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The importance of a robust debt collection strategy for improving your company’s finances
What are the benefits of having an effective debt collection strategy?
Cash flow is the lifeblood of a business and when it’s restricted it’s often due to poor debt collection. A robust debt recovery strategy can make a considerable difference to the financial state of a company, however, and allow it to operate with more freedom.
Efficient debt collection systems are easy to implement and should be conveyed to all staff members involved in this business area. When a company operates in a unified way its chances of success improve and debtors know that their late or non-payment won’t be easily tolerated.
It’s also important to be proactive rather than reactive where debt collection is concerned, as acting too late can lead the business into severe financial difficulties. So why is effective debt collection so important?
How does efficiently collecting debts improve company performance?
More working capital to function day-to-day
Having sufficient cash to operate the business day-to-day is fundamental to survival and provides the foundations for a company to thrive rather than simply surviving in its market.
Monies to implement strategic plans
Company cash flow needs to be reliable to map out and implement strategic growth plans. Without strong debt collection procedures in place, the business cannot take growth for granted.
Better credit rating
If the company cannot collect its debts it faces the possibility of falling into arrears with its own liabilities. Being able to pay the bills as contractually required allows the business to maintain a good credit rating and can provide broader access to finance with favourable terms.
Avoids financial distress
It’s easy for a company with poor cash flow to experience financial distress and slide into insolvency. Collecting debts efficiently supports business finances and provides a buffer against potential liquidation.
Improved customer relationships
When a business has a trusted system in place to collect payments and methods to avoid bad debts, such as offering a discount for early payment, it can build trust with customers and improve relationships for the long term.
How to develop a robust debt collection strategy in your business
- One of the most important aspects of strong debt collection is clearly conveying your terms of payment and the steps you’ll take if payments are late – for example, charging statutory interest on outstanding amounts.
- A computerised system of reminders and warnings also shows that you’re serious about collecting debts as a business.
- Flexible payment options and discounts for early payment encourage debtors to pay quickly, as does sending out invoices promptly after work has been completed.
- Using the services of a debt collection agency can improve cash flow and better support the company’s finances.
Seeking professional support to improve business finances
UK Business Finance can offer reliable independent advice that’s tailored to your business, helping you to improve your debt collection results where necessary. Please contact one of the team to arrange a free consultation and let us get your business onto a firmer financial footing.
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Karl Hodson
Finance Expert
Karl is responsible for helping businesses across the UK raise funding for a variety of purposes such as working capital, expansion and capital equipment. He has specialist knowledge of raising finance through invoice and asset-based lending, crowdfunding, loan and equity funds and Government schemes.
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