In times of crisis, business strategies need to shift, and internal processes need to take on a new direction. With widespread office and business closures across the globe, debt collection and credit management may become even more challenging to carry out.

Whilst public health is predominantly at risk, due to the spread of COVID-19, the global economy is being threatened, due to the extensive measures being taken to contain the virus. Businesses are feeling the impact of the imposed governmental closures, shifting to virtual platforms to continue with operations.

As SME specialists, LCI and LCI Services continually advise companies on how to structure their internal processes, pertaining to debt collection and credit management. However, during the spread of the COVID-19 pandemic, shifting strategies is important. Here are expert tips to support companies in navigating during these difficult times.

The first debt collection strategy for pending sales

During times of crisis, both the buyer and seller are enduring difficult times. It is important to keep that in mind when approaching clients to settle due payments. Clients will be faced with growing challenges to settle their invoices due to a lack of liquidity and can have valid objective reasons about why they cannot pay.

In a period of uncertainty and instability, fostering human connections in business is important. If you find that your customer is unable to meet or comply with existing agreements – talk to them. Approach your customers in a friendly way, and try to understand their situation. If they are unable to pay invoices within the scheduled timeframe, here are tips that you can follow to preserve the business relationship.

If your clients have cash flow difficulties

In the case of pending or ongoing sales, it is important to be more diligent when following up, yet taking into consideration the situation of the market and your respective clients. Try to uncover the situation of your clients and if they are facing cash flow difficulties.

Invoice on time

If you are carrying out your services as per set agreements, or continuing to deliver goods to clients, ensure you invoice on time. Maintain the regular flow and procedures, even if you know clients cannot pay on time. 

Extend credit terms

With the impact of the ongoing economic crisis, exasperated by the COVID-19 pandemic, businesses will have an even harder time to pay on time. It is recommended that you adopt a more lenient strategy. This includes extending credit terms and setting new payment cycles that suit both parties. When a new payment arrangement is being devised, check the feasibility of its terms for both parties. Run a credit check on your customers, to gain additional insights on their financial standing.

The second debt collection strategy for new sales

For all new sales orders, companies are advised to adopt a different approach. In general, practicing proactive credit management with regards to new sales is strongly recommended.

Accept cash

Accept cash payments for new orders, in the local currency. For companies operating in Lebanon, allow clients to pay in Lebanese pounds, and agree on a suitable exchange rate for both parties. For clients outside your jurisdiction, accept bank transfers, and check with your bank if you will be able to access the amounts online, as a result of the closures.

Ensure you can meet agreements

If new orders are received during the crisis, ensure you can meet the set agreements before committing to them. It is advisable to have clear and open channels of communication with your customers, to safeguard current and potential business relationships.

In addition, check with your suppliers if they can deliver on time before committing to a delivery order. Discuss payment terms with them to manage expectations, which can include paying in installments.

Additional advice for companies to remain afloat during COVID-19

Manage cash flow by reducing expenses

During difficult times, businesses should work on reducing expenses across all levels. In addition, businesses are advised on hold onto cash reserves, to maintain liquidity within the company. Project cash flow levels over a period of 3 months, 6 months and a year, to provision for continued closures and the respective impact on your business.

Settle debts

If you have pending debts to be paid, ensure they are settled. Mounting debt can severely impact your company’s financial standing, and it could be subject to high interest rates. If you are unable to pay due debt on time, talk to your financial institution or supplier, to negotiate extended payment terms.

Adopt E-invoicing

The spread of COVID-19 has contributed to speeding up the digitization of the economy, particularly in countries that were behind. In addition, due to company closures, courier services have come to a halt. As such, e-invoicing is recommended. However, to ensure company e-invoices are enforceable, include the following:

• Buyer and seller name
• Invoice number (based on your internal ERP systems)
• Company tax ID
• Registration numbers of both entities
• Detailed description of the services and products being sold, along with unit price of either
• Country of origin
• Tax rate and amount applicable
• Payment terms

Get in touch with LCI and LCI Services’ teams to learn how we can support you with debt collection, credit information and how to grow sales through exports.