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The case of cash collections: How can companies mitigate bad debt?

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Small and medium sized enterprises (SMEs) around the world, often face issues with cash / debt collection, which can directly impact their working capital. Globally, debt collection is an integral process for every company to manage closely, to maintain healthy cash flows.

For SMEs, not getting paid on time can delay payments to employees, their suppliers and impact their credit facilities extended to new customers. Many companies are unaware that their trade receivables are actually their biggest asset, amounting to 45%.

How can companies collect cash on time? Tips below.

Get customers to pay on time

Encouraging customers to settle their payments on time can be a tricky task. One way to ensure that customers will pay on time is to run a background check on them, prior to any transaction. Trade credit insurance companies, with extensive monitoring and reporting services, can help you identify any red flags, prior to signing on a new client. These red flags can include customers with payment defaults, bounced checks or other financial issues. Credit insurers can also help set the appropriate limits for new customers, to ensure that the company is not overexposed in terms of risk.

Trade credit insurance companies, with extensive monitoring and reporting services, can help you identify any red flags, prior to signing on a new client.

Simplify the payment process

Companies need to have simplified methods for customers to settle payments. Whether electronic credit transfers or bank to bank debits, put in place simple methods for payments to be made. Checks may also be a convenient route for some customers, depending on their country of operation.

The geographical location of each customer should be kept in mind, as it may impact payment methods and settlement times.

Be proactive in managing debt collection

Ensuring the proper invoicing procedures, payment terms and methods are clear to customers, can help facilitate cash collections. Having an overview of each customer, to track the payments that are due, helps SMEs mitigate bad debt. Monthly reporting on the status of accounts and payments is also useful, and delays can be addressed with a friendly email at first, requesting payments to be settled.

One recommendation is to have a centralized credit and collections management team and software, to be able to track all pending invoices.

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