Many entrepreneurs view accounts receivable management as a minor task until late payments reveal serious issues. This article highlights its importance in reducing risks and improving cash flow.

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How professional accounts receivable management reduces business risk and improves cash flow

Many entrepreneurs view accounts receivable management as a minor task until late payments reveal serious issues. This article highlights its importance in reducing risks and improving cash flow.

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FAQ

Why debtor management is so important

Outstanding invoices are essentially loans that your company provides to customers. This may seem like an exaggeration, but in fact you are providing credit to customers as long as they do not pay their invoices immediately. The longer customers wait to pay, the greater the risks for your company. Too many outstanding amounts will eventually cause liquidity problems. Liquidity means that there is sufficient money available to pay the invoices of your own suppliers and staff on time. In addition, a lack of clarity in your debtor management can make it increasingly easy for customers to pay invoices late. Without a systematic approach, a culture will develop in which customers think that paying later is acceptable. To prevent these problems, it is important to be clear from the start and to apply professional debtor management on an ongoing basis.

Consequences of poor debtor management

When invoices remain outstanding for a long time, you will have to deal with payment problems yourself. This can lead to more costs, for example because you temporarily have to go into the red on your company account or have to use expensive short-term financing.

The risk of non-payment also increases the longer customers wait to pay. Research shows that after 90 days of arrears on an invoice, the chance that you will ultimately not receive the invoice at all increases significantly. In addition, poor debtor management has indirect consequences such as extra stress and loss of time because you repeatedly lose time calling and reminding customers.

Professional debtor management reduces risks

With a professional approach to your debtor management, you significantly reduce the risk of payment problems. Companies that deal with this well have a number of clear agreements and procedures. For example, it is wise to clearly inform customers about payment terms prior to delivery. In addition, it is clearly stated which steps you take if customers do not pay on time. The sources and available publications clearly show that entrepreneurs who keep their administration carefully have fewer payment arrears. Precisely because these entrepreneurs consistently deal with clear payment terms and structured follow-up of outstanding invoices. They also do not wait long to intervene. There is no doubt that responding quickly and acting clearly positively influences the payment behavior of customers. This leads to outstanding invoices being paid more quickly on a structural basis.

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Digital techniques as support for accounts receivable management

Nowadays, automated accounts receivable management is rapidly gaining ground. Many administrative software and supporting platforms offer extensive options to simplify the accounts receivable management process. These systems automatically keep track of payment terms, send reminders at the right time and ensure that you do not forget to take action.

By setting up practical tools such as payment reminders, you prevent customers from overlooking invoices. Furthermore, from supplied sources and other practical data it is clear that automation ensures a significant reduction in the percentage of invoices that are paid too late. Companies benefit from extra time that they can spend on productive business tasks instead of performing repetitive administrative tasks.

Relationship between good accounts receivable management and better cash flow

Cash flow literally means cash flow and represents the money that comes in and goes out of your company. The faster customers pay, the better your cash flow situation. Good cash flow ensures financial stability and enables you to invest and grow faster.

Professional accounts receivable management helps by ensuring that the money you earn is actually received faster. By sending clear invoices quickly, regularly checking for payments and sending correct reminders, the number of days before customers pay is significantly reduced.

This effect is confirmed by various studies and practical examples. Companies that systematically follow up on outstanding debts see a clear improvement in the number of days within which customers pay on average. This improved payment discipline will ensure a better cash flow position for these companies within a short period of time.

Concrete tips for better debtor management

A number of important tips to improve debtor management:

 

  • Take clear communication with customers seriously in advance
    and clearly state payment terms and conditions on quotes and invoices.
  • Create a fixed weekly moment at which you check exactly which invoices have not yet been paid.
    This increases the overview and makes it easier to take action if necessary.
  • Contacting customers immediately by telephone or in writing after a payment term has expired
    significantly increases the chance that customers will pay quickly.
  • You do not have to communicate harshly or strictly right away.
    Friendly, clear communication often works better because it increases customers' willingness to pay.
  • Use information about customer payment behavior to make good decisions for future transactions.
    This will help you avoid doing business with risky customers again.
  • Ensure that payment terms are well formulated
  • Regularly check outstanding invoices
  • Contact immediately after the payment term has expired
  • Use customer-friendly but clear communication
  • Ensure that payment terms are well formulated
  • Regularly check outstanding invoices
  • Contact immediately after the payment term has expired
  • Use customer-friendly but clear communication
  • Include customer payment behaviour in business processes

In short

Good professional debtor management is much more important than many entrepreneurs realize. Systematically following up on outstanding invoices reduces the chance of payment arrears and greatly improves your cash flow. By making good use of digital tools, companies reduce administrative burdens and gain more time to perform important business tasks. A professional approach not only reduces business risks but also makes a concrete contribution to sustainable and healthy growth of your company. Therefore, take debtor management seriously and invest in it for financial stability and long-term success.

Try out Credit-IQ today

With Credit-IQ you can say goodbye to endless spreadsheets. You automate every step of your accounts receivable management: from sending reminders to optimizing them. Our clear dashboards help you accurately predict cash flow, resulting in better liquidity. Try Credit-IQ  for free!