Account receivable management is about anticipation. Whether in customer risk management, upstream of the realization of sale, or in the cash collection, downstream, earlier the action is performed, more it is easy and efficient.
For example, it is much easier to ask the customer for a deposit of 30% in the early discussions rather than a few moments before the conclusion of the business case.
First step of the collection process, the pre-dunning action done before the due date of the invoice is customer satisfaction oriented: Have you received the material? Is everything ok? If yes, can you confirm the payment of the bill? You take care of your customer, making sure that everything went well and you get a promise to pay for the due date of the invoice.
Must act in order to not undergo!
Collection process started after the due date of the invoice is inherently less efficient (the invoice is already late) and less oriented customer satisfaction (the purpose of the stimulus is focused on the payment claim).
Moreover, the period of summer is a bad time for companies, except those in certain sectors such as tourism. The decrease of the activity associated with the closure of many of them explain the freeze of payments to suppliers which heavily penalize cash of SMEs / SMIs.
It is for this reason that September is one of the worst month of the year in term of companies bankruptcies. In apnea during the month of August, companies struggle to regain their breath in September.
For example in France during the past 6 years, September was 5 times the first or second month of the year in number of bankruptcies proceedings, with an average of 5400 for this single month. It is therefore necessary to act before that fateful period in order to:
- Anticipate the freezing of payments of August and get a commitment for payment of invoices due in August in July, with for example getting a bill of exchange to be paid automatically at the due date.
- Avoid an outstanding loss from a client who will be in a situation of payment default at the return of the holiday period.
- Not end up in the rush of reminders that abound in September of accounts to suppliers who are struggling to catch up. Without preventive actions carried out in July, the amount of overdue receivables is sometimes higher end of September than end of August because of this phenomenon.
How to organize its preventive dunning collection?
From the beginning of July, draw up a list of customers with invoices expiring during the month of August.
Specific preventive action recovery
Contact each of these clients, preferably by phone, to obtain confirmation of payment due by asking them to clarify how they will pay (bank transfer, check, LCR ... etc). Don’t forget that looking for the right interlocutor is a must before any collection action, even if it is not always easy.
If the client is closed at this time, request a bill of exchange (or an electronic bill of exchange) or a promissory note for a payment at maturity.
To do it even more easily, propose him to remit yourself in bank with his agreement a draft without acceptance. Just ask him to confirm that the account will be sufficiently funded at the draft due date.
Another solution could be to make an exceptional offer of discount for early payment with an attractive interest rate. You may lose some points of margin but you secure your cash and save money for your client. This is a winning transaction for both parties.
The implementation of these actions makes of July the month of preventive recovery. It also helps to promote the skills of collection team in pre-dunning during this crucial period, and to educate your customers about the seriousness of your receivable management and your willingness to get paid on time.
Use tools proposed by Credit tools to perform good preventive collection actions.
For customers with finance you could change the payment schedule to capture reduced payments over this period and increase monthly commitments for the rest of the calendar year.