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Why it pays to enable teams to make smarter credit decisions 

Are you wondering how many unpaid accounts you’ll end up writing off in the upcoming financial year as challenging economic conditions continue to take their toll? 

You and just about every other business owner and leader in Australia. Rising interest rates and soaring inflation have created a cost of living crisis that’s dampening demand across the board.

Indeed, three in 10 Australian consumers report ‘very high’ levels of stress resulting from the rise in the cost of living in recent times.  That’s according to the NAB Consumer Sentiment Survey Q1, 2023: “Household budgets are rebalancing and priorities shifting as consumers are mindful where they spend, switch to less expensive products, and research more.”

Tougher times ahead

Unfortunately, not every business will succeed in drumming up the demand it needs to remain viable. 

Insolvency experts are bracing for a boom in busts, with the number of business collapses predicted to double in the current calendar year, according to a December 2022 Sydney Morning Herald report.

When enterprises go to the wall, they typically leave behind a string of aging and overdue accounts.

Cue a cascade of referred pain, as creditors line up to receive a few cents in the dollar from administrators or are forced to write off what’s rightfully theirs. 

Businesses that are excessively exposed in this way may well find their own viability is under threat.

Beating bad debts

So, how best to ensure you don’t end up among their unfortunate number; blindsided by bad debts and unable to meet your own financial commitments?

Arming your sales and finance teams with the business intelligence they need to make smarter, better-informed calls about the organisations with which you do business is the short answer.

For many businesses, the creditworthiness of their customers is a consideration which only arises on two occasions: at the commencement of the relationship, when credit checks are conducted; and belatedly, when payment delinquency has become an issue that requires urgent attention.

Tracking payment behaviours

Between those two points within the customer journey, there may be red flags aplenty, in the form of slowing payment cycles and partial remittances at the eleventh hour.

But, in the absence of tools to monitor and manage these changing payment behaviours over time, your sales and finance teams are effectively flying blind. 

The former may continue to extend credit when reducing it or switching to COD terms would be a more prudent course of action. The latter, meanwhile, are likely to be too busy pursuing overdue payments manually to spare time to develop more effective collection strategies or to analyse the financial position of individual customers.

Tools to make the task easy

An automated accounts receivable platform can enable your enterprise to obtain the insights necessary to make more informed credit and collection decisions, in real time.

BlackLine research shows companies that implement this technology can reduce their unapplied cash and payments by 99% and reduce bad debts to under 30 per cent.

Your finance team will be able to map the purchasing and payment patterns of individual customers and develop personalised processes that encourage them to settle their accounts faster.

Should a debtor only ever transfer payment after several emails and a follow-up phone call, for example, reducing the length of time between those interactions may result in more timely remittances.

Customers’ creditworthiness can also be monitored on the daily. When payment times persistently exceed acceptable parameters, it’s very often a warning sign that an organisation is experiencing financial stress. Rescinding or reducing their credit facility at that juncture can help limit your losses, should their position deteriorate further.

Conversely, extending additional credit to good payers is a safe way to grow your revenue.

Strengthening your position

In today’s tough times, the viability of your customers cannot be assumed. Implementing automated accounting technology will enable your team to minimise bad debts, by making timely, data driven decisions around credit. If protecting your cash flow and bottom line is a priority in the upcoming financial year, it’s an investment that’s likely to serve your enterprise extremely well. 

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Danny Wheeler

Danny Wheeler

Danny Wheeler is Solutions Strategy and Marketing Manager – Accounts Receivable Automation at accounting automation software leader, BlackLine, where he is responsible for helping customers move to modern accounting by unifying their data and processes, automating repetitive work, and driving accountability through visibility. He has more than 15 years’ experience in project management, business analyst and architecture roles having previously worked at Apple, Dovetail (now Fiserv), Rimilia, Veolia Environmental Services and Rentokil Initial.

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