Do Band-Aid Approach Debt Collections Provide Long Term Solution?
I’ve just seen that one of the big banks has introduced a new scheme that they are calling Cash Scan.
Basically the bank will have a look at your finances, identify the problems your business is suffering from and advise you where you are going wrong. They then provide solutions to increase and sustain cash flow.
I’m impressed that the bank is trying to suggest cost effective solutions rather than just advising them to extend their overdrafts for instance. I also like that they are encouraging customers to look a little closer at the business to see if there are small things that can be changed or improved that can potentially make a big difference.[blockquote]However I’m feeling a big hairy BUT coming along. I can’t help but think these solutions are a little fluffy and whilst they may improve your cash flow slightly and perhaps even change the payment behavior of one of your customers. I don’t think it’s an economically viable solution for the long term.[/blockquote]
Take this example on the banks website which they call “Cash Scan #1”
Cash challenge. Dan spends his days running, whether from site to office and back again, or chasing people for money. He even has suppliers chasing him. Sound familiar?
Cash fix. Dan’s Local Business Banker determined his invoice terms could be part of the problem: he was offering people 30 days, but getting paid on average in 60. Fixes included:
- More effective payment terms
- Following up with customers before the invoice due date
- Starting an ‘aged debtors’ list for problem payers.
OK again well done to this bank for encouraging simple solutions for businesses. However if you ask me it seems like a bit of band aid solution or even a marketing promo, and I’m guessing after a while if you check in with Old Dan, he’s going to be back running around chasing bills and reminding customers that an invoice needs to be paid.
The fact is you can’t legally force a debtor to pay you after 30 days, you can lay out payment terms and have the customer sign off on them, but that doesn’t ensure that they will honor the terms. You can try reminding them, you can send notices, but it’s a lot of effort to continue to send notices of payment or enforce legal action. Let’s face it, you don’t have the time! And yes you could create a list of problem payers but in the end that’s just what it will be “A List”. Then you are still left with the choice “do I want to do work for these people and wait an extended amount of time before payment or do I want to terminate working with them all together?”
Plus if your suppliers are chasing you and your chasing your customers. Who is paying your suppliers when the changed payment terms and follow up calls don’t work?
A factoring solution means you don’t have to worry about chasing up payments and reminding your customers to pay you. You receive the money for the invoice within a day of its issue.
Also with AR Cash Flow, prior to committing to work with your business, we will do a full credit report on all of your customers to make sure they are in check. If your customer receives approval from us, chances are they won’t make you wait anyway! We are underwritten by the largest credit insurers QBE, so we make sure your customer is going to honor payment terms.