Is your B2B cash Collections practice hurting?

This article aims at providing practical advice to and sharing thoughts with Credit & Order to Cash Finance professionals on how to best manage B2B cash Collections in a challenging & ever-changing trading environment.

by Evelyne Legaux on 15-09-2022

Truth is the Perfect Storm goes on and on …

As the world attempts to fully recover from two years of Covid-19 pandemic crisis, deal with the dramatic consequences of the conflict in Ukraine, climate change, inflationary pressures at an all-time high & a new recession looming, cash Collections professionals continue to face their biggest challenge ever and remain in the CFO’s spotlight.

Contingency planning therefore is as essential as ever in unprecedented circumstances, and a compelling question is: how best can you adapt your approach to cash Collections with a view to optimising vital operating Cash Flow generation?

 

NEVER lose sight of your rights as a Creditor!

Due to the domino effect created by trading under open Credit terms, when Debtors experience Cash Flow tightness and liquidity dryness, Creditors are also typically adversely impacted across the board.

In such a context as a cash Collections professional, you might be feeling awkward chasing customers and too accommodating by saying “Yes” to an extended payment terms request to ease their immediate Cash Flow distress, when you should rationally say ‘Yes but‘ or even ‘No’ instead.

However, as a Creditor you should never forget that, even during the harshest of times, you  continue to be legally entitled to full & timely payment from your Debtors, provided your own contractual obligations have been fulfilled & complied with.

Clearly, the last thing you want as a cash Collections professional, is to put your own company’s Cash Flow under more pressure than necessary, thus potentially creating the need for increased borrowing & a deterioration in your own Credit risk rating…

Further, more often than not arrears & payment delays would have existed prior to the current uncertain times, therefore Debtors should not take advantage of it to worsen their own payment behaviour even further...

B2B cash Collections MUST go on too!

 

Be Discerning & Pragmatic

Well, what does that practically mean?

• Review your AR ledger thoroughly with a critical mindset to identify genuine Collections risks – i.e. customers located in high risk geographies or financially vulnerable ones – and prioritize those accounts with your Collections calls.
• Be prepared to ‘think out of the box’ and negotiate a tailor-made solution with your customer. Propose alternative options to them. This may encompass extending payment terms for a period of time, agreeing to a mid- to long-term payment plan, even waiving part of the debt or a combination of same.

Focus on ‘creating a win-win situation’ with your customer, and be prepared to settle.

•  Before granting any payment delays or extension of credit terms though, analyse your customer’s financial forecasts to be comfortable that they will have the repayment capacity over the period of time at stake, and make sure that such delay does not compromise your own Cash Flow.
• To tackle the most difficult cases, play a pivotal role within your business organisation by pulling together a cross-functional task force to come up with the best course of action.
• Last but not least, if your trade Receivables are insured, then make sure that you are compliant with all T&C’s of your Credit Insurance policy. Do not give your Underwriter any reason to deny cover at this unprecedented time!

 

Show Empathy & Stand Out from the Crowd

We might never say this enough, but … 

Knowing Your Customer’ is more important than ever!

The current post-pandemic context exacerbated by strong inflation, threats to energy security & highly volatile geopolitical risks is likely impacting your customers’ operating margins, purchasing capacity under open Credit terms, Working Capital, Cash position and ultimately ability to trade. Therefore, as a cash Collections professional, it is essential that you understand their specific circumstances & challenges. In addition, the return of a war in Europe, tangible climate change related events & the frightening prospect of energy bills rising out of control may affect people’s mental wellbeing.

 

Whatever the situation, businesses are always run by people…

Therefore, in such uncertain times, it is vitally important that you:

• Talk to your customers - as opposed to writing to them – and ask how are they keeping? how is their business doing?
• Adapt your communication style, show that you care about them and that you understand their needs & feelings. While your purpose is to collect what they owe your company, by showing empathy you create an opportunity to build a long-lasting emotional connection with them and inspire loyalty.
• Try to get a holistic view of where your customer’s business is at today, what their strategy to adjust to inflation & potential supply shortages looks like, where their business is expected to be next year or in two years from now? Get a good understanding of whatever revenue, profitability, supply, inflation or Cash Flow challenges they may be facing. Consider the supply chain flow to understand the financial health of your customer’s main suppliers & customers, and how dependent on the latter they might be?
• Demonstrate pragmatism & flexibility in your dealings with their financial concerns, no matter their actual challenges. This will always be a major trust driver and set you up as a primary vendor in your customers mind!

 

Debtors are far more likely to pay you – the empathetic & understanding vendor - and to pay you first, rather than all other vendors! You will thus stand out from the crowd!

And if your customers survive their current Cash Flow difficulties, they will remember what you did & will want to continue trade with you as opposed to others. The connection you created will outlive the immediate business impact. Therefore, your company’s reputation in the market place will undoubtedly benefit from it!

 

Last but not least...

Don’t forget to pay your own suppliers on time to enable them to pay their own suppliers in turn…

On a larger scale, when companies adopt healthy payment behaviours, a positive multiplier effect on businesses in the supply chain is triggered, that benefits all!

Retaining cash in-house instead would prove counter-productive in the long run.

 

So, all in all...

A professional approach to cash Collections combined with negotiating & influencing skills, is paramount when businesses struggle to survive. Your cash Collections team plays a key role in preventing a difficult situation from turning into a catastrophe, while keeping customers happy & enhancing your company’s reputation in the market place!

 

Do let us know about your B2B cash Collections experience & key challenges in the Comment box below, by email to info@financeotcconsulting.com or indeed through our Contact page.