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Avoid payment defaults?
Effective tips & tricks!
Every third B2B receivable is paid late. Do you want to avoid bad debts? Here are important tips and strategies on what you can do if your customer doesn’t pay.
What to do if the customer does not pay?
Tips on how to avoid bad debts & secure receivables
Every entrepreneur knows the problem: sometimes receivables are paid too late, sometimes too slowly and sometimes not at all. The aim is to protect yourself from the latter in particular and avoid bad debts. Increasingly, late payment is being used by customers as a form of substitute financing, a trend that is likely to continue. Instead of settling outstanding receivables on time, companies prefer to invest funds for their own purposes when liquidity is tight. Some companies even factor this into their financial planning as a kind of cheap loan.
The manufacturing industry and small and medium-sized enterprises (SMEs) are particularly affected by late payments. They in particular often find it difficult to establish efficient receivables management on their own. The real dilemma: if their customers fail to pay over a longer period of time, SMEs themselves quickly run the risk of becoming insolvent.
Reasons why your customer does not pay
“Your payment is due” – for many, this is no longer a warning signal. The fact is that not every customer pays their invoice on time. Although there are payment services such as quickpaid that allow their users to extend the payment deadline without authorisation and thus give themselves a kind of financial leeway, there are still debtors who do not pay on time or do not pay at all. Depending on the amount and number of receivables, this can put a company in financial difficulties faster than you might think.
What are the consequences of bad debts?
- 43% of all companies suffer from a loss of profit or liquidity bottlenecks
- 33% of them state that they have to pay higher interest costs
- 15% of the companies surveyed even fear an existential threat.
Prevention is better than cure
Avoid bad debts or secure receivables?
It is therefore clear that defaulting payers can pose a threat to your own company. So what measures can companies themselves take to secure receivables, recognise risks of bad debts at an early stage and react in good time before things get tight?
- Looking at Europe, 71% of the companies surveyed cite prompt invoicing as a primary measure for protection.
- 63% focus on a defined dunning process.
- Nearly 47 % rely on credit checks. So why not do everything at once?
Avoid bad debt losses with factoring if the customer does not pay
Many entrepreneurs still believe that professional hedging of liquidity risks is expensive fun and therefore only worthwhile for very large companies – but this is wrong!
With our full-service factoring, you are 100% protected against payment defaults and even have the dunning and debt collection process taken care of.
In practice, this means that the risk of default is entirely in our hands. Even if your business partners become insolvent, we will not let you down and will be liable for the loss. And you? Thanks to the sale of receivables, you benefit from immediate liquidity, as we pay out 90% of your outstanding receivables directly to you within 24 hours and the remaining 10% after receipt of payment from your customers. This gives you more financial freedom for your company.
To put it in a nutshell: The best business relationship is useless if invoices are not paid on time. After all, everyone wants to grow their business. But without cash in the account, this is simply not possible. With a well-functioning receivables management system, it is possible to avoid high outstanding amounts and save sales in advance. So don’t hesitate to get help on board.
6 tips to optimise your receivables management
and avoid bad debts
Marc Meier, Managing Director at A.B.S. Factoring AG, reveals six pragmatic tips on how you can optimise your receivables management so that you always have your liquidity under control.
A written contract means that both parties are guaranteed equal protection. All agreements and conditions should be set out in writing in this contract, including any differentiation from services that are not part of the contract. You should also include a reference to the General Terms and Conditions.
In day-to-day business transactions, it is customary to grant customers a payment term. When issuing invoices, specify the payment term that is customary in your industry. It is extremely important that the customer can immediately recognise the date on which payment is due. This saves a lot of communication, which in the end only delays payment. Granting cash discounts can be an attractive way of ensuring fast payment.
Every claim requires an invoice, and as quickly as possible. The utmost care is required, as formal or content-related errors in the invoice can lead to avoidable delays in payment.
For larger orders that extend over a longer period of time, it makes sense to agree instalments or payments on account. This limits the risk of bad debts to smaller amounts. Conclusive documentation of the instalments and the resulting increase in value also protects you against complaints and disputes.
If you notice any discrepancies in incoming payments, you should respond immediately. Misunderstandings can occur, but you should not wait too long before sending a payment reminder.
How much time passes on average between invoicing and the actual receipt of payment? And what about the creditworthiness and solvency of your business partners? Credit agencies can provide valuable information on these questions, especially by carrying out a credit check before accepting an order, which can significantly reduce the risk of non-payment. In general, knowing who your customers are is a great advantage and benefits your liquidity planning.
Marc Meier
Managing Director A.B.S. Factoring AG
5 tips to boost your customers' payment behaviour:
Offer your customer a reward if they pay particularly early or directly on acceptance. You can choose between cash discounts for early payment or a price reduction for immediate payment. This win-win situation not only works wonders for your equity ratio, but also strengthens the business relationship.
Have you been unsuccessful with the “reward method”? In particularly stubborn cases, the opposite can help, namely charging a penalty fee for late payments. Don’t set this too high, but high enough to motivate your business partner to settle his outstanding debts on time.
Do you already suspect that your customer might not be able to pay on time? Then enter into open communication with him and work out a payment concept together. Partial delivery and partial payment are just as feasible as instalment payments. Make sure that the interest rates cover your additional costs, but are not artificially inflated. This way, you won’t end up having to default on payment, while your business partner has the opportunity to plan their financing properly.
You’ve tried everything, but your customer just won’t pay? Then in many cases the only thing that can help is professional receivables management, which efficiently takes care of your concerns. In fact, your company will benefit significantly more if you can concentrate on your core competences instead of investing valuable resources in time-consuming dunning and receivables processes. Providers of full-service factoring not only take care of the entire accounts receivable management for you, but also ensure that you are liquid within 24 hours.
Have payment delays or even defaults been a major problem for you and your company in the past? Or do you fear that these are imminent? Then it’s better to play it safe and use a financing instrument that guarantees you protection against payment defaults. Compromises are out of place here; make sure that the provider offers you and your company comprehensive default protection.
As a factoring provider takes over the outstanding receivables from your customers, you no longer have to wait a long time for payment to be received. This gives you significantly greater financial room for manoeuvre. The rapid availability of liquidity, regardless of whether your customer has already paid, enables you to react flexibly to market opportunities. Your factoring partner takes care of receivables management.
