By Paul Sparkes, Commercial Director of award-winning accounting software developer, iplicit.
One of the first rules everyone learns about business is that you have to know how much money is flowing in and out.
Speculations of whether the UK has been, or indeed will be in a recession may be placing many businesses in an uncertain position. As a result, businesses struggle to implement plans and create efficient processes during these uncertain economic times.
But in a recession, the importance of credit control and debt collection becomes even more pressing – because letting things slide can have serious consequences.
redit control is becoming even more central to a business’s performance, it is a time to ensure an organisation’s software is enabling these operations to run effectively and to consider investing some money if it isn’t.
The cost of doing nothing can be an expensive lesson when things go wrong.
Why do you need to review credit control
We all know there are good and bad payers even when the economy is thriving, but a recession can make life difficult for the best of them.
If one business in a supply chain is unable to settle its invoices promptly, everyone else in that chain can feel it. And in the worst-case scenario, when a company becomes insolvent, there is a risk of contagion among many of the organisations they deal with.
With the risk of a recession looming over the economy, it is important that the people responsible for credit control have real-time information at hand. It makes for faster, better decisions – especially in groups of companies, where it can be harder to get an overview of any one customer’s indebtedness to the group.
The threat of recession also brings the increased risk of payments bouncing, so it’s important to be on top of customers’ accounts, checking for problems. And different customers are likely to need handling differently by the credit control team. Some will need a gentle nudge, while others might require more persistent pursuit.
Customer service becomes even more important when times are tough. If you repeatedly hound a customer for debts, they think they’ve already settled, you could drive them into the arms of a competitor.
With inflation running so high, customers will want to see your organisation adding value, and will be more likely to switch if they’re dissatisfied.
As we have seen in previous downturns, banks can become less willing to extend overdrafts and credit. As a result, organisations may need to show evidence of robust debt collection controls and processes.
The cost of servicing that debt will also rise, so nobody wants to have more of it than they need. Getting a larger overdraft because customers are paying their invoices more slowly is something to avoid if possible – and the right software can play a big part in mitigating this risk.
Why it can be worth spending on accounting software during times of uncertainty
During times of economic uncertainty, organisations can be understandably reluctant to spend money on anything that isn’t essential and urgent.
But if a finance team is using software that is not up to the job, the result could be that vital time and money are wasted – and that the organisation loses control of its debt collection at a time when it could make or break the business.
Software should be delivering accurate, timely information to the credit control team so that they can be confident problems are not building up.
Good software should also allow debtor analysis – dashboards, charts and business intelligence showing the trends of a customer’s indebtedness. It should offer customisable ways to profile a customer.
If you are running a group of entities, more than one of which deals with the same customer, then software should be able to consolidate information about a debtor.
The finance team should then be able to get a real-time view of the group’s exposure to that one customer, helping mitigate risk and reveal trends that can help the group to better deal with the debts.
Software should enable a host of functions to be automated, saving precious staff time that can be better spent on high-value activities.
Bank feeds should be automated to quickly process payments received – so that the team does not waste time and frustrate customers by chasing for money already paid.
The debt-chasing process can also be automated, sending out proactive reminders and chasing for information rather than having to rely on manual credit control. That process can start with a gentle message a few days before an invoice is due.
Automating these reminders does not mean annoying customers with one-size-fits-all form emails. Good automation is flexible, allowing the organisation to treat customers in different ways.
By building profiles of debtors, the finance team can ensure one type of customer is not routinely chased for payment, while another is pursued more keenly. In addition, having a system to manage and automate the process free’s up credit control teams to concentrate on higher-priority tasks.
The cost of not upgrading
One way or another, it’s likely that credit control will require more effort and possibly more resources in a recession.
If the accounting software is outdated, it’s likely that the organisation will have to bring in more people to make up for its inadequacies. And people, as we know, are difficult to find, as well as being expensive.
Good software, on the other hand, will take a lot of the manual work out of the process while delivering better, real-time information to the finance, credit control and wider management team.
It will have the capacity to handle an increasing workload with the same number of people.
If run well with up-to-date tools, credit control might well turn out to be your organisation’s recession lifeline.