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July 1, 2021

Optimising collections - Part 1

Collection is an act that can be summed up quite easily, yet it is extremely complex. Far from stopping at the simple fact of receiving or paying the sum due, it is now necessary to take into account the complete organisation of this collection. Consumer credit, instalment payments and many other new payment methods have made collection more complex, and it now takes many forms. One of the problems hampering its optimisation is the management of unpaid bills, a real source of financial and relational problems for companies.

Unpaid bills: a real source of costs for companies

When we talk about optimising collection, we are indirectly talking about how to best manage outstanding payments, which are an integral part of the life of a company. The consequences are far more serious than the fact that the company has not received payment on time. The costs of non-payment are a real thorn in the side of companies, which generally have to write them off themselves despite the work they have done.

This direct financial loss is therefore not the only complication arising from non-payment. As a result, affected businesses will have to compensate for this loss by increasing business based on their margin rate. The summary table below, offered by Le Blog du Dirigeant, reports on the additional turnover required to compensate for the unpaid:

Source: Le Blog du Dirigeant

In a rather paradoxical way, it is therefore the company that will first cover the costs. While this compensation is not insurmountable for some professionals who are financially stable, it can lead to profound changes for others who are less so at a given moment:

  • A readjustment of the level of risk, leading to a tightening of rates and access to credit
  • A brake on planned hiring and potential investments
  • A disruption of the company's cash flow

In addition to these phenomena, unpaid invoices have to be recovered by means of legal proceedings, adding legal costs to the victim company. Obviously, these proceedings require the involvement of company managers, who instead of concentrating on the progress of their projects have to deal with problems for which work has already been done.

Managing bad debts is therefore an extremely frustrating process in addition to being costly. We have discussed the financial consequences above, but their psychological impact should not be overlooked. The emotional "roller coaster" undergone is strong: you go from a feeling of an accomplished sale to the ordeal of managing unpaid bills, with long-term consequences for your business. It is difficult to motivate your teams when all the work they have done ends up in this kind of situation.

Despite all the problems linked to unpaid bills mentioned in this article, more or less complex solutions exist to prevent this phenomenon as best as possible. Obviously, one of them is to put more emphasis on the ability of customers to pay, especially when making recurring payments. Rushing sales, although natural, can indeed have consequences later on. The concretisation of a sale at the moment T is gratifying, but the fact of good verification of the durability of its customer is a longer term solution. This durability is observable via a strict and regular monitoring of the debtor's activities, allowing to better anticipate the latter's finances. Other tools also make it possible to be informed of the judicial liquidation of certain customers.

These solutions stem from common sense but the pressure to make sales for a business is real. The sometimes deliberate choice to trust a potentially unstable customer is not easy to make and can be seen as a real gamble.

This instability has led Olkypay to think about how to deal with these unpaid invoices and alleviate companies' concerns about them. In the next article, we will explain exactly how to deal with this problem through our SIO4 management platform.