Every business faces similar headwinds, and these external forces place collectors in a difficult spot. It’s a balance in ensuring that their own company’s cash flow remains stable while also managing their relationship with long-standing customers, who are also in a challenging situation.

However, walking this tightrope can create stress. The resources needed to track down late payments place another burden on collection teams. Notably, small companies suffer the most and are liable for an estimated PS684 million a year, most of which receive payments 5.8 days late.

What can businesses do? Let’s look at ways to reduce the risk of collection, which can be an element of the problem.

What is the risk of collection?

The risk of collection is the chance that your company will only receive the payment due to items or services if the customer can meet the conditions of their contract.

If a company is less likely to pay, the collection risk is increased. In addition, reducing the collection risk is a crucial aspect that can boost cash flow.

An easy way to think about risk in the collection is to consider the elements within your control and what’s out of your control.

In your control are policies regarding collections. Although often ignored, they are integral to a solid and complete credit policy. Implementing a solid collection policy is a way to ensure effectiveness and consistency and that the corporate goals are aligned with business processes.

With the current environment being experienced, reviewing your collection plan provides more clarity for the collections team and ensures that all actions align with the right proportions. It is essential to protect accounts receivable without compromising customer relationships.

By focusing on what’s within your control, you make external influences easier to manage. Unexpected events and surprises can happen at any time. However, while you can’t influence the marketplace outside of your business, you can make sure your company is more prepared for unexpected events.

How do you manage the risk of collection effectively in just five steps?

Let’s look at strategies, tactics, and tools that assist finance teams in managing the collection risk.

1. Segment your clients. This allows collections resources to be prioritized in high-risk areas. Through understanding the low-value or low-risk collections, you can also decide which customers should be re-engaged or whose collection actions could be delayed.
2. Be aware of problems before they become a problem: Better collection treatments and even prompt intervention could aid in avoiding difficult conversations later in the future. For instance, sending automated reminders via email and contacting the customer directly to ensure any disputes or discrepancies are settled.
3. Utilize collection decisions based on data: Businesses can be more specific in their interactions with customers by using data. Ensure your team is equipped with the most relevant metrics and use these data to help determine where the attention should be directed. For instance, data can assist you in understanding a client’s willingness to pay and their current capacity to pay.
4. Remember that there’s someone in the background of the business: We’re all human in this time of stress, and it may seem easy not to think of the person on the other end of the line. Data can provide collections teams with an additional perspective to identify minor blips in the process – helping to adjust your approach to contact. Sometimes a gentle touch could prevent slipping into the next delinquency cycle.
5. Looking for the ideal method of collection: A collection process is balanced. If you are too heavy-handed, it could prevent a company from doing business with you shortly. However, having the correct measures in place can assist in making informed decisions.

Take a balanced approach and are equipped with the appropriate data-efficient collections. You can improve your business’s resilience, boosting cash flow and keeping loyal customers that can increase your company’s growth and flourish.