There is a big is misconception of the importance of the debtors’ department within any company. Ask any salesperson and they will complain about accounts being placed on hold, orders not being released because of a lack of credit and much more. The debtors’ team are the gatekeepers to financial wellness for any company. Without an effective debtors’ team, most companies will stagnate and eventually close their doors.
5 reasons why debtors are essential
Improve Cash Flow
Any company, no matter how big or small, needs a positive cash flow in order to cover operating costs. Salaries, rent, purchasing stock, and just keeping the lights on are only a few of the costs which need to be covered. Effectively collecting outstanding payments for goods and services ensures that a company can not only meet these requirements but will have the required funds needed to ensure growth and the ever demanding need to stay relevant within its industry whilst dealing with a very constrained economy.
Effective credit management reduces the operational risk of any company. The collection of payments on due date is crucial to avoid overdue debts. Overdue debts place a huge burden on the company and increases its risks exponentially. The longer payment is delayed, the harder it is to collect. A strong debtors’ controller will take control and ensure effective collections and a reduction in debtors’ days outstanding.
Maintain customer relationships
Strong debtors’ personnel cultivate relationships with their customers to ensure seamless collections. These relationships carry much more value as information sharing results in first-hand knowledge of a customer’s financial situation which may impact future collections, gives insight into growth which may result in increased sales and cultivate customer loyalty.
The goal of every business is to grow its operations, brand, and profit. However, growing your company requires a lot of resources. Funding the resources required can be done by getting loans and/or other credit facilities. However, this places a huge burden on the company and increases risk exposure. Having an effective debtors’ team, ensures that credit requirements are minimized as cash flow is maintained and growth actions can be planned around these projections.
A sale is not a sale if the money is not in the bank
Many companies measure their performance solely on their sales figures. Budgets are built upon previous year’s sales and profit projections are done the same way. A sale is not a sale unless the money is in the bank. Sales figures should be judged according to customer payments received. If a customer account is overdue, the sale is meaningless as no revenue has been generated. However, productions costs, import costs, salaries and other costs have already been paid, which makes this sale a liability. Recovering your costs and profit from a sale rest with your debtors’ department who require the support of the sales team to ensure seamless collaboration in getting customer payments.
The debtors’ department may seem to be just another part of Finance, but their value is greatly underrated. Investing in a debtors’ team, either outsourced or in-house, is one of the smartest investments any company can make. Contact us to find out more about how our Debtors Consultants can help improve your cash, recover your money, and make it easier for you to prosper.