Credit Matters Blog

What will your credit and accounts receivable people see this year?

Kim Radok 21 January 2020

Nothing is simple anymore when managing a business other than the fact, complexity is the new norm.

In this blog, I will briefly discuss a number of factors which are present in every trading relationship which have the potential to affect your business’s cashflow and profits positively or negatively. How these factors will affect your business, will depend on how you manage your trading relationships.

The following factors are discussed based on what I encounter daily operating on the frontline of business with businesses from all around the world.

1          Human relationships.

The demise of human relationships between businesses will continue to cause unexpected problems. These problems will be caused by miscommunication between business enterprises as people relationships are discouraged by bureaucracy, the increased use of technology interfaces and the continued use of inappropriate outsourcing of financial services.

2          The inability of employees to have an intelligent conversation over the telephone.

This problem is already a major issue especially between managers of businesses in B2B trading relationships, sales and accounts receivable functions.

3          An email is not a text message.

With the increased use of emails and text messages, we often find a message has incomplete information or is basically unreadable. Usually a second message (or more) is required to clarify the first message so that the correct action can be initiated.

The fact is, business communication is an essential component of trading successfully. If your employees or those in other businesses cannot communicate clearly the first time, problems occur.

4          The lack of manners which makes the development of civil relationships particularly difficult and an increasing lack of respect.

As they say, “manners make the man or woman” and are worth dollars in the business setting. Better still, they cost no dollars.

In a marketing sense, it is a point of difference in our technologically sterile world.  When you deal with people properly as people, this leads to efficiencies because the person at the other end of the message feels valued.

5          Increased workloads for suppliers and customers to get anything done efficiently.

This problem occurs because of a lack of employees in one or both firms, or the employees are half trained or disenfranchised, or the functions have been outsourced to a third party.

6          Inefficient and poor technology interfaces.

Too often technology is implemented based on an upfront low cost, rather than functionality. As a consequence, many technology products and interfaces do half the job they should do because of poorly designed functions. Alternatively, they cannot communicate properly with other technology products, or lack human support to clarify and resolve any problems.

When technology products cannot communicate effectively with other technology products, it is like putting 15 people from 15 different nationalities in the one space without a common language and find they cannot communicate effectively.

7          The production of poorly completed invoices which are not always supplied as required by the customer.

As history and a visit to the accounts receivable department show even today, an invoice which is deficient in any way is the perfect reason to delay or avoid payment.

8          The lack of focus on fixing, and where possible, eliminating problems and seeing the same type of problems again and again which impact negatively on cashflow.

In these situations, unnecessary work will continue into the future as preventable problems which are never fixed continue and then need to be fixed.

Every problem raised drains cashflow and profits out of your business for no good reason.

9          A lack of due diligence and business disciplines which result in slow payment, purchase fraud and bad debts.

When management and salespeople keep overturning or ignoring credit or account receivable feedback, slow payments, fraud and bad debts are a natural outcome.

10        Retrenching or not employing the real knowledge workers of every business, i.e. those employees who deal with customers and suppliers on a daily basis.

The real knowledge employees of the business are a fountain of knowledge on how to deal with systematic or real-world issues and resolve solvable problems quickly. They do not work on outdated theories, or subject to personal biases, or a cheap fix. These employees work on the real outcomes of business of increasing sales, customer endorsements and cashflow enhancement.

11        Lack of responses to contacts.

The lack of response to email and telephone contacts as credit and accounts employees seek payment of outstanding invoices, copies of deductions or remittance advices which are not sent with payments are costly, on every level.

These situations suggest that your customers are understaffed, or lack professionals which manage credit or accounts receivable and accounts payable processes. Alternatively, the customer no longer has the means to pay their debts in a timely manner, or are not afraid of your legal action or debt collection threats.

12        Finding customers have skipped, closed down or insolvency administrators appointed.

As the business downturn takes a grip on the business community, there is the likelihood that you will find business owners have skipped, other customers have closed down, or insolvency administrators have been appointed. As a result, time that could be better spent dealing with sales, collectable invoices, servicing customer needs and keeping everybody happy, will be compromised. Instead, your employees will be trying to contact business owners and managers to see if they are still in business, or dealing with insolvency administrators’ paperwork.

I suspect many of these factors will occur for most businesses in 2020 that offer B2B credit facilities. What is worse, if the current downturn in business escalates into a recession, then the above factors will have a major impact on your business’s cashflow and profits.