Banish Delinquent Accounts Receivable: Improve your Company's Cashflow

No business, no matter how well funded by stakeholders, can survive for long without a healthy and reliable stream of incoming cash from its debtors. Whilst having a chunky accounts receivables balance on the business balance sheet may be attractive, the reality of having to collect those debts can be less so.

Most companies will have a detailed and thorough credit control policy in place that guides lending decisions and this will offer some protection from making poor credit decisions. However, there will always be those accounts that turn delinquent, despite the best efforts of credit bureaus and credit controllers.

The question for the business is whether to pursue the collection of the debt itself or to outsource that function to a collections agency. There may also be a pressing need for a cash injection into the business whilst the collections process is instigated and run. In both cases help is available.

There are many companies that will offer assistance with accounts receivables management. These companies work in most market sectors and will assist with individual and corporate debt. Whilst, of course, any debt collection agency is in business to make profit for its own shareholders, it also offers an invaluable service to businesses that find their future jeopardized by delinquent debtors.

Most business debt collection companies offer a variety of solutions to cashflow problems caused by delinquent debtors. Their collections departments are well equipped to trace and locate defaulting debtors and their collections personnel are efficient in making the collection - either through a telephone campaign or a face to face visit.

Factoring is another service offered. If a business cannot afford to wait the usual 30 days to collect its accounts receivable it may want to consider selling its invoices to a factoring company.

There are two big benefits to factoring:

1. The company is in early receipt of funds due

2. The company no longer has to worry about the collections process as this is all handled by the factoring company.

Of course there are some perceived drawbacks to factoring. The main one being that the full value of the invoice is not paid over; the factoring company will retain a percentage to cover their expenses and fees. The exact percentage is liable to be variable dependent on the quality of the accounts receivable, the volume of invoices and the amounts involved.

Another solution to immediate cash needs for a business with large account receivable but small bank balances is to offer the debtor balances as security against lending. Good quality debts can be securitized and this reduces the interest rate applied to the borrowing as the risks are reduced to the lender.

A good debt management company will work very closely with its clients to deliver the services individual businesses require. They are invaluable to have on your side and working with them gives a company access to all manner of credit reporting facilities that enable them to make better credit decisions. This in turn reduces the incidence of defaulting debtors.

In an ideal world there would be no delinquent debtors but such a utopia doesn't exist for most businesses that face the reality of cash deficiencies on an almost daily basis - driven by outstanding and overdue accounts receivables.

Working with a debt collection company or factoring company can reduce both risk of bad debt and the administrative nightmare of collections. It is a solution that all businesses should consider.