Strategies to help deliver receivables year-end targets

As many businesses approach their year-end on December 31, order-to-cash and accounts receivable teams across the globe will be anxiously reviewing their financial targets versus actuals prior to submitting their final reconciliation. Following a challenging economic marketplace, it won’t be a minority who will be wondering whether, with 8 weeks remaining, anything can still be done to ensure those receivables year-end targets of DSO, working capital and BDA are delivered.

Commonly running in parallel to the calendar year, and one of the busiest periods for finance teams, financial year-end is not merely an important accounting and tax process. The data published at this point provides business leaders with an insight into the financial health of the business. It is a chance to get a holistic view of how the business is performing and make decisions on how to optimise growth the following year.

One of the key metrics used to assess the financial health of a business is net working capital. Companies with a high level of working capital generally have improved liquidity, greater operational efficiency, and greater profits. As maintaining cash flow and minimising the risk of bad debt is critical to a business achieving net working capital targets – it is unsurprising that order-to-cash and receivables teams can find themselves in the spotlight at this time of year.

For those teams who have identified a short-fall versus targets, all is not lost! In 8 weeks they can still make meaningful changes to ensure those receivables year-end DSO, cash collection and BDO targets are secured.

In credit and collections, the volume of activity tends to directly correlate to the results achieved. Therefore, if you increase the volume of activity, you will in most instances increase the volume of cash collected. A tight deadline will also often provide the necessary impetus to make overdue decisions on ageing ledgers or bad debt which could make significant impact on cash collection.

Outlined below are three potential strategies to consider when looking to improve your receivables year-end actuals versus targets,

1. Increase credit-control coverage

It is quite common, particularly for business which work solely with an inhouse team, to have to make strategic decisions over who they touch with credit-control activity. Limitations to human resources can often mean only 20% of accounts are regularly contacted. And, despite the myths, it very rare for these priority accounts to deliver 80% of revenues – in most cases well over 50% of revenues are not being chased.

If you inhouse team are at capacity, an outsourced commercial credit-control provider will have the flexibility and scalability to help you deliver 100% of your customer base with contact. And with activity delivering results, there is no doubt that this will substantially improve your cash collection prior to year-end.

2. Outsource ageing ledgers

If your business is sitting on ageing ledgers that your inhouse team haven’t managed to work yet, the likelihood is they aren’t going to in the foreseeable future. Outsourcing these ageing ledgers to a third-party debt collection agency now will ensure these ledgers are touched before year end, significantly improving their chance of collection. Most debt collection agencies work on a contingency basis, and with most debt resolved within the first 8 weeks of placement, it is a low risk strategy that can deliver immediate results on cash collected.

With a surprising number of blue-chip businesses sitting on millions in ageing ledgers, simply making the decision to get them collected has the potential to make a substantial difference to a business’ working capital position.

3. Do a deal on provisioned debt

There will be few businesses that do not make an annual provision for bad debt. Whatever the reason for the write-off, provisioned debt can provide a hidden goldmine of additional revenue. The first option is to sell it on. This will generate a guaranteed sum although it will be significantly less than its original value to the business. There also needs to be consideration of the impact on your business reputation, once sold you have no control over how the debt is worked. The other option is to pass provisioned debt to third party with instruction to do deals within agreed parameters. This will enable you to realise as much revenue as possible, all of which would be upside from your current position, without impacting your commercial reputation.

These simple strategies can be actioned quickly to help improve your cash position. However, the best strategy is to ensure your order-to-cash processes are working at optimum efficiency throughout the year. Whether this is through making adjustments to your in-house processes or finding the right outsourced partner to provide support, this will not only secure your receivables targets but ensure the business is in the best financial position to maximise growth.

Author: Mark Smith

If you are looking to optimise your cash collection before year end and would like to discuss how 4D Contact can help, please click here to request a call back.

Contact us now at: sales@4dcontact.com or on 020 37691487.