19 October 2020

Why debt recovery is critical in a time of pandemic

Although most SME business owners are rightly focused on plans, growth, staff, revenue, and profits, they often forget about effective credit management. The truth is that even in the best of times, most business owners should be thinking more about effective debt collection, and in an economic downturn, they should be considering outsourcing this important task to credit recovery experts and redirecting their internal credit controllers towards preventive credit management. 

Late payment is one of the biggest threats to their future survival at the best of times. In fact, on average Xero found that 48% of all invoices are paid late and recent research has shown this problem has become more prevalent during lockdown, with an 62.9% increase in overdue invoices.

But why is debt recovery so important? 

It protects your cashflow

It goes without saying that debt recovery will help ensure your company has a steady cash flow. If your customers don’t pay you on time or refuse to pay at all, it’s going to hit your ability to pay your own bills and suppliers.

Engagement debt recovery service can be an effective tool to improve the supply chain, especially when it comes to customers with particular payment culture. Make no mistake, if a debt collection agency approaches a client over a bill, they are more likely to pay future invoices on time since unfortunately most business will prioritise suppliers that make the most noise. 

When done correct, it can strengthen relationships with your clients

Contrary to popular belief, only inexperienced or unprofessional debt collectors will chase a debt in such a way that will upset your customer or cause them to take their business elsewhere.

Experienced debt recovery experts will be able to have difficult conversations about cash-flow with your customers in an empathetic and professional manner – so that instead of closing communication channels when they run into financial difficulties, your customers can negotiate a fair and realistic payment plan to repay their debts as quickly as possible. Say goodbye to the unresponsive customer!

In this pandemic, instructing a reputable debt recovery service that puts your client-relationship first, can be a fantastic way to improve your customer relationship. Dealing with non-payment can be stressful and SME business owners often find themselves in difficult situations that can escalate quickly and deteriorate important client relationships.

Introducing your clients to your debt collection agent at the first sign of trouble, will take the heat out of the situation. Regardless of whether there is an invoice dispute or a genuine cashflow issued having an external party act as a mediator can be extremely valuable. And by creating an impartial and professional environment for your customers to resolve this situation, your customers will feel assured that their situation will be met with empathy while you can rest easy with full assurance that your agents will stay focused on the goal of repaying any debts.

It helps your business grow

Without an effective debt recovery team, business growth is stunted. Not to mention that ensuring a good supply chain can cause business owners undue stress.

By having a professional team on hand that can help identity customers with poor payment cultures against those who are experiencing genuine financial hardships, you can focus on planning for growth instead of reactive against nonpayments. This might mean buying more stock, taking on more staff, getting bigger premises, engaging new leads – all while knowing your supply chain is in good hands.

It helps stabilise and grow a downturned economy

In any time, extending credit terms can be a fantastic way to encourage your customer accounts to grow. But in a pandemic situation where the global economy is hard hit, this can be especially crucial.

It’s safe to say most, if not all of us have felt the effects of this pandemic in some way or form. We have seen large enterprises go into insolvency, with all their suppliers and customers suffering the consequences (or going insolvent themselves). With so much uncertainty surrounding the pandemic and the government’s strategy to combat it, it is critical that SMEs consider strengthening and improving their supply chain proactively – for their own sake, and for the sake of stabilising the economy for us all.

It can save you time and money

Not only is sourcing the time and capabilities to effectively and efficiently carry out collections in-house can be challenging but your staff’s time is money.

If your own teams are busy dealing with the critical task of credit management and debt collection, then they aren’t able to invest time and effort into growing the business, improving customer relationships and generating more revenue.

Typically, debt collectors charge between 25% up to 50% of the amount collected. But by engaging with a debt recovery service with a transparent and clear ‘no win no fee’ structure such as Ko-bolt’s, you will not only free up resources for your business, but avoid costly legal fees by bringing in the agency’s expertise and legal knowledge.  

So what’s the next step?

If you have invoices which have become 30 days overdue, and internal efforts haven’t paid off, then it may be time to consider bringing debt collection experts. 

Having your customer’s invoice(s) remain unpaid when you have already invested significant time and effort into recovering the debt is a clear sign that it may be time to escalate this and free up your team’s time and effort towards other aspects of the business. Debt recovery agencies are experienced in dealing with and negotiating with difficult customers, and often just mentioning a third party is enough to put your customer in the right mindset to settle the invoice(s).

So what are you waiting for? Switch on your cashflow with Ko-bolt. 

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