Unpaid receivables must be dealt with quickly, efficiently and in a way that preserves the customer relationship. It is therefore essential to strike the right balance between the company’s financial and commercial interests. However, identifying overdue invoices, prioritizing them, sending reminders and formal notices, monitoring payments, etc. all take up an enormous amount of team time.
What’s more, this manual processing is the source of many human errors. As a result, traditional, manual debt collection generates real hidden costs for the company, both in terms of time and money. And it’s the company’s cash flow that suffers. Manual debt collection means lost opportunities for companies to manage their finances. We explain why manual debt collection costs you more than it seems, and suggest some practical solutions.
What are the hidden costs of manual debt collection?
The first hidden cost of manual debt collection is undoubtedly time. This includes the time needed to train teams in collection techniques, as well as the time spent managing unpaid invoices. These tasks can be extremely time-consuming for employees, who must :
- identify unpaid invoices;
- Use the ageing scale to define priorities;
- make follow-up calls;
- draft and send reminders by e-mail and post, including calculating interest and penalties for late payment;
- draw up and send reminders, updating statements of amounts due;
- Follow up files on a regular basis to record payments or refer them for legal collection;
- supply the necessary documents (contracts, quotes, purchase orders, invoices, reminders, formal notices, etc.);
- monitor the progress of collection by the judicial commissioner ;
- etc.
Another major disadvantage of manual debt collection is the costs involved. These include team training costs, as well as communication costs such as telephone calls and postal mailings, especially registered mail.
As a result, manual debt collection has a direct negative impact on company productivity..
The inefficiency of traditional debt collection
Traditional debt collection, which usually takes the form of an Excel tracking spreadsheet, has many limitations.
First of all, this type of debt collection process does not allow for systematic follow-up of files, with alerts to follow up with the customer, for example, or to forward the file to the court commissioner or a collection company. Nor does it provide visibility on the status of receivables.
This also has consequences for the company’s financial management. Managers, CFOs and accountants do not have the analytical tools they need to know the status of trade receivables. Not to mention the fact that data is not updated in real time. This lack of a dashboard makes it particularly difficult to manage cash flow and optimize the collection process.
What’s more, this manual method cannot effectively manage a large volume of receivables. It also leads to avoidable errors in receivables processing.
In addition to the inefficiency of manual debt collection, it also has a major impact on a company’s cash flow.
What impact does manual debt collection have on cash flow?
The absence of an optimized collection process and of appropriate tools has several consequences for a company’s cash flow.
As a result, it takes longer to process unpaid invoices, and expected cash inflows are slow to materialize. This can lead to significant cash flow pressures.
It also complicates cash flow predictability, and can lead to costly business decisions. For example, the executive may resort to short-term financing solutions, which tend to be costly when they can be avoided.
On the other hand, cash shortfalls can reduce working capital and increase working capital requirements (WCR), thus limiting the company’s development prospects.
What are the advantages of automated debt collection?
To overcome the limitations of manual debt collection, you can turn to an automated collection solution. The use of collection software enables you to automate the collection process in order to :
- reduce the time spent by teams on collections;
- better monitoring and precise management of receivables in real time;
- facilitate the prioritization of collection actions;
- improve the collection rate ;
- standardize and optimize the collection process;
- analyze data for better decision-making ;
- benefit from better coordination with other company departments.
Conclusion
Manual debt collection generates significant hidden costs in terms of time and money. In contrast, automating the process optimizes collection and reduces costs. The direct consequence of efficient debt collection is improved cash flow and productivity. What’s more, it’s important to adopt modern solutions to stay competitive in your market.
