An overdue receivable is one that has fallen due, but has not been paid within the allotted time. Managing overdue receivables is essential for any company, as it has a direct impact on cash flow. This can lead to significant cash flow shortfalls, or even cash flow tensions, which can lead to payment difficulties. As a result, overdue receivables must be processed with the utmost responsiveness.
That’s why it’s essential to have a well-established process for managing overdue receivables, starting with a customer reminder, before launching more corrective actions if necessary, such as a formal notice of default. We’d like to take a closer look at how overdue receivables work, and the procedures and solutions available to optimize their management.
What is a matured receivable?
By definition, an overdue receivable is a customer debt whose amount is due and payable after the scheduled payment date has passed. In concrete terms, an overdue receivable is an invoice for which the payment deadline has passed, and which has not been paid. There is therefore a delay in payment.
Matured receivables are therefore distinct from due receivables. A due debt is a debt owed by the customer, but for which the payment date has not yet passed. There is therefore no delay in payment.
It’s important to note that for the same debt, there may be a part of the amount due and another part overdue. This is the case, for example, with a bank loan. Maturities not paid by the due date, including interest, form a matured debt, while the outstanding capital is a due debt. If, as a result of the accumulation of late payments, the bank declares the loan to be in arrears, the entire loan is due. The remaining capital due is now due and payable. The same applies in the event of bankruptcy.
Another example is an invoice. If the invoice has a payment deadline of January 15, after this date the receivable is due if the customer has not paid. On the other hand, before this date, the receivable is due.
What is the process for managing overdue receivables?
Managing overdue receivables falls within the scope of debt collection. Now that the invoice is overdue, the company must do everything necessary to recover the amount owed by the customer as quickly as possible, while preserving the commercial relationship if possible. To achieve this, it is advisable to proceed in stages:
- Follow-up by e-mail or telephone. In many cases, the procedure will stop at this stage. For example, if the customer has simply forgotten to pay. If the invoice has not been paid, you can move on to the next stage.
- Send a reminder letter by e-mail or post. This time, the content is firmer, with a detailed reminder of the invoice information and the original payment date.
- Send a letter of formal notice if the non-payment persists. This is the final stage in the amicable collection process. Once the deadline for regularization mentioned in the formal notice has elapsed (usually 15 days), you can launch a forced collection procedure, such as a summons to pay or an injunction to pay.
When considering the steps involved in managing overdue receivables, it is clear how important it is to maintain communication with the debtor. The reasons for non-payment can be many and varied. In addition, good communication with the debtor makes it easier and quicker to recover the sums owed.
What impact do overdue receivables have on a company’s management?
Overdue accounts receivable have a direct impact on a company’s cash management. Expected incoming flows are not received on the agreed date. This can lead to cash shortfalls, as the amount of cash available is not what was anticipated. In the event of an accumulation of overdue receivables, the company may face cash flow pressures, and ultimately payment difficulties due to lack of liquidity. What’s more, if the company falls into arrears, it may incur late payment charges and penalties. Lastly, overdue receivables have an impact on a company’s financial indicators, such as DSO, overdue rate and ageing balance.
As a result, overdue receivables affect the company’s financial health.
This situation can also lead to difficulties with suppliers whose invoices are not paid or are paid late.
What are the solutions and best practices for managing overdue receivables?
To reduce the number and amount of overdue receivables, companies can adopt a number of best practices. Good to know:
- implement a precise debt collection policy ;
- train teams in collection procedures;
- have an alert system as soon as a bill goes unpaid;
- send the first reminder as soon as possible after the due date;
- have a monitoring and management tool linked to the billing software;
- negotiate payment terms with customers, and set up payment schedules if necessary.
The use of debt collection software is also highly recommended to optimize the management of overdue receivables. Software such as CashOnTime not only notifies you when an invoice is overdue, but also enables you to take the necessary collection action, and monitor the file in real time. Dashboards make it easy to manage overdue receivables, and therefore your cash flow.
Conclusion
A thorough understanding of the concept of overdue receivables and the impact this can have on a company is essential to protect its financial health. You need to be responsive and efficient when dealing with overdue receivables. Proactive management of overdue receivables is the key to limiting their negative impact. The adoption of a precise credit and collection policy and the use of collection software are among the most effective solutions for optimizing the handling of overdue receivables. It’s the combo that allows everyone to have real-time information, but also to know exactly what actions to take to quickly collect the sums owed.
