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Optimizing Working Capital

Unlocking the power of your receivables

Such shortsightedness has had a detrimental impact across the wider economy because whether by accident or design, late payments limit liquidity and can have a knock-on effect throughout the supply chain.

Winning the Late Payment War

In a perfect world, invoices flow from supplier to customer and money from customer to supplier in the most seamless fashion possible. Yet in today’s business environment, the payment of invoices is a battleground.

Adopting a strategic and “customer-centric” approach to credit, collections, and complaints management not only allows firms to counter this war of attrition and unlock the value of their accounts receivable, but will also directly improve profitability by reducing the financial risks posed by write-offs and late payments. This model also promotes a decent way of doing business, in which all companies are able to fulfill their duty to pay in a responsible manner.

So what does a customer-centric and strategic approach to credit, collections, and complaints management entail exactly? First, it is about recognizing how accounts receivable management operates at the very heart of the supplier-customer interface.

Yet by understanding and analyzing customer behavioral information using qualitative analysis, detailed reporting, and KPIs (key performance indicators), it is possible to segment the customer base and apply appropriate action profiles to minimize payment times. This reduces DSO (days sales outstanding), while identifying and targeting the weakest of customers to enable informed decisions on terms and conditions to be applied to future transactions.

Second, the ability to segment certain certain customers also allows firms to define a tailored collections strategy per group to reduce risk and improve customer relationships. Collection terms should be discussed and agreed upon from the very outset of a relationship and then applied consistently throughout.

A disciplined and structured approach to collections again reduces DSO and improves cash flow, while nurturing a much closer customer relationship. Naturally, this also provides more scope for flexibility in the collection process if required.

Lastly, by combining multiple sources of external and internal credit information, it is possible to actually predict the bad debtor of tomorrow. All customers, however, should be evaluated regularly for risk as a detailed analysis of their payment history and behavior will provide key risk indicators. For example, if every complaint raised by a customer is spurious, this is a sure sign that something is wrong.