No one wants to spend the extra money and sometimes, your clients may forget to pay the dues they owe you but this is the real world. Companies in India face several organizational challenges that get in the way of effectively managing their collections receivables. During these trying times in a pandemic, companies need to stay on top of their finances as a lot of small-owned businesses are going under.
India is still a developing nation and the companies in India are still in their budding stages and they need to be calibrated to meet the demands of the clients while maintaining a profit margin for the companies. There are a lot of challenges to work through, included but not limited to, a lack of efficient infrastructure, limited capital, and outdated technology. Owing to these reasons, no wonder these challenges also get in the way of overall operations and result in disturbed cash flow.
Small and Medium Enterprises (SMEs) are not exempted from these problems and are impacted by these challenges. Banks are not ready to give SMEs adequate loans and approvals are hard to come by. The lack of funds and a great degree of ambivalence prohibits the growth of SMEs.
Looking for an alternate route of funds, SMEs opt for private funding. They are faced with high-interest rates. The payback process will be cumbersome for SMEs in the face of outstanding receivables, especially when they are trying to break even. It’s easy for this to become a vicious cycle for organizations of all sizes, especially when the inflow of money is tight.
Common Collections Mistakes made by SMEs
Let us explain this issue of SMEs with an example. Let’s assume that we have 100 clients with payments due. Of these 100 clients, 70 always make payments on time. 20 of these clients might be habitually late with payments and 10 of these have gone into deep lapse, i.e. a customer base that has become completely unresponsive with significant payment delays (90 days or more). This will put a dent in the finances and the checkbooks of any small business trying to stay afloat during the pandemic.
“A very important concept to understand is that all customers are not cut from the same cloth,” says Aditya Bhushan, Managing Director at ATS. “If the loyalists are approached with the same tactics as the stragglers, you risk delaying your payments even further. In 17 years, we’ve seen this occur many times.”
A delayed payment loop will be a detrimental outcome we want or need. Following up with the basic psychology of understanding the mindset of the client’s payment behaviors, dispute resolution procedures, efficient follow-up and escalation, and proper monitoring.
Can a Collections Receivable Backlog be Prevented?
With a combination of intelligent segmentation, analytics, and timely outreach, collections receivables backlogs can be prevented.
1. Segment Your Data The crucial first step involves the segmentation of data and labeling the data. Setting up an efficient reminder system will ensure that the clients will be paying money which saves you a lot of time and money. Having them on autopay will be even better! Autopay is a great tool to have in your arsenal if you deal with a lot of high profile clients or lack the manpower to make calls to the client every month. If there is such an arrangement, you don’t need to disturb them with repetitive reminders and messaging during a time where everyone is stressed out.
2. Identify Risk The dual strategies used to identify risks are strong analytics and experience. Once you have a window into an established payment or behavior pattern – e.g. some people avoid calls from collectors – you can determine the risk of non-payment. This is the crucial step where we come in and recommend the next step. When we identify the segment perpetually in deep lapse, our experts look into each case selectively and approach towards a negotiated settlement, that largely depends on the demographic of your clientele.
3. Prioritize Human Intervention What would you prefer – A phone call or an automated message? What is the better way of communication – An email or a text? How many reminders do we need to send our clients – One message or a series of reminders until the payment comes in? The answer to all these questions can be gauged after you have segmented your target audience and identified the risk. Then you can conclude how much human interaction is necessary. In the example we’ve mentioned above, 80% of the clients make timely or slightly overdue payments. In our experience, these clients do not require special intervention for payment reminders. Moreover, the time and effort saved here can be invested into tougher accounts to improve the efficacy of the overall collection system making it a good option for those who frequently default on payments or need reminders to pay their dues. In short, it is a great way to ensure that you get your dues on time in order to balance the sheets.
4. Implementing Digital Outreach automation and digitization of your customer outreach process will be much easier once you have decided on the mode of communication with your clients. Again, this is where we come in. To make your life easier, we have developed processes and software for you that allow CRMs to integrate with emails and dealer’s payback. Once you’ve decided your mode of communication (text, email, phone call), you must automate and digitize your outreach process. We’ve built processes and software for our Most often, a full human resource is not required for this outreach.
A digitized and analytics-based follow-up isn’t just the way forward; it’s the most efficient and economical way forward. Talk to us about how we can set up this process for you.