No matter the industry, debt collection is an essential part of business. The proportion of overall revenue that is written off as bad debt is significant. .
A comprehensive debt collection strategy will ensure your business maximises return for efforts. Below are the main reasons for having a comprehensive debt collection strategy in place.
Failing to maintain cash flow is among the most prominent reasons that businesses fail to survive. In particular for new and small businesses it is essential to have sufficient capital to pay running costs and purchase new stock.
The most basic reason for a comprehensive debt collection strategy is to ensure a consistent and steady cash flow that allows you to run your business as smoothly as possible.
Put simply, if your debt collection strategy is weak, customers will take advantage of it. They may delay payments excessively or even avoid paying altogether.
You need to have clear credit policies and payment terms in place, and then make sure that your customers are aware of these from the start.
A solid debt collection strategy can also protect your business from unsound debts. By categorising your customer base into debtors who are low, moderate and high risk, you can then adjust your credit limits and payment terms to suit each category. This helps to limit the likelihood of incurring significant financial losses.
An effective strategy will also allow you to better identify the reasons you have outstanding debts and categorise your late-payers. This will help you determine the most effective course of action.
Strengthening the collection end of your business can give you a significant edge on your competitors. If your methods of handling difficult payers are effective, you can open up the possibility of extending lines of credit to higher risk customers. These strategies should be designed by closely analysing the patterns of your debtors. Just small increases in efficiency can lead to significant monetary gains.
A sound debt collection strategy will give you more time to focus on the rest of your business. It will also help to remove the unwanted stress and wasted time that comes with constantly dealing with overdue payers. Your business will simply not be able to grow if you have to focus extensively on collecting money from sales that have already been made.
In addition to the fundamental reasons a comprehensive debt collection strategy is essential, other benefits include:
- Costs – collecting debt costs money, through time, phone calls, emails, letters and effort. Streamlining your collection methods or outsourcing these to a debt collection agency often means that in the long run you pay less to get more. In fact, most debt collection agencies offer their services on a ‘no win no fee’ or ‘contingency’ basis.
- Credit – the fewer bad debts you have to write off, the better your own credit rating will be.
- Reputation – your good practices will reflect well on your brand as potential customers begin to see you as a reliable and respectable business to deal with.
- Affordability – repeated bad debts will force you to pass your losses onto your customers, so less defaults means you can remain price-competitive.
- Confidence – if you have shareholders, they will view your reduced losses favourably, which will reflect positively on your overall business practices.
- Future growth – having greater control over your income allows you to make more accurate forecasts, giving you the opportunity to allocate resources more appropriately.
- Morale – staff who see that their efforts are not going to waste due to losses will be happier, more loyal and more productive workers.
While debt levels certainly vary among industries, there is simply no reason why you cannot expect to be paid on time for the goods or services you provide. It is a matter of engaging in a thoughtful, consistent and focused strategy, either in-house or with the aid of a debt collection agency.
Professional Debt Recovery for you …contact
Debt Recovery Associates. Persuasive, Persistence, Professionalism
Town Office-View Park Towers ,10th Fl ,Utalii Lane /
L584-off UN Avenue, Gigiri.
P O Box 27859 00100 Nairobi, Kenya
Tel +254-20-221 1382/362
Cell: +254 712 636 404