1. True Cost of Overdue Debtors

All CEOs know the impact of overdue debtors on business cash flow and liquidity. It is the no. 1 business killer. But do you really know the true cost of managing your accounts receivable?

The Harvard Business Review did an analysis* revealing that accounts receivable 60 days outstanding adds 9% to every rupee owed, and 27% for 120 days overdue. For a 5,000 invoice, that’s an extra $450 for 60 days past due date, and $1,350 for 120 days overdue.

This is scary – but hidden to the companies.

The carrying cost of receivables is often equated with the time cost of money, but according to HBR modelling, it’s one of seven elements of cost which include administrative, opportunity, predictability, financing, bad debt costs and morale cost. Let’s break down the top three.

• Time cost. This is the present value of money to be paid at a specified point in the future. In other words, how much money would have to be invested today, at a given interest rate, to generate a principal-plus-interest amount equal to what will be paid or collected in future?
• Opportunity cost. This factors in lost opportunities for businesses to grow by not having the cash in their bank account already.
• Bad debt: The cost of bad debt is directly related to the age of the receivable. The older the debt, the more unlikely the full amount will be collected.

There is a powerful incentive to keep accounts receivable to a minimum. The question is, how?

 

2. How to collect Overdue Debtors Accounts at lower cost and higher efficiency

The best way to ensure that overdue accounts receivable will be collected quickly and easily is to outsource the collections processes to an experienced B2B Accounts Receivable service provider. Their focus and core strength will improve efficiency and help to streamline operations.

• Improve Invoicing Process: Invoices are accurate and addressed to the appropriate person as any invoicing mistakes leads to disputes and delay in payment
• Act quickly on Overdue invoices: Overdue invoices threaten business cashflow financial security so its important to act quickly to protect your business
• Communicate Payment Terms: Set payment terms and communicate clearly to the customers, failure to do so cause payment delay.
• Identify and highlight “risk” customers – indicate customers that have “no intent to pay” OR “no ability to pay” – conducting an independent due diligence on the customers

A major key is to communicate with the customer before the account is seriously overdue. Sometimes customers do not release payments due to a dispute and it is important to find out the reason for delays and address the issue quickly, so that the payments can be released.

The Service provider should commence a process of timely follow up to ensure that the payments are made by the due dates, we identify the issues and provided immediate solutions to the issues.

 

The sooner the follow-up happen, the more likely the payment is recovered quickly.

 

3. How can GGA Help?

GGA assists companies to follow up and collect overdue debtors. We work as an extension of team and conduct one-time assignments to focus on collecting amounts that have become overdue. GGA customizes receivables solutions for companies.

 

Clear policies and due diligence go a long way toward avoiding problems later.

GGA helping our client to collect overdue accounts receivable to reduce hidden cost by:

• Having collections strategies to address the overdue issue and focus on the delaying, discontinues and difficult customers
• Managing the tasks involved with accounts receivable collection, our highly focused and dedicated approach ensures timely payments and minimum roll overs into the next ageing bucket
• Setting up a time frame for conducting the assignment and submits detailed performance dashboards on a monthly basis to our client
• Visiting the customers on a regular basis to understand the reasons for the non-payments and addressing the customer issues, at the earliest

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

 

4. 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