NEW DAWN, NEW DAY – LET’S GET OUR COLLECTIONS UNDER WAY!
It’s Monday and the first day of the new month, so let’s start off afresh and full of vigour for the month ahead. This may not be a typical scenario for everyone but I feel it will resonate with some and is based on my own experience and through discussions with learners in my credit control classes.
Often the first task of the new month is to analyse the new Aged Debt analysis and assess the current situation with regard to DSO figures. At the same time there may be a review of last month’s performance targets (i.e. cash collection, query log, percentage of overdue debt) to see what was achieved and what was not
A quick, constructive discussion with the team should ensue, followed by a revised cash forecast, as necessary. New targets can then be agreed with (rather than imposed on!) the credit control / collections staff. It is relatively easy to calculate a cash collection target which will reduce the DSO figure at month end by X number of days and a similar realistic approach can be taken with other performance measurement criteria.
No matter whether you invoices and statements of account are sent by post or electronically, we should ensure that all invoices relating to the last day of the previous month have been despatched by close of business on this first Monday of the month.
We should then try to ensure that statements of account are sent out by the end of the first week at the very latest. Statements of account are very important and should not be treated lightly. For your key accounts or major customers who operate from a number of different locations, the Accounts Payable (“AP”) departments in these companies will be relying on your statement to cross-reference invoices that need approval from their various offices. This can often help identify if a particular location or depot is behind in approving invoices.
Therefore, timely receipt of your statement can often influence the date and amount of a remittance from your customer depending on their payment run. Whilst on the subjects of statements, it is imperative these are ‘clean’ and that the payment from last month has been matched against the appropriate invoices. Your customer’s AP team will not be amused to see the invoices they approved last month still sitting on your statement of account with their unallocated payment!
As most of us will be aware, payments are not just received on or around due date but, rather, they are received regularly throughout the month. However, it is important to analyse these for trends, seasonal fluctuations or, possibly, cash flow problems affecting your customer. If payment due date is 20th of the month but your customer regularly pays you on 27th, then you may be quite happy to live with that. Also, you may have customers who are officially entitled to extended terms. Nevertheless, these should be monitored to make sure they are not stretching any longer.
We should also take a careful look at all the payments we receive in the early days of the month. Invariably, these should have actually been received the previous month and whilst they might only be a week or so behind, they effectively show up as a month late on your Aged Debt report. If this happens, the collectors should pick up the telephone and, firstly, thank the customer for the payment but, at the same time, remind them that the payment was actually due last month and that you are now seeking a further payment from them during this month. If you don’t do this, you could well see your customers gradually taking longer to pay until they have eventually obtained 60 day terms by default.
In line with the cash collection target, each credit controller/collector should implement a strategy which will enable them to achieve or exceed the target. High value and high risk accounts are natural priorities and concentrated efforts on these should lead to substantial inroads being made towards the monthly collection figure aimed for.
Referring to the key accounts / major customers, a pro-active approach should be adopted. By this I mean that we should aim to speak with our counterpart in a positive, friendly manner BEFORE the due date in order to ascertain if there are any problems. You may be able to find out how much has been approved for payment so far to see if this is in the ballpark of what you are expecting. If not, you will then have time to sort out any missing invoices and so on for your customer before the cut-off date for their payment run. From experience, this has had a significant impact cash collection on a number of occasions and should not really cause a problem if you have, hopefully, developed a good rapport with these customers.
Unresolved queries are a real ‘bugbear’ of mine (as I am sure all the staff I have managed will attest to!) as a number of customers will delight in holding up payment of a whole statement of account just because one invoice is disputed. Therefore, it is vital that queries are dealt with promptly. As credit controllers/collectors are rarely able to personally answer and resolve queries, these should be logged by date, value and, most importantly, by ‘owner’/’resolver’.
In the regard, the ‘owner’ of the query is the collector who looks after the account and the ‘resolver’ is the person within your organisation who is responsible for sorting out the query. Often the ‘resolvers’ are reluctant to discuss this with you or even the customer but it is imperative that the ‘owner’ regularly follows this up to press for a prompt resolution. If this is not forthcoming the matter should be escalated internally otherwise the delay will impact on you being able to collect payment on time from the customer.
Lastly, the percentage of overdue debt should not be overlooked and you should put aside some time to deal with this. It is a good exercise to see how much of your debtors’ ledger is tied up in the 90+ day column. Is the debt overdue because the customer has cash flow problems or may be it is because of disputes or misallocated cash? There could be a whole host of reasons as to why but you must aim to sort these out otherwise they could quickly become uncollectable debts.
April could be a tough month for payment collections in any case, what with the festive season in the middle of the month and key personnel being on holiday (see my previous blog on “Dealing with Responses and Excuses”) but, hopefully, one or two of these tips might just help.
Kevin Artlett FCICM ACII
Pecunia (2016) Limited