Overdue Debt Collection for more than 180 days for Project and EPC Businesses

One of the most common reasons companies go out of business is because they run out of cash.

 

Project companies, often front much of their projects’ costs before ever sending out the first invoice, are especially vulnerable to this.

 

That’s why managing cash flow is of the utmost importance for companies in EPC Business. Without positive cash flow, a project company may not be able to pay its expenses, no matter how many new projects it has lined up.

 

One of our clients in Electrical business had a problem with overdue debtors from their Project Based Customers in Civil Engineering and Construction Industry.

Despite the best efforts of the sales team to collect on time, the overdue debtors kept growing and the sales team was unable to focus on sales calls and timely collections.

 

35% of our clients’ debtors were overdue by more than 180 days, the client approached GGA for assistance to:

1. Reduce the overdue debtors and collect the outstanding
2. Identify the reasons for customers regularly delaying payments

To commence the assignment, GGA requested for the detailed debtors ageing and used an analytical approach to identify the delinquent and delayed paying customers, GGA categorized the customers into 4 categories:

 

Category	Description
A category	Customers buys regularly and pays on time
B category	Customers buys regularly, but pays erratically and has overdue
	across multiple ageing buckets
C category	Customer has not made a purchase in the last 3 months, but still
	owes money to our client
D category	Customers where legal cases had already been filed – sec 138 etc.

 

Basis the categorization – GGA made a collections strategy to address the overdue issue and focus on the delaying, discontinues and difficult dealers & distributors.

 

The A category customers, would continue to be managed in-house by the client, while GGA would collect the overdue from the B & C category customers and Identify customers with “No Intent to Pay” Or “No ability to Pay”

 

For D category customers, GGA would drive out of court settlements

 

1. Key Reasons for delay/ hold up of payments Identified

 

a. Project delays

• Multiple suppliers and even if one delays delivery or commissioning, the entire project is delayed = delay in payment to main contractor
• The customer and very often Government or Government body has a cash crunch and fund their investments thru vendor payables
• Change of Government, wherein new Government will want to prioritize projects they see as important
• Disputes with customer or between main contractor and End customer

b. Procedural and documentation delays

• GST invoice to RA bill Timing mismatch and GST credit mismatch
• Delay in GRN
• Bills not uploaded in Portal
• Missing documents/ certifications
• Multi-level approvals designed to delay and hold payments

c. Accounting/ Payment gaps/ Deductions

• LD deductions without assigning reasons largely due to LD on Main contractor which are unfairly allocated to sub-vendors
• GST holdback due to Mismatch
• Customers issue on account payments and no details of quantum of LD’s / SD/ Taxes provided with a promise to reconcile at end of the project

 

2. Solutions and Support Provided by GGA

• Due diligence and reconciliation of invoices including GST bill to RA Bill. The customer books the RA bill whereas our clients record revenue and debtors based on GST invoice’s
• In Electronic Bill Registration system, reconciliation of billed vs accounted vs paid invoices vs deductions for our client.
• Deep dive into unpaid invoices for reasons for delay and resolving the same with Joint meetings with the customer and our client
• Engage with customer to determine reason for invoices not booked and resolution of gaps to enable customer to account for the same
• Actively engage with our clients to resolve issues raised by their customer, including escalation to our clients’ senior management to enable timely resolution. While many of the issues reported are technical, we will still keep chasing our clients for resolution
• With prior authority negotiating with the customers for a settlement
• GGA supports the client in preparing the documentation for invoice submissions and validating the same before submission for early payment.

 

 

3. End results of the Assignment

The assignment was for an initial period of 1 year and thereafter overdue more than 90 days would roll over to GGA for collections.

 

GGA submits detailed performance report on semi-monthly basis to project-based client:

• Recovered 70% of the overdue till date from the date GGA received data for follow up of collection of payment
• Under follow up and closed in the next 3 months which is collectable amount– 20%
• Identified under customer service issues and no intention to pay in future date which is non collectable- 10%

  

				Reconcilation As  per Cusomer Portal
Client Customer Projects	Initial Data Shared with GGA	GGA Collection Till June'22	Net O/S As per our Client		Collectable	Non- Collectable
Project 1	15,290,923	11,121,212	3,907,710	3,798,991	1,776,163	2,022,828
Project 2	9,265,727	6,111,069	1,183,586	1,183,586	933,578	250,008
Project 3	27,624,188	23,551,029	3,532,641	3,358,107	3,347,591	10,516
Project 4	4,116,347	1,921,259	2,195,088	2,172,806	2,038,498	134,308
Project 5	767,256	727,991	39,265	144,842	144,842	-
Project 6	471,436	565,812	-94,376	49,720	49,720	-
Project 7	4,310,636	2,850,217	1,460,419	1,460,411	1,312,530	147,881
Project 8	1,906,341	699,999	1,206,342	1,206,342	193,715	1,012,627
Project 9	2,443,337	279,392	1,639,066	33,905	33,905	-
Project 10	506,777	-	461,957	-	-	-
Project 11	290,749	-	290,749	290,722	290,722	-
Project 12	245,827	-	245,827	234,025	234,025	-
Project 13	920,743	133,883	786,860	837,839	404,941	432,898
Project 14	24,429	1,092,987	-	1,449,935	356,948	-
Project 15	884,259	-	391,940	383,308	336,220	47,088
Project 16	123,327	-	123,327	123,327	71,650	51,677
Project 17	57,244	-	57,244	97,244		57,244
Project 18	26,195	-	26,195	26,195	26,195	0
Project 19	681,100	279,210	401,890	401,890		401,890
Project 20	12,227	-	12,227	12,227		12,227
Project 21	6,878	-	6,878	6,878		6,878
Project 22	816,129	415,094	401,035	401,035		401,035
Project 23	1,128,174	381,970	340,028	340,028		340,028
Project 24	887,348	-	-	-	-	-
Project 25	366,724	179,072	-	-	-	-
Project 26	365,320	163,950	201,370	201,370		201,370
Project 27	72,674	-	72,674	72,673		72,674
Project 28	287,012	-	287,012	-		287,012
Project 29	148,828	-	148,828	-		148,828
Project 30	1,617,780	1,617,780	-	-	-	-
Project 31	1,249,641	1,249,641	-	-	-	-
Project 32	123,066	123,066	-	-	-	-
Project 33	1,060,904	145,366	915,538	-	-	915,538
Project 34	211,546	211,546	-	-	-	-
Project 35	136,880	134,560	2,320	-	-	2,320
Project 36	6,673,390	6,673,389	0	-	-	-
Project 37	2,909,517	552,399	8	-	-

 

 

4. Time Frame for Conducting the Assignment

GGA set up a time frame for conducting the assignment, we received assurances from the management for 2 hours per month to discuss the performance dashboard.

 

Time frame to collect the old outstandings
Month	Normal Process Follow Ups for Collection of Overdue Debtors	Focus
	Collection of data / contact details of customers / discussions with the sales team	Continuous follow up by the GGA team till the overdue invoices are collected
	Circulation of data to the customers / identifying the right person to speak with
1 - 30 days	Customer visits by GGA team - telecalling and follow up commenced
	Payments start coming in. Customers looking into their records -especially for older years
2nd - 3rd month	Payments momentum builds up, Customers respond - already issued, disputes will pay
4th month	Submission of additional information to customers, continuous follow up
5th - 6th month	Customers start paying for older years, push for difficult collections, legal cases etc

 

5. Authority letter and Introduction Letter at the Time of Assignment Commencement

To establish GGA credentials to meet the dealers and distributors and talk to them about the outstanding and payments – GGA obtained an authority letter and an introduction letter (for the internal sales teams)

The format of the letters was prepared by GGA and vetted by the client’s legal team

 

 

6. Nature of the Customers who had Overdue Payments

The customers are mainly project based and offer credit for specific time period. For running project, timely payment has been received but the project that are already completed and handover to customer have overdue payment issue with more than 180 days.

 

Customer based on Civil Engineering and Construction business and mainly big sized project based mostly from private and government sector but not involved with small to medium enterprise.

 

 

7. Challenges at the time of Commencement of the Assignment

No assignment starts smoothly due to apprehensions regarding changes and new processes and GGA faced certain challenges prior to the signing of the agreement and for about 15 days post commencement of the assignment.

 

The challenge was from the sales team, as they were resisting change, as well as a third party talking / visiting their customers for collections, further they were worried about how we would be treating their customers and the feedback the customers might give about the sales process etc.

 

The resistance from the sales team disappeared, after 15 days due to GGA’s project management approach:

• We enable the sales team to meet / surpass their sales and collections targets and KPI’s
• GGA presents itself as an extension of the sales team – our resources our mapped to the regional client’s sales teams
• GGA complements the sales team collections activities – we do not compete with them
• GGA keeps the relevant sales person in loop for any communication with the customer
• In case the customer has an issue – it is first discussed with the relevant sales person
• GGA passes back any sales queries from the customer to the sales team

 

8. How did the customers view GGA as a third party – Positively or Negatively

We are glad to say that there was no negative fallout and customers accepted GGA’s follow up processes and approach for collections

 

GGA’s team consists of multilingual tele callers and Regional Feet on Street Resources – Pan India. The resources are all on the payroll of GGA and highly trained in “customer management and collections management” – they are all B2B experts.

 

When GGA’s team meets the client customer – after prior appointment, they take care of the following communication protocols:

• Always address them respectfully and preferably in the local dialect for an elder
• Never bother the client during peak business hours OR when they are dealing with a customer
• In case the customer gets physical / abusive or rude – leave the locality immediately and without further escalation with the customer
• Discuss the outstanding, only after establishing the bonafides and showing the authority letter

There are times when the project head does not want to talk to us, in that case we take their permission to take the relevant sales person on a conference call, so that the bonafides can be reinforced and discussions can move ahead.

 

 

9. About GGA

GGA India Private Limited (GGA) is a focused “Business to Business” Account Receivables Management (“ARM”) Service Provider. GGA concentrates exclusively on designing, developing and implementing customized B2B debtor collections solutions for its clients.

 

Founded in 2002, GGA works with B2B organizations to collect from both concurrent and legacy debtors.

 

For any information or clarification, please contact

 

Gaurav Gupta – CEO Chartered Accountant

 

+ 91 98111 63422,

gg@ggaindia.com