Business is all about cash inflows and outflows; if these cash flows are not maintained properly then business can find it difficult to achieve sustainability. Business Cash flows
depict the increase in the profit and revenue of the business.
But the biggest challenge that the company tackles is to optimize the cash inflows for sustaining in the dynamic business environment. Tactics of optimizing cash flows might look like a piece of puzzle, but it can be simplified if you adopt these 3 ways to improve the cash flow of business
Revise the price of your Product-
Sometimes, if the price of your product is too affordable or cheap, it won’t be taken seriously. If the price is comparatively higher, then you may lose your sales. Hence, it is important that you reevaluate the price at regular interval of time in order to retain sales and attain a competitive edge. You can take advantage of different business factors and increase the price of the product according to the circumstances. This will help you to increase cash flow for a business
You might be involved in the long-term and short-term business contracts with your service providers and suppliers. Small business cash flows
are highly affected by suppliers and their payment terms. Even big companies should enter into the negotiable contracts with their supplier agencies. You can have an opportunity to increase the stability of the supplies by re-negotiating the contracts for long-term business benefits.
Design strict disciplines for payments-
You can create strict rules for late penalties of the payment supported by predefined fines and penalties. On the other hand, you can also appreciate early payment by providing incentives and discount on the accounts paid before or on time. You can also charge interest on the due payments and bills receivable for improving the cash flow of the business.
Since you can find and adopt many other ways to improve the cash flows of the business, but the above-discussed tactics are most trusted ways used to balance the cash flow accounting of the business.
Are you looking for the intact credit risk strategy for your business? It is kind of challenge for the firms.
Let me tell you that efficient Credit Risk Management
can help you to achieve multiple objectives of the business. It can take your business beyond the regulatory requirements and development goals.
Here, in this blog, we discussed some crucial basics of Credit Risk and its effective management in the Financial Institutions. Diligent management of credit problem is becoming a strategic focus of the business.
What is Credit Risk?
Credit Risk refers to the risk that arises from borrower’s or counterparty’s incompetency to meet payment terms as stated in the invoice and defaulting on the same. (3rd party debt collection
and bad debt collection terms). Credit collection is the major issue faces by most of the financial institutions. A Greater part of firm’s credit risk is emerged out of its lending activities like Unfunded Loan Commitments, Outstanding Eases and Loan Amount, Letter of Credits, Trading Accounts Assets, Financial Guarantees, Account Receivables Outsourcing and Derivative Assets. Credit risk is also associated with interbank transaction activities, acceptance and trade finance, investment settlements and retail banking.
How it works?
Debts risk management is set of activities conducted to minimize the loss by properly analyzing the loan loss reserves and bank’s capital at the given point of time. It is essential to form and execute a radical credit policy balance the risk involved in credit appraisal activities. It is a top management’s responsibility to formulate a strategy for credit risk reduction and management along with improvement in credit policies and risk monitoring practices.
Business information reports
and credit reports should be precisely examined to set credit limits and control the risk in all kind credit provision activities. Hence, it is advisable to the financial institutions to monitor all the aspects of the credit risk management for achieving the overall growth and competitive advantage.
Brief Synopsis of Business Information Reports are :
Our Credit Rating process is highly technical in nature with a fact based approach. Parameters considered are:
Financial institutions feedback
Credit rating history
Database and Desktop searches
We ensure that all clients are rated in a consistent manner with the Credit report (aka Business Information Report) which involves following aspects:
Credit Terms or Prepay Terms
In case, Credit Terms, Credit Lines will be recommended
Collections are not easy, especially when a lot of money is at stake. The more the amount of money your client owes you, the more imperative it is for you to be able to employ all possible means to recover your dues. Once all sources of collecting dues have been exhausted, you need to hire a debt collections agency
to do your bidding.
A well placed collections agency can not only recover your dues, but also help you make your business more efficient in the long run. Such agencies, when employed, act as your back up plan, thereby giving you reassurance that your money will be recovered in one way or the other. For this very reason, it becomes very important to take the necessary steps to hire the right collections agency.
Here are some steps you can keep in mind to hire the right collections agency for your business:
• Choosing between consumer and commercial collections agency:
Depending upon the type of customers you deal with on a day to day basis, you need to hire the right agency. There are different types of agencies which deal with individual collections and corporate collections. If your business is dealing with companies on a day to day basis, you should be hiring a commercial agency and vice versa. Ideally, it’s advisable to not mix the different agencies, to avoid incomplete collections.
• Is the agency recognized by a statute body?
If you are going to be hiring a third party collections agency, you would want to be on the right side of the law. Collections are a tricky business; if you don’t take the required precautions, you might end up getting sued by your clients you are collecting from.
• Type of collections process:
There are different ways to approach collections. Many collection agencies are extremely rigid in their approaches while many others are willing to change the tactics for some customers. However, one collection methodology might work for one type of business but might not work for another business vertical. In such cases, you need to figure out the collection strategies with your agency to try and understand if the methodologies will suit your business type.
• What is the turnaround time for the agency?
You are hiring an agency to collect money on your behalf. Since time is of the essence, it’s important to take into consideration the turnaround time for collecting debt
. The more the agency collects, the more recovery you can show in your book of accounts. This way, not only does your business prosper, but you also have enough funds to employ back into your business.
• What are the agency charges?
Since the agency will be charging you a fee for their collection services, you need to be on top of the charges. If the agency is taking a hefty fee for their services, you might want to look for alternate options for your debt collection. However, if the fee percentage is reasonable, only then it would make sense to go ahead and hire the agency.
While this is not an exhaustive list of the things to be kept in mind, it’s definitely some of the top points you need to consider during the hiring process.
Contemplating whether to hire a debt collection agency for your business
? Are your customers driving you into a debt ditch, with their overdue payments? If you have exhausted all possible sources of recovery by now, you must be considering hiring a debt collection agency for your business. The higher the debt you end up with, the more important a debt collection agency becomes for your business.
Given the importance of debt recovery agencies, it is necessary to ensure you take the right steps to hire a good debt recovery agency. By following these 5 steps, you can hire the perfect agency, which will help you collect all your pending dues, without having you worry about your recovery strategies.
1. Research is the key:
The more you research, the higher the chances of landing yourself a good collection agency. Different agencies specialise in different collection procedures; some might be excelling in securing funds from exponentially large organisations, while others might be collecting money from individuals and small businesses. Depending on the kind of customer base you have, you need to ask around for the right agency to help you recover your pending debt.
2. Strategy plays an important role:
You can’t negate the importance of a good collection plan. Since every business has a different customer base, there are different strategies needed for collecting money. While one strategy might do wonders for one type of business, it might completely backfire for another business. Keeping this reason in mind, a good agency will always be flexible enough to understand the customer’s needs before recreating the recovery strategies needed.
3. Fee’ it up: Different agencies charge differently;
while some agencies might be charging a minimal amount for their services, many others might charge more than the normal going rate. At the end of the day, the fee is their way to earn from the customers’. The idea is to gauge your needs and your bandwidth when it comes to shelling out the required fee amount. If you are satisfied with the track record of the agency in question, you can try negotiating with them for the fee charged.
4. Skip Tracking tactics:
When customers’ are faced with debt collection notices, they tend to make a run for it. Even though this is not a legal practice, it does not mean that people will not do it. In order to combat the situation, many collection agencies use a procedure also known as ‘skip tracing
’. Through this process, agencies make use of different databases to locate the errant debtor, so that they can make them pay the pending dues. A good agency should always posses the right tactics to trace such customers and recover their client’s dues.
5. Progress updates are important:
When you are getting work done from an external agency, the idea is to always be in the loop. Since you are dealing with customers, it’s important to be updated at all given times. The frequency should be mutually decided at the time of initiation, in order to help figure out the change of plans, if needed. The higher the frequency, the more well planned and detailed a business’s approach would be to combat the problem of debtors.
Handling unpaid debt
is really an option not many people can afford. You send out an invoice to your customer, but the customer does not pay it. You wait for a few days, send reminders, and still you don’t get the dues cleared. One way is to get frustrated; the other way is to take the legal route and send a demand letter, before going ahead and taking extreme measures.
Demand letter all the way
A demand letter is custom made for customers’ who refuse to clear their pending dues. Ideally, a demand letter is a legal notification drafted by the attorney of the company, which demands a customer to clear what they owe to the issuer of the demand letter. However, the question to ask is, “Does a demand letter work with stubborn customers also?”
Ask a lawyer this question and the standard answer one would get is, “It depends”. It won’t be wrong to say that demand letters will also work in some situations and they won’t work in others. In a normal scenario, most attorneys tend to ignore demand letters from opposing counsels; on the other hand, there is always a possibility that your request for repayment might not fall on deaf ears and you just might get what is due to you.
While some people want to send multiple letters to the debtors, many others prefer to go ahead and hire a collection agency to do their bidding. By hiring a collection agency
, they are able to assimilate a ray of hope for recovering what is due to them.
Hiring a collection agency:
A collection agency is a third party company, which uses different methodologies to help another company/individual recover their pending dues. However, before hiring an agency, it’s imperative to have exhausted all possible sources of recovery. Once you are sure there is no other trick in the book left with you, you should go ahead and hire an agency.
Now the main part comes into the picture. How do you hire an agency? In an ideal situation, you need to hire an agency, in pretty much the same way as you would hire a lawyer. You ask around, check with family and friends, gather opinions and read reviews before taking the final call. Once you have narrowed down on the agency which caters to your needs, you are ready to take the plunge.
Winning the judgment on your terms
In normal circumstances, you need to consult your attorney and be ready for negotiations when the time for settlement comes. In the scenario that your negotiation attempts fail, you should initiate arbitration. Even if that does not get you the desired results, only then you should consult and hand over your pending debt to a collection agency. However, before you do step over to a collection agency, you should keep one thing in mind; there is no guarantee to get a full recovery on the pending debt, which might act as a spirit dampener in the end.
Outstanding debt can be a major deal breaker, especially, if you are the owner of a business. No matter what your profession you are in, outstanding debt can wreck your accounts as quickly as they can set them right. For this very reason, it’s equally important to be able to recover outstanding debt quickly, in order to ensure payments remain current at all times.
Here are five debt collection tips to recover outstanding debt quickly.
1) Call weekly on pending accounts:
Customer accounts beyond 30 days past due need to be called on every week. This way, when your debtors know they owe you money, it becomes easier to have them pay up. People who keep waiting for time to lapse might often end up waiting more than their due share of time.
2) Demand 100% payment clearance:
When someone owes you money, you have to get right down to business. For this very reason, when you contact your debtors, you should ask them to clear all the pending dues. This way, you might be able to recover a part of the money in a stipulated time period. Every time you call them, make sure you ask them to clear 100% of their dues, to minimalize pending dues.
3) Offer payment plans:
Many companies often go ahead and offer easy payment plans to customers. For example, you can break down the pending amount into 6 equal installments and charge an interest rate on the outstanding debt, in order to make it convenient for your debtors to pay up on a monthly basis. This way, even the debtors are happy, and you can rest assured you would also be able to recover a little more than just your outstanding money.
4) Employ debt collection agencies
to do your bidding: If you have some stubborn debtors, then you can even employ debt collectors to do your bidding. This way, you can be sure of being able to recover 80-85% of your pending dues in the shortest period of time. Debt collection agencies have their own strategies to collect money from customers who are refusing to clear the pending dues.
5) Go legal on your debtors:
When nothing seems to work, the court of law comes to your rescue. File a case against your debtors, in case you have tried and tested all possible avenues of collecting money on your accounts. However, keep this as an option of last resort, since you might have to end up paying more than what is owed to you, in the form of legal fee, lawyer fee etc. This is a decision which should be taken keeping in mind the pending amount, the people involved and the total cost of recovery.
These were some of the debt collection tips to recover outstanding debt quickly. They should be implemented in the order they appear, to ensure minimal over expenditure, when it comes to collecting money on your pending accounts.
Some customers, especially the ones who default, can be extremely stubborn at times. No matter how much you call them, mail them or text them, chances are your efforts will all go waste. But does this mean, you need to write the pending dues as bad debts? No, it does not need to be like that. Since every penny counts, there are always ways and means to collect money on outstanding accounts.
When faced with such scenarios, the best way out is to partner with 3rd
party collection agencies. Collection agencies are focused on recovering past due bad debts, which are pending from a long period of time. Such agencies have trained staff, which is well qualified to extract and collect money from stubborn customers, who are refusing to clear their pending dues. Despite all methods, if the customers still refuse to clear the outstanding debt, then such debt collection agencies
resort to legal action against the customers, in order to collect as much money as possible.
For this very reason, it’s very important to know how to choose the right collections agency, so that your business can recover as much money as possible from defaulting customers.
Here are some tips which might help you in choosing the right collection agency to do your bidding.
Currently, there are more than 5000 debt collection agencies
in US itself. Some of these agencies specialize in collecting from individual customers, while others are focused on collecting from businesses and companies alike. There are some collection agencies
which handle both types of collections as well.
- Ask for referrals from people/companies: Most of the times, you will come across attorneys, individuals as well as businesses which are sailing in a similar boat as yours. In such scenarios, you can go ahead and ask for referrals from such people, who might already be using the services of such agencies for their own collection purposes.
- Check online reviews: While word of mouth is a strong source of tracking down a good agency, any extra research will not hurt anyone. Before hiring an agency, it’s important to check the agency’s reviews online, in order to eliminate any bad choices.
- Check for state licenses: Every agency will not be state licensed, which means it can’t collect money from any business/individual customers. This can translate into more problems with you, since it would fall under the illegal transactions purview.
- Visit the agency: If possible, try and visit the agency you have shortlisted. This way, you might be able to get a fair idea on how the different collection representatives are taking calls and collecting money from their existing customers. If the environment and collection procedures appeal to you, you can choose accordingly.
- Don’t base judgments on size: Don’t base your decisions on size. If a collection agency is big, it will not automatically become one of the best in the market. Even smaller agencies might be able to do wonders with your customers.
These are some of the key points which can help you take the right decision while choosing a good collections agency. In order to take the right decision, you have to do some research before zeroing in on an agency which fits your requirements.
In order to deal with stubborn defaulting customers, you have to hire debt recovery agencies to do your firm’s bidding. With this said and done, it’s important to keep in mind that the right steps are taken to onboard the most appropriate debt collection agencies, so that your business does not take a negative hit in the long run.
Here are some steps you can undertake to ensure you hire the right debt recovery agency
for your business.
- Do proper research: Research is key, especially when you want to hire the right debt recovery agency. During the research stage, you can check the agency’s debt collection process, so that there are no loopholes in the future. Once you are satisfied with their ways and means of collecting money, you can rest assured the agency would collect money in the right manner from your customers.
- Ask yourself, “Is the agency legitimate?”: If you are hiring an illegitimate agency for your company’s collection process, then you might get into legal implications later on. This might mean that you end up on wrong side of the law, as your customers’ might sue your business for harassment. Make sure the agency you hire is legally handling the collections process.
- Check with the agency if they use “Skip Tracing”: Debtors often tend to run away, when they are faced with the challenges of owning up to their debts. In such cases, good collection agencies own several databases, which help them track people who are on the run. This way, your business can have a sure shot way of being able to recover money from all types of errant customers.
- Insurance goes a long way: Collection agencies use a series of methods to collect money. Sometimes, these methods might come across as crude, which might make the debtors feel as if the collection agency acted in bad faith. In such circumstances, the customers can sue the collection agency as well as the business getting the money collected. In order to avoid such situations, you should ask the debt collection agency to provide insurance, which can help you steer away from any potential law suits.
- Take fees and contingency costs into consideration: Once you have zeroed down on a few agencies which fit the bill, you need to compare costs and see which agency is offering the most economical services. There might be different types of costs which can be included in the list of services. In order to arrive at the right costs, make sure you pre-empt any possible contingencies which might arise during the collection process. This way you would not have any untoward surprises in the future.
Post the hiring phase, you need to remember that you would never get the full collection amount from the agencies. For this very reason, it’s important to highlight that your business should exhaust all possible sources of collections, before hiring a debt collection agency
to do your bidding.
Setting limits is an art and not a science; but for this very reason, it is necessary to be able to use proper judgment when it comes to granting credit and letting customers into your business. Credit limits gauge the maximum limits a company can go to when it comes to offering credit based policies to their customers. This way, they can charge/purchase first and pay later. However, the risk of losing payments is always at the fore, due to which it is extremely important to be able to take the right decisions during the screening process.
What do you need to consider before setting limits?
The first and foremost thing which needs to be considered is a company’s self exposure and the appetite for risk. This way, a company can understand if it has a “Liberal or a Conservative policy”. Also, another thing which a company needs to figure out is the working capital requirements, which it can invest in its customers.
Methods of setting limits
- Trade references and background checks: Once you have the trade references in place, it becomes easier to perform a series of background checks. This way, one can compare between the high credits, average credits and low credits awarded to the customers.
- Credit Limits setting process: Bank references can go a long way in helping you set limits for your customers. By doing so, you would be able to figure out the right amounts of limits which need to be set on your customers. If these customers have an unsecured line of credit with the bank, you can safely set up higher limits for them with your company. Either way, you can decide the best course of action for your customers.
- Agency reports: Credit agencies often give information related to payment performance and the ratings of the customers. Under the payment performance category, there is a section which lists down the paying habits of their customers. These reports often give a true picture of the paying capacity of each customer, under different sections, which make the reports extremely valuable and trustworthy.
- Financial statements: Another document which can be used to make judgments on the credit lines is the customers’ financial statements. They can go a long way in helping you understand the financial situation of your customers, their sources of income, expenditures, profits and losses. If a person/company is raking in good profits regularly, they would have no problem in paying their bills on time. However, if a person/company is constantly incurring losses, it would be best to avoid giving them any line of credit, irrespective of the amount.
- Physical verification: Sometimes, client’s physical location can also be verified to ensure they will not run off post making any charges on their account. This ensures utmost safety for the credit assignor, thereby giving some peace of mind and security at the time of granting credit.
These were some of the ways in which sound decisions can be made with respect to setting credit limits. At the time of analysis, it’s imperative to take well planned and carefully analyzed decisions, so that your company does not go into losses or on board customers who will default at later stages of payment. Make wise decisions and see your business flourish immensely.
As a small business owner, you probably have a lot of expenses to meet. For this very reason, outsourcing would appear to be a very lucrative option, when it comes to saving costs and increasing efficiency. At the same time, you would probably also know that it is quite hard to get working capital to meet your daily business expenditures.
During times of shortage, it becomes very necessary for businesses to outsource their accounts receivables
, so that businesses obtain efficiency and cost saving benefits for their business operations.
Here are some of the pros and cons of business outsourcing, which can shed some light on why it’s important to outsource account receivables.
- Cut Costs: Why does any business want to outsource their operations? Simple reason is, to cut costs. Hiring your own in house accounting staff, purchasing the equipment as well as maintaining everything in the right order can be a costly task, one which any business would want to avoid. By outsourcing, your business can benefit immensely by doing the job at a much lower cost.
- Efficiency: Efficiency can be greatly enhanced, as soon as the work is outsourced. The same work, which might be done manually, can be automated and experienced staff can be hired at lower costs, to enhance efficiency.
- Round the clock coverage: Many businesses have round the clock service requirements. Outsourcing is often considered to be a great tool, especially, when it can provide massive round the clock coverage to small businesses and companies alike.
- Automated tracking: Even though the work is being done offsite, there are a lot of ways and means to track the work being completed. Modern technology allows everyone to stay on top of the completed work and keep an extensive track of what’s completed and what’s pending.
- Error reduction: Every outsourced business has elaborate quality checks in place to ensure maximum quality control for the clients. This way, top notch quality can be maintained, without having to worry too much about errors and wrong information handling.
Since every coin has 2 sides, even outsourcing has its own cons. Here’s a list of the negatives of outsourcing account receivables to other parties.
- Loss of control: When work is outsourced, there is always a degree of loss of control for the client. Since the work is usually going offsite, there is no direct supervision of the client on the work being done, which can often result in a loss of control.
- Dependency: Even though cutting costs is the main agenda, there is often a dependency which develops over a period of time. This dependency could mean that you are waiting for work to get delivered, or waiting for things to be completed, etc.
- Cost of getting work done: Despite outsourcing, there are often a lot of hidden costs which are not considered during the initial planning phase. These costs would come to the fore when the work is outsourced. These costs can often end up as added burdens instead of reducing the costs for the company.
Keeping all the above points in mind, it’s becomes clear why accounts receivable outsourcing
is of prime most importance for businesses and companies alike.