For any business, large or small, it’s vital that you maintain a healthy cash flow, with money coming in for services or products sold when you expect it.
However, as we know, this is not always the case, and unfortunately for many, late payments are now becoming part of the “norm.”
It is how we manage these late payers, also known as delinquent accounts, that is important.
That’s why Direct Route’s service offer is vast and tailored to meet your specific credit collection needs.
In this post, we look at delinquent accounts in more detail and specifically how to prevent or reduce the number of delinquent accounts on your books.
What is a delinquent account?
A delinquent account occurs when a payment on the account is due and has not been made.
It is late/overdue, and the customer has failed to meet their financial obligations.
Credit delinquency is most commonly found when credit has been provided for a product or service with a due date set, typically, 30 days after the purchase. The account will be shown as delinquent when this due date has passed and no payment has been received.
Such credit accounts can be in the form of:
- Trade credit
- Credit cards
- Loans
- Mortgage repayments
- Utility bills, etc.
How to handle delinquent accounts
There are numerous reasons why customers may miss the “payment due by” date, for example:
- They are struggling with financial hardship
- They have poor money management and processes
- Overspending – living beyond their means
- Forgetting when the due date is/no reminders
- The customer is disputing the product or service they have received, so withholding payment
- They are facing an economic downturn.
Unfortunately, all of these factors affect whether or not you get paid on time, and they most certainly all impact your cash flow and overall business going forward.
When commercial debt from delinquent accounts starts to build up, it means:
- You have to wait longer from the order being placed to the money hitting your bank account.
- There will be disruptions to your everyday cash flow.
- Your level of bad debt increases.
- It can impact your own creditworthiness.
- You may lose other opportunities as you are spending so much time and resources chasing past due accounts.
- Puts a strain on resources inside the business.
- Puts you in an increased position of bankruptcy.
- You can no longer forecast accurately your cash flow, strategising for future growth.
- It can put a strain on your relationships with your suppliers as you struggle with the cash flow to pay them.
For customers, missing payment due deadlines can mean:
- Additional late payment charges
- Penalties
- Increased interest rates
- Damage to your credit score.
How to handle delinquent accounts
The good news is that there are a number of things you can do to help manage and even reduce the number of delinquent accounts.
These include:
Identifying risky customers – for all new customers, it’s important to carry out all the necessary credit checks to ensure your business is financially protected. From here, you will then be able to extend the right credit terms suited to this customer – effectively segment your customers.
Communicate – we can’t emphasise this point in debt collection services enough, communication is key to successfully receiving payments on time. Communicate your payment terms clearly, inform customers about what happens when accounts become overdue, i.e., late payment charges, etc. Send reminders, issue statements, and talk to your customer.
Automate the credit process – there will be aspects of your credit control process that you will be able to automate to save you time and resources, and you will be able to source numerous accounting software to help you with this. For example, set up reminders to customers before their due date, issue statements at the same time every month, etc.
Work with a professional debt recovery agency – professional agencies have the skills and the expertise to collect outstanding payments on your behalf, helping you to maintain the customer-client relationship but ensuring your cash flow is not adversely affected for longer.
Make it easy for your customers to pay – offer a range of payment options and flexibility in payments.
Make sure you have robust credit control procedures in place. What is your policy for delinquent accounts, and how are these managed? By who? Do you have a customer dispute resolution system?
Debt collection services
Delinquent accounts can pose a significant financial risk to your business, impacting your bottom line, growth opportunities, and more.
Preventing account delinquency is an area where we can help.
Helping you monitor accounts and take proactive steps to manage delinquency, at Direct Route, we work with our customers in various ways, tailoring our collections to meet the needs of your business.
Whether this is collecting on overdue payments or supporting your credit function, contact our team today and see how we can help you.