In tough times, having greater insight into potential defaults is invaluable. New generation tools can place this intelligence at the fingertips of your accounts team, writes Claudia Pirko, Regional Vice President ANZ – BlackLine.
How many of your customers are likely to shut up shop this year – and how badly will your business be left out of pocket when they do?
Support measures that kept thousands of Australian enterprises afloat through last year’s COVID crisis have now been withdrawn. Without the fiscal relief provided by payment holidays, temporary amendments to insolvency laws and monthly cash injections via JobKeeper, it’s now sink or swim.
Insolvencies are leading to a tranche of bad debt
Market watchers are expecting a tranche of enterprises will do the former, with those in the travel, hospitality and construction sectors likely to be over-represented amongst the winding-up notices.
Trade credit insurer and debt collections specialist Atradius has forecast insolvencies will increase by 26 per cent in 2021. It’s an impending crisis that, late last year, prompted CPA Australia, the nation’s peak industry group for accountants, to issue guidance and advice to its members on dealing with business owners who are suffering from mental health issues.
The cascading impact of unplanned business closure
Owners and employees aren’t the only ones to experience financial pain when a business collapses into administration. Very often, there’s a string of creditors left out of pocket or facing the prospect of receiving just a few cents on the dollar, months down the track, after liquidators have sold off the assets and collected their cut.
If the amounts they’re owed are sufficiently large, creditors can find their own businesses strapped for cash, in turn. They may be forced to borrow money to pay suppliers and make payroll. In a worst-case scenario, they can be pushed to the wall themselves, and so the chain of pain continues.
Why you need better accounts receivable intelligence
There are several strategies businesses can employ to achieve their cash and working capital objectives. Traditional best practices – performing credit checks on new customers, taking upfront deposits or advance payments on substantial orders or projects, providing customers with comprehensive terms and conditions and beginning the collections process promptly once a problem becomes evident – remain vital but they’re no longer the only means at your disposal.
Having access to up-to-the-minute information allows you to spot trends and identify potential payment issues across the lifespan of your relationship with a customer, not just at its commencement and conclusion.
Automated cash application technology can help you to obtain those vital insights.
By eliminating manual systems and processes and synthesising data from multiple sources, an intelligent accounts receivable solution can provide you with a comprehensive up-to-date view of your cash position on the spot, not two or three weeks hence when everything has been reconciled.
Identifying at-risk customers
It can also be used to extract valuable insights into customer behaviour, including sales and payment performance over time, which enable you to manage debtors more effectively.
Forewarned is forearmed. If your accounts receivable team is able to run a detailed report identifying customers that are progressively extending the payment cycle, or perpetually on the brink of entering the collections process, you have the option to take evasive action. That could be reducing credit limits and requiring upfront payments from tardy debtors, or beefing up your collection activities.
Intelligent accounts receivable software can also show you who your good customers are – the ones that pay on the nail, month after month. That’s information that can help your business development and sales teams decide where best to focus their efforts.
Safeguarding the viability of your enterprise
While weathering the occasional bad debt is part and parcel of being in business, making every effort to minimise them makes sound sense. When economic conditions are uncertain and insolvencies are on the rise, an investment in intelligent accounts receivable technology is likely to pay for itself many times over.
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