Outsourcing across many industries has become popular. The ease of engaging outsourced support has increased. It is because the popularity of outsourcing has grown. Outsourced debt management services are among those. One area of concern for many small to medium businesses (SMEs) is poor debt management. Unfortunately, this leads to poor cash flow. There is a simple solution to this. That is, you can engage in outsourced debt management services to assist your business. It will help in all debt management and recovery-related tasks.
This article deals with how outsourced accounting services can help with debt management. Let's explore it!
Debt Management
Debt management is a major part of a healthy business. Also it is vital to maintaining positive cash flow. Debt management extends debt to customers. So that payment isn’t required before goods or services are delivered. But, invoices are issued after the goods are delivered. Thus, payment is then expected within an agreed timeframe stipulated in the business’s debt.
Debt management is a key business strategy that aims to encourage higher sales through the extension of debt to customers. Debt is preferably extended only to customers with a good debt history. This minimizes issues in collecting payments down the track and keeps the cost of collecting the debt low.
Effective Debt Management
Good debt management is crucial to businesses. You’ll know that a business is in a strong position when it comes to debt management if:
1. It assesses risk from the outset
Ensuring that debt is only extended to customers who are most likely to pay in full and on time.
2. Risk is assessed on an ongoing basis
As economic conditions fluctuate and the fortunes of individual customers change, terms of debt offered are checked and amended to meet the current risk level of each customer and to avoid bad debt.
3. Debt terms are clear
Customers shouldn't be surprised by expectations regarding payment timing, methods, and consequences of late payment. They should be provided with clear debt terms during the onboarding process, and a requirement for extending debt to them is that they agree to and sign those terms.
4. Follow-up has a structured process
Once debt has been extended, you need to make sure customers pay you in full and on time as much as possible. Having a clear, consistent follow-up process to ensure customers receive the initial invoice or statement in a timely manner is key. This then needs to be reinforced with clear, consistent follow-up communications until full payment is made. Key to this is accountability and team members knowing exactly what they’re responsible for.
5. Debt is escalated in a timely manner
Sometimes customers don’t pay on time. And sometimes, despite your best efforts, they still don’t pay after a full round of follow-up emails, SMS messages and calls. In these instances, it is important to follow your debt terms and escalate to legal action. Often, just starting this process will draw payment from your customer.
Debt Management: Responsibility
Debt management allows a business to manage the lines of debt extended to its customers, from the initial application for debt through to collection payment. When necessary, debt management also follows up on overdue invoices and escalates to debt collection in worst-case scenarios.
Some common tasks that debt management staff are responsible for include:
- Set debt and payment terms and ensure these are updated as the needs of the business change.
- Debt-checking potential customers as part of the onboarding process.
- Ensuring the business has the correct customer contact details for the person responsible for approving and making payments.
- Invoicing customers when jobs are completed/orders are fulfilled.
- Creating and running a follow-up process that drives prompt, full payment from customers.
- Assisting in the resolution of any disputes and queries.
- Checking on debtors' status, assessing their risk level for extending debt and amending terms when necessary.
- Managing the internal and legal steps for escalating unpaid debt to a debt collection agency.
- Reporting on KPIs for debtor management such as Days Sales Outstanding (DSO), amount overdue 90+ days and trends in total amount overdue.
Outsourced Debt Management
Outsourced debt management services manage all the usual tasks associated with a debt management specialist. The only difference is that the person, or debt management, undertaking them is engaged as a contractor or a service by your business, not as a permanent employee. Depending on your situation, you may engage in outsourced debt management for just a few hours a month, or they might dedicate a few hours every week to your business.
Again, depending on your business situation, you might engage in outsourced debt management services to cover all tasks related to debt management, or it might be a contract purely to manage debt management phone calls and follow-ups. After all, outsourced debt management services offer you exactly what an in-house debt management does. The difference is you don’t have the headache of recruiting a permanent employee or the additional implications that come with it. It is just like providing benefits or the inability to downsize the role if you later realize it is only a part-time job.
Outsource Your Debt Management: When Should You Do
Outsourced debt managers are a smart option for businesses. It has grown in size and revenue but isn’t big enough to have an in-house debt management team. The following points explain when you need to outsource your debt management.
- Your time would be better spent on the business or strategy than chasing debtors.
- Your business isn’t yet big enough to justify hiring an in-house debt manager, but cash flow is problematic.
- You’re not seeing the results you need managing debtors yourself.
- You don’t enjoy debt management, so you or your staff avoid the job.
- The work associated with debt management is overwhelming.
- It’s costing you too much in overdue invoices not to get your debtors under control.
In short, if your debtors aren’t under control and your cash flow suffers, outsourced debt management could be precisely what you need.
Gifts of Outsourced Debt Management
Yes, there is a cost if you use outsourced debt management services. But the return on that investment should cover that and more. The key benefits of engaging an outsourced debt management service are:
Professionalism:
Outsourced debt managers will help you put your best foot forward and present a professional front to new and current customers as you extend and collect on debt.
Debt management process improvement
Outsourced debt managers are experts in their field, and as such, they'll be able to recommend improvements to your process and new software or tools to minimize manual work.
Time saving:
Outsourced debt management will deliver experienced debt management solutions. They’ll not only complete debt management tasks faster than you, but the very fact that they’re now doing the job means you’ll be saving hours each week or month to focus on business strategy.
Protecting customer relationships:
Outsourcing what can be difficult or confronting tasks creates a buffer between you and the customer. Don’t be the bad guy – your outsourced debt management can manage any difficult conversations, leaving you to focus on the long-term customer relationship.
Improved cashflow:
This is a given. With an expert dedicating regular time to manage your debtors and debt management tasks, your cash flow will improve. Within the first week, you should expect more cash from overdue invoices. Within the first month, invoices pushing into 30+ and 60+ days overdue should decrease. And within the first 3-4 months, you should see a reduction in your 90+ days overdue and, ultimately, a reduction in your total amount overdue and debtor days.
How Do I Find an Outsourced Debt Management Service?
A first step could be chatting to others in your business network. It’s highly likely that someone you know and trust has already engaged in this type of support and can recommend an outsourced debt management service to you.
If asking your network draws a blank, then look at the accounting software you use and the apps available that integrate with it. You’ll find that many of these offer debt management solutions that work seamlessly with your current accounting system.
Ready To Outsource Your Debt Management
If you’re done with poor cash flow and fed up with chasing debtors yourself, have a no-obligation chat with our team to learn more about the outsourced debt management services offered by Fino Partners. Our team of debt management experts can work with you to streamline your debt management. It follows your customers and gets you paid faster.
