Debt Recovery

Steps To Debt Recovery That Ease Your Cash Flow

One of the biggest problems in cash flow is represented by slow or late cash conversion where slow debt recovery could be one of the factors responsible for the situation.  Whatever the business, there is no way to ensure on time payment by customers. Cash, tied up in this way, adversely affects working capital. There are, however, certain steps that companies can take to free the cash flow of this choke.

Factoring

This is the selling of debts, or accounts receivable as they are called, to a third party, usually a bank, at a discount. This exchange of asset for cash is a common business practice. The third party buys these accounts then pursues them independently for recovery. Factoring, thus, gives the double benefit of not only freeing cash but also ridding the company of the effort and the expense involved in collection.

Invoice Discounting

This is the use of accounts receivable as collateral to obtain a loan. The company still retains control of its sales ledger. Collection also remains the company's responsibility. The benefit of this technique lies in that it speeds cash conversion; there is no 30-40 day wait for the money owed.

Preventing Late Payment

This begins with careful research into the credit history of a potential or a new client. Credit terms should be set, based on this research. Prompt billing and sending/mailing of invoices also speeds up payments. Some companies take a portion of their payment as advance. This can prevent total loss in case of a bad debt. Reviewing credit policies to make credit terms shorter and more selective in allowing sales on account is another step businesses take. Encourage debtors to pay early. Offer small discounts for quick payments. Charge late payment fees and recovery charges and make sure your debtors are aware of these. And finally, pursue collection diligently. Send timely reminders through phone calls, emails or letters.

Recovering Late Payment

There are always some bad debts that never get paid but through informed effort most can be realized. Companies today have access to professional collection agencies that pursue late payments for a fee. However, it is important to choose the right collection/recovery agency. The wrong choice could hurt a company's reputation and sour relationships with customers.

Debt Recovery attorneys may also be consulted. Such an attorney would first send a pre-action letter, advising the debtor to pay the debt or face legal action. If that, fails the case is taken to court. But this does definite damage to commercial relationship with the debtor. Also, there will be court fees to pay in addition to the attorney's fee.