstanding accounts. Whenever I have started a new role, the first thing I am asked is, “How would you go about cleaning up our accounts receivable ledger?” My answer is always the same – “The first thing we need to do is call Boston Commercial Services”.

    Voytek Bradford

    Freedom Foods Group Limited (National Credit Manager)

  • I have known the principal of the BOSTON Group (Derryn HARRISON) as well as key staff members (including Ben GOWER) for well over 2 decades and have been using their professional services for myself as well as for Powerhouse Logistics Pty. Ltd. on a regular basis, not only in Sydney but on a national basis.

    At all times BOSTON have been extremely pro-active, attentive, courteous and professional with all matters we threw at them. Their advice has always been extremely sound and commercial and I find them to be a "breath of fresh air" within the legal fraternity and have no hesitation whatsoever to highly recommend them.

    Peter Brueckner

    Powerhouse Logistics Pty Ltd (CEO)

  • Expect A Star has worked with The Boston Group for 10 years. In this time we have appreciated the ongoing support of Boston for all of our collection and legal requirements. Like most businesses cashflow is critical to ongoing success and growth, with Boston we have found a partner who are an extension of our business and play a key part in our cashflow management. The Boston Group bring a level of expertise to our business which is valuable and coupled with their excellent customer service we look forward to continuing to work with them for many years to come.

    Ryan Meldrum

    Former CEO

  • I have been using the services of The Boston Group and their legal entity for over 11 years. During this time I have found their service to be impeccable, delivered with the utmost professionalism and integrity. The vast majority of cases that I have placed with Boston were far from straightforward, requiring legal acumen and delicate handling. Having used all methods available without success to procure payment, I confidently placed these matters into their safe hands. In all instances a successful outcome was achieved.

    Mark Parish

    Credit Manager

  • SNP Security has had the pleasure of working with Boston Commercial Services for the past 11 years. Boston has played an integral part in the continuing success of SNP Security’s low DSO’s, 90 Day % Debt & of course Bad Debts Written Off.

    Amanda Griffiths

    National Administration Manager

Boston Commercial Services prides itself in offering specialised, professional services, through a highly experienced team of debt collector, with personalised client attention.