The question from the Customer: I have a policy – should I close a debt management department? 23.04.2015

Several years ago, no one asked this question because receivables management departments were mostly the domain of large international companies. In the MSP sector, elements of the debt management functioned, because decisions concerning contractors were made in majority by an Owner, the payments were made by an Accountant and unscrupulous debtors were handed over to the Law Firm. But in practice, there was no clear procedures for the evaluation and selection of contractors, their monitoring, cessation of cooperation and concrete steps taken to recovery. The owner was able to give the green light for sale to the company of his friend, who was trusted, an Accountant did not collect overdued receivables, because for the Sales Department it was a key recipient, which allowed to perform the sale plan, so when the case finally reached in the Law Firm, it turned out that the recovery is virtually impossible.

These problems seem to be solved by receivable insurance, because the insurer assesses customers giving them credit limits, and in the case of non-payment, the debt collection is performed by specialized debt collectors, and in the lack of the recovery the compensation is paid. It’s all true, but on the other hand, the insurer leaves its customers some leeway in the procedure of insurance. Firstly, in the standard insurance offer the recipients who reach to a balances certain level are automatically insured on the basis of simple payment experiments and during the whole period of insurance they are not monitored by the insurer. Secondly, after the original date of payment, the Customers in policies are required to order recovery after a maximum of 60 and sometimes 90 days after the due date. If the date of payment on the invoice is eg. 60 days, the insurer gets a recovery order after 4 months from the date of the invoice. In case of the customers in the automatic limit, the insurer does not have a chance to inform the customer about paying problems of his partner in advance, even if it has knowledge of this subject, because you may not even know that the client cooperates with this particular contractor. This can lead to a situation where the debt collection is contracted at a time when the chances of recovery are slim. And this is tantamount to the creation of the insurance accident and the application of damage.

In the case of customers who rely on a large group of small customers, in the long term it can mean a high rate of compensation paid, even much more than the premium paid. This in turn can lead to increased insurance costs in the long term and the Customer questions about the viability of credit insurance. Therefore it is important to have a debt management procedures, which together with the product provide a tight credit insurance protection against unplanned losses on receivables. Assessment and monitoring of larger customers by the insurer completes the evaluation of smaller customers by the Customer itself. Similarly, the process of monitoring contractors. What is more the submission of claims for recovery may take place the day after the payment date, if we have information about the recipient problems, thus we increase the chance of recovery directly from the debtor. Clear procedures for the management of the receivables uninfluenced the recovery process from the Sales Department endeavor to increase sales at all costs. In some companies the sales bonus system depends not only on its volume, but also on the timeliness of customers to pay their dues (luck of bonuses for the seller with non-payments above a specified expiration). All these treatments make trade considerably safer with customers and do not necessarily mean the restriction of sales. On the contrary, sales could grow, but in a safe manner.

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