In the business world, time is money, but more importantly, money is money.
Prompt payments are crucial for maintaining a healthy cash flow and ensuring the smooth operation of any enterprise. While it’s seen as being charitable to give people a second chance when they are late, or don’t pay, there are compelling reasons why swift collection action is a more prudent approach, especially in these times, according to the latest Centrix data. Key July 2023 Centrix highlights are as follows:
- The number of people that are behind on their payments has improved to 414,000.
- Mortgage delinquencies fell slightly in June but are still up 34% year-on-year.
- Consumers under the age of 25 are among those hardest hit by the cost of living crisis.
- Company liquidations are continuing to rise, up 36% year-on-year, 1,790 this year so far as of the time of writing with the majority being businesses in construction, retail and manufacturing.
What this means is people and businesses are accessing credit in increasing numbers. This indicates a lack of free cash on hand – while credit is ‘all well and good’, it has to be repaid, which makes the ability to react to unforeseen costs or incidents much harder while repayments are being made. This is being played out in the construction sector where liquidations and losses suffered by the trades are radiating through ancillary industries.
Requiring a deposit, having set charge services paid upfront, and keeping the aged trial balance with an empty 90+ column are all things that can make a real difference.
People know when they owe you: if they aren’t talking and aren’t paying then escalation is necessary. By taking immediate action regarding non-payment, businesses send a clear message that they value punctuality and responsibility. Establishing a reputation for being firm but fair with late payers encourages accountability among clients and customers. This practice creates a stronger business culture and minimises instances of non-payment in the future; basically, only reward the behaviour that you wish to continue.
Although it may seem counterintuitive, swift collection action can actually help preserve professional relationships. When businesses fail to act promptly on late payments it can take a toll on the trust and respect they have established with clients and customers. However, by addressing payment issues immediately, businesses demonstrate their commitment to professionalism and fairness which can strengthen relationships rather than damage them.
Collecting outstanding payments in a timely manner is also a form of risk management. By not allowing overdue accounts to accumulate, businesses can quickly identify and address any financial instability. This proactive approach helps prevent potential losses and provides an opportunity to assess the creditworthiness of clients mitigating the risk of future non-payment incidents.
A business that takes decisive action when faced with non-payment is more likely to be perceived as reputable and reliable by both suppliers and customers. Maintaining a reputation for being prompt and professional in financial matters fosters trust attracting new clients and vendors. This positive image can have a substantial impact on the overall success and growth of the business.
While it may feel kind-hearted to give people second chances in business , in the long run it never really works out in my experience – the number of large debts we have seen at Debt Free where the account is 365 days aged because they were trying to “give the guy a break” would make your eyes water. Now, instead of releasing the pressure, it is compounded not only in terms of debt size, but also in terms of impact to the relationship; the debtor will be so embarrassed by their actions, despite your “being good about it”, that the chances they will ever return to your business is probably best expressed by a very round number.
Ultimately swift collection action is a vital component of maintaining financial stability and securing the long-term success of any business venture. A business carrying the weight of excessive debt / unpaid invoices simply cannot be as agile and sustainable as one that isn’t – it is that simple.
So, have your credit management system set up to a best practice standard, utilise credit data to make decisions, have an advisor you can trust and have a recovery company that you can refer debts onto without delay. This will give you the best possible chance.
Just a thought.
Related: Managing during a recession