David Taylor – CEO of credit, collections, and complaints software providers, OnGuard – explains the importance of managing late payments.
I came incredibly close to losing a successful, growing software business due to a late payment. There I was running a profitable operation and planning future expansion when suddenly, in what felt like the blink of an eye, I could have lost everything. Before you know it, you’re in a whole lot of trouble with your house as collateral and the bank breathing down your neck.
I learnt some valuable lessons from my experience. The most important of which is that software enables all sorts of business operations to run smoothly and that credit and debt management should be no different.
Late payment and disputed invoices are an unfortunate fact of business life, but credit management software can allow the CTO/CIO to equip the CFO with the tools they need to combat this.
Accounts receivable is often the largest entry on a balance sheet and unlocking its value can directly improve a firm’s profitability by reducing the financial risks posed by write-offs and late payment. By understanding and analysing customer behavioural information, segmenting the customer base into risk profiles and introducing more robust reporting around disputes and their resolution, companies can define tailored collections strategies to better manage late payment risk. If the complexities of hundreds, thousands or millions of customers are factored in the idea of knowing individual customers and spotting changes in their behavioural patterns becomes virtually impossible without a software solution.
The resource, cost and human error implications of manually monitoring customer behaviour would sit heavily on the shoulders of any CFO. Taking this one step further, and prioritising those customers that are vital to cash flow, accentuates the need for automation.
The CFO and CTO/CIO should be working closely together on this issue and jointly recognise that specifically designed credit management software can provide a better way of managing working capital whilst maintaining a positive interface with the customers. A realistic overview of the costs of chasing up bad payers, creating transparency right down the chain, from the initial invoice to its resolution can be relayed right up to top management.
If a company wants to reduce the cost of working capital, whilst at the same time maintaining a satisfied customer base, it must learn to monitor and regulate customers to predict not only current but also future risks. Once the system is operational, businesses can work proactively with their clients to collect payments more efficiently instead of allowing the battleground that may once have existed to continue and ultimately improve the relationship and the company’s financial standing.