Credit Manager: Can Debt Collection Software Help Combat Late Payments?
The Credit Manager, responsible for optimizing receivables, has a key role to play in reducing late payments. How important is it to combat late payment? Why and how?
Every credit manager has heard it at least once: “Time is money”. All late payments are lost earnings. According to theANCR, in 2019, 56 billion euros of receivables remained unpaid in France, i.e. around 2% of GDP, even before covid. The problem of late customer payments is now applicable to all companies. If everyone pays according to the LME, the French law no. 2008-776 of August 4, 2008 on the modernization of the economy, we could see an increase of 12 billion euros in cash flow for companies.
How can late payments be reduced? This is the number one challenge facing credit managers today. According to a November 2019 study by the AFDCC, 74% of credit managers have a variable salary tied to an individual performance target. The credit manager has become the key figure in optimizing accounts receivable within the company. Yet, according to INSEE, there are only 3,000 credit managers in France, compared with 145,800 SMEs and ETIs and 287 large corporations.
The cash culture is at the heart of the discussions. The objectives defined by management converge: reduce WCR, increase ROI effectively and rapidly improve sales. At a time of digital transformationit’s finally possible to meet these challenges. France seemed to be on the right track. According to AltaresIn 2019, 33% of companies paid their invoices on time. Today, the figure is 43.4%, or almost one in two. Only covid has had a major negative impact. The subject of late payment is of particular concern to SMEs, and many articles have been devoted to it.. However, small businesses are the hardest hit by this problem. A Plum* study carried out for Sage shows that 40% of SMEs surveyed explain that late payment has a direct impact on their business.
Why are you always faced with late payments?
The main problem is the administrative management of customer invoices. This means resolving a non-compliant invoice, such as an error in the amount, address, etc. Disputes are not to be taken lightly. Processing times are often too long, and some of these invoices are never paid at all. The figures are significant, and 1 in 3 companies today goes bankrupt because of late payment.
5 good reasons to reduce late payments
In its study, ANCR estimates that compliance with payment deadlines would free up 12 billion euros a year in cash flow.
A company cannot grow its business and be competitive if its working capital requirements are too high. It is therefore essential to be able to recover outstanding receivables from customers to finance its own business and improve its competitiveness in the market. Digital intervention in optimizing credit managers’ debt collection is therefore justified. What’s more, this is particularly important for SMEs, who often don’t have the resources to manage these late payments.
1- A source of financing that’s free , or almost free , compared with the average cost of financing a company or the expected return on equity.
2- Avoiding non-payments: in 2017, non-payments amounted to 2% of GDP, i.e. 56 billion in 2017, and 25% of SME bankruptcies are linked to a lack of liquidity.
3- Improve WCR and cash flow: by reducing late payments, the credit manager reduces DSO, and therefore WCR, and frees up cash flow. This additional cash can be used to finance growth and keep the company competitive. For example: financing working capital requirements, digital transformation, international expansion, external growth.
4- Obtain more financing at lower cost , thanks to healthier financial indicators and additional cash freed up by customer receivables.
5- Finance the regulatory compliance of the supplier item (DPO) with the LME. The credit manager must also ensure that working capital is optimized in order to grow the company’s business. There are several ways to optimize working capital and finance growth. For example, financing the working capital requirement for a recovery.
How can credit managers combat late payment?
The Credit Manager benefits from a political context in favor of reducing payment delays. Firstly, the Loi de Modernisation de l’Economie (LME), introduced in 2008 and revised in 2015, has reduced late payments by 1 day per year. Penalties can in fact reach the sum of 2 million euros. Following the example of England, the practice of “Name and Shame” is beginning to emerge in France, enabling companies with poor payment behaviour to be publicly denounced.
Digitization and access to artificial intelligence, the cloud and big data now make it possible to optimize business and anticipate problems. The arrival of new management and performance tools continues to grow. Robotization and new technologies to avoid late payment are therefore topical.
How can Aston AI help the Credit Manager?
The credit manager now plays the role of business partner. To gain in efficiency, it is essential for the credit manager to digitalize his tools so as to have automatically updated information. Platforms specialized in receivables visibility and collection, such as ASTON AI are solutions not to be overlooked.
SaaS collection software offers several important functionalities: 1) performance analysis and dashboards 2) customer risk analysis and scoring of customer payment behavior 3) automation of dunning and collection 4) litigation traceability and collaborative workflow 5) digital assistant to simplify credit insurance and factoring management
The benefits for the company and the credit manager are clear: a 50% reduction in late payments, and at least 80% of automated collection tasks. In conclusion, these solutions for credit managers have resulted in a 20% increase in cash collection. They not only improve efficiency, they also save time. This, in turn, enables them to focus on more strategic issues, generating more revenue and improving working capital. .
Read more :
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