Accounts receivable:

How to optimise collections
in coronavirus times

Collections amid the pandemic calls for
consideration, conscientiousness, and cooperation.

 

 

Research has indicated a strong likelihood that coronavirus (COVID-19) plays havoc with the slowing global economy, impacts many key sectors, disrupts global supply chains, and reinforces an upward trend in global insolvencies (1).

The repercussions of COVID-19 on any part of the business ecosystems of your customers could cause them to:

  • Have cash flow strains or insufficient liquidity
  • Delay payments or default on payments
  • Have their customers delay or default on payments to them
  • Have their businesses shut down
  • File for bankruptcy

The deterioration in the payment behaviour of your customers can be part of the pandemic's collateral damage, and it could have a crippling ripple effect on your business's cash flow. To minimise such risk, you will need to optimise accounts receivable and limit bad debt losses as much as possible. Below are four accounts receivable collections best practices you can adopt in the time of COVID-19.

1. Use analytics to assess your accounts receivable portfolio

It is important to identify the accounts in your portfolio that may encounter liquidity problems due to COVID-19. By assessing and categorising your accounts, you can focus and tailor your collections strategies to the accounts that need them most.

 

The accounts receivable portfolio of each company is unique, but you can start with the basic three-tier system below and adapt it along the way.

"Good" accounts

The pandemic is unlikely to influence their payment behaviour.

  • The customers are in a strong financial position and pose almost no credit risk.
  • COVID-19 has minimal or no effects on their sectors.

"Fair" accounts

The pandemic could adversely influence their payment behaviour during and shortly after the outbreak.

  • The customers are in a relatively good financial position and pose low credit risk.
  • COVID-19 could affect their sectors negatively, both directly and indirectly.

"Poor" accounts

The pandemic threatens their solvency and could cause them to default on payments in the near future.

  • The customers are in a weak financial position and pose considerable credit risk.
  • COVID-19 affects their sectors directly and severely.

 

 

 

 

2. Consider renegotiating payment terms with your customers

As long as the renegotiated terms align with your company's credit policy, renegotiating with customers carrying payment risk often gives you more chance of collections. The key is being diplomatic while being insistent on settlement terms.

Управление на вземания | Атрадиус

Give your customers incentives to encourage early payments, if possible.

Sometimes, small discounts are enough to speed up collections in economic hardship.

Provide your customers with short-term relief in exchange for prompt payments.

This could work for customers in temporary financial distress (i.e. "Fair" accounts). An example of short-term relief you can give is suspending interest and late fees.

Work out payment plans with your customers.

This could work for customers having cash flow problems or liquidity issues, and therefore, not being able to pay in full (i.e. "Poor" customers). Accepting what can be collected in the short term through payment plans is better than having to write the accounts receivable off in the event that COVID-19 worsens the economic downturn.

3. Streamline your accounts receivable process

Minor hiccups in your accounts receivable process in normal times can become inherent inefficiencies in coronavirus times. Ironing them out would help you save precious time and working capital that your company needs to weather the storm.

Improvements you can make to your accounts receivable collections include:

 

Monitoring your accounts receivable with key metrics for maintaining liquidity.

Accounts receivable turnover ratio, days sales outstanding, and accounts receivable ageing amongst other metrics could be included in a regular report.

These metrics will help you spot potential cash flow problems early, and see if your accounts receivable can meet your company's requirements of working capital and cash during the crisis.

 

 

 

Revising your accounts receivable policies and process, if necessary.

There might be changes in the method your company invoices your customers, the process outstanding invoices are collected, and the way transactions are recorded because of COVID-19. Relevant stakeholders should be informed accordingly so that they can implement the changes consistently.

 

Ensuring the accuracy of your customer master data.

Besides the initial changes, it is not unusual to make further adjustments on an ad hoc basis during coronavirus times. What is essential is duly recording them in a central repository – any exceptions in your customers' contracts, any changes in their credit profiles, any standard and customised terms applied, and any collections efforts and agreements made.

This helps prevent unauthorised changes and increase the reliability of your customer master data. Proper records of all special arrangements also allow for invoices being sent without errors, collections being executed with the right approach, and disputes being handled in the right manner.

 

 

Financial payments | Atradius

 

 

 

 

 

 

Stepping up your invoicing effort.

It may be useful to check with your customers to see whether invoicing needs to be adjusted while the pandemic lasts. Invoices could be sent more or less often, they could be delivered by email instead of by post, or they could be adapted to the customers' new payment procedures.

Especially for invoices with large amounts, after they are sent, you could contact your customers to confirm whether they have received the invoices and whether everything is correct. Before the invoices are due, you could also remind your customers about the due dates.

Incorporating necessary modifications and proactive communication into your invoicing system could nip invoicing-related delays in the bud.

 

Offering payment methods that are easy for your customers to pay.

Also, you should make the payment process as frictionless as possible. You should take into account that your customers may lack staff dedicated to accounts payable or that their staff may work remotely through the outbreak.

 

Reminding your customers in time and in the right way.

Once your accounts receivable become outstanding you might need to pick up the phone to remind your customers. Calling is often the quickest way to reach customers compared to sending reminders by post or email.

During the calls, you should note down what your customers say and what the next step is. Make sure to send the customers your notes after the calls as well. They will serve as proof if there are disputes in the future and as a point of reference for future calls if there is no progress in payment since your last call.

 

 

 

 

 

4. Adjust collections operation to the availability of your workforce

Depending on each company's circumstances regarding COVID-19, their collections staff may conduct only part of their collections activities or have to suspend them all. If your company finds itself in this situation, to make sure that critical accounts receivable tasks are fulfilled, you may need to establish a strategic partnership with a collections agency where collections efficiency and capacity are assured.


Source: (1) Atradius Economic Research, 'Coronavirus: an unwelcome guest at a bad time', March 2020.

A collections partner can help you:

  • Adapt your collections approaches to the development of the pandemic and changes in your customers' circumstances.
  • Accelerate your internal efforts to collect outstanding accounts receivable.
  • Aid the execution of your company's contingency plans to minimise cash flow risks.

Accounts receivable are often the biggest asset on a company's balance sheet. By optimising collections according to the progress of COVID-19, you help enhance the much needed cash inflows that bring financial flexibility and resilience to your company during downturns.

Does COVID-19 impact your business?

Our Atradius Collections teams around the world have decades of experience in helping companies successfully manage and collect their accounts receivable.

We could support your business in:

  • Collecting your outstanding accounts receivable amicably (third-party collections)
  • Managing part of or your entire accounts receivable portfolio (accounts receivable outsourcing)
  • Covering other aspects of your collections and accounts receivable management

If you would like to discuss with us, please leave your contact details below and we will contact you as soon as possible.

 

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The statements made herein are provided solely for general informational purposes and should not be relied upon for any purpose. Please refer to the actual policy or the relevant product or services agreement for the governing terms. Nothing herein should be construed to create any right, obligation, advice or responsibility on the part of Atradius, including any obligation to conduct due diligence of buyers or on your behalf. If Atradius does conduct due diligence on any buyer it is for its own underwriting purposes and not for the benefit of the insured or any other person. Additionally, in no event shall Atradius and its related, affiliated and subsidiary companies be liable for any direct, indirect, special, incidental, or consequential damages arising out of the use of the statements made information herein.