How to achieve effective receivables management

The risk of bad debt losses is rising and rising. Only those who rely on targeted receivables management can steer their company confidently and safely through the pitfalls of the pandemic - and thus also prepare themselves for the demands of the upcoming growth periods. This is also confirmed by the latest Payment Practices Barometer, which was published last November. Every year, Atradius Kreditversicherung in Cologne takes a close look at the global payment behavior of companies in the business (B2B) sector.

According to that, the average payment periods in Germany more than quadrupled from 22 days before the pandemic to 92 days. This is well above the Western European average of 46 days. In addition, payment delays in Germany increased by 65 percent compared to the previous year: 40 percent of respondents waited up to 30 days longer than in the previous year for payment of overdue invoices. Nevertheless, nearly half of the companies are sticking to their course of continuing to arrange deals with longer payment terms - obviously to accommodate their customers. However, never before have they been so concerned about the solvency of their debtors, 62 percent of European companies said in the European Payment Report, also an annual survey, published by Heppenheim-based Intrum Deutschland GmbH in June 2021.

However, this development can be countered. "It is all the more important these days to have an effective receivables management system that focuses on the customer," the founders of Veita GmbH in Potsdam, Pierre Stengel, Matthias Körner and Richard Einhorn, are deeply convinced. "In this way, companies ensure that their invoices are paid, and at the same time they preserve and maintain their customer relationships."

New ways in receivables management with Veita

On the other hand, the processes established so far no longer meet the current requirements of customers and employees, warn the former management consultants, who already have a wealth of experience in these areas. Dissatisfied with the status quo, they launched a software called Veita. "With Veita, we empower companies to avoid receivables management work even before it arises - instead of just helping to manage work once it arises," they outline their mission. At the same time, their customer-centric solution helps to make customers happier, significantly increase liquidity and massively reduce accounting process costs.

"With Veita, we're empowering companies to avoid receivables management work before it happens."

What is special about the software that Veita has developed with this very goal in mind is not only its innovative character, but also the focus on supporting human interaction, which plays a formative role. This is why the founders speak of customer-centric receivables management. With Veita, they offer cloud-based software for customer-centric order-to-cash processes that allows employees and teams to work together efficiently, intelligently automates processes, and provides meaningful dashboards and reports in real time. Most importantly, the innovative customer portal enables new ways to serve customers: customers can self-serve online, view invoices, communicate with the company about payments, and get expert help from staff.

6 elements of effective receivables management

For every company executive who now wants to set up or expand an effective receivables management system, the following tools are essential.

1) Check credit rating‎

It doesn't work without a certain amount of effort. Because well thought-out receivables management relies on transparency and timeliness right from the start. Before a company does business, it should obtain information about the creditworthiness of potential customers. This also applies to existing customers. Until now, many local companies have shied away from this. However, last year's Atradius Payment Practices Barometer confirms that the acceptance of such instruments is increasing. Before the pandemic, 60 percent still relied on agreements, 54 percent on bank references and 49 percent on information from business partners. Since then, 41 percent are increasingly obtaining credit information directly from their customers.

It is particularly important to update this information regularly, and credit agencies can help with this. After all, if you have a good credit rating, it is usually conducive to granting supplier credit to customers. However, anyone who has doubts about this should exercise caution when granting these loans.

2) Focus on customers

It is precisely during crises that many small and medium-sized companies increasingly work with supplier credits, as also shown by the Payment Practices Barometer. This is a sensible way to signal to customers that they are willing to make concessions. If there are delays in payment, companies should communicate with customers about this at an early stage and, if necessary, negotiate new terms. For this and also for successful receivables management, it is important that customer communication can take place simply and promptly.

Better customer interactions reduce disputes, good payment experiences increase customer satisfaction.

This is exactly what Veita allows: for customers, Veita offers an interactive relationship through a customer portal for invoices and payments, which they can make in all common forms of payment. It is also possible for them to suggest new payment dates, justify the delay and interact directly with finance staff. "Better interaction helps reduce disputes and speed up problem resolution. A good payment experience also increases customer satisfaction," the founders argue. In the end, this means not only realizing liquidity from receivables faster, but also increasing process efficiency in receivables management.

3) Outsource risks

Credit insurance offers this possibility. At the first signs of a deterioration in creditworthiness, it is important for companies to react and consider whether they should take out such insurance. Credit insurances step in when receivables default because customers are insolvent, when insolvency proceedings have been opened and rejected for lack of assets, or when foreclosures have been unsuccessful.

‎4) Use factoring

Factoring offers another way of outsourcing risks. Here, companies sell all or part of their outstanding receivables to factoring companies, which then assume the creditworthiness and insolvency risk. In return, they immediately receive a large part of the outstanding receivables, which significantly increases liquidity. The Veita founders see the most important plus points not only in faster liquidity, but also in an improved equity ratio. Therefore, it can also be used as an instrument for financing.

However, factoring incurs considerable costs - typically between 1 percent and 3 percent of the invoice amount, depending on the invoice volume, the term of the invoice and the customer's creditworthiness. CFOs should therefore carefully consider the extent to which they use factoring. Professionalizing their own accounts receivable management not only offers attractive cost savings in the medium term, but also gives companies more control over communication with customers. For this purpose, Veita offers a high-performance platform solution that is tailored precisely to the requirements of finance teams and allows efficient handling of open receivables, deficiencies and payments.

5) Control receivables in a targeted manner

Companies that always keep an eye on their KPIs are able to manage receivables. To do this, they must regularly determine the most important KPIs for receivables management, and always update and monitor them. For company managers, Veita means that they have an immediate overview of the due dates of receivables and that they can carry out analyses on receivables, which are then used in the management of working capital and treasury. This allows them to keep their cash flows stable - and to identify risks early enough to still react.

6) Establish professional processes

If a customer misses payment deadlines, swift and professional action is important for further success. If there is a dunning case, employees should be able to use a predefined dunning strategy to decide quickly when and in what form the customer should be contacted. The individual customer relationship should also be taken into account - for example, if the customer is a strategically important A customer or a customer who repeatedly pays late and has a low share of sales. If instead there is a dispute, communication should be prompt and coordinated internally so that the company speaks with one voice from the customer's point of view.

Veita supports the professionalization of receivables management and simplifies the work of finance teams and executives, leaving them more time for value-creating activities. After all, when invoices are not paid on time, good decisions need to be made and, if necessary, dunning and collection processes need to be initiated. However, it is best for companies to work with their customers in advance to find mutually satisfactory solutions that will allow the business relationship to be preserved for the future. "This is exactly what our customer-centric software makes possible - at Veita, it's people who matter," sum up the founders.