As businesses approach their year-end on December 31, finance teams across the globe will be reviewing actuals versus forecasts and wondering whether there is anything that can still be done to help improve the business’ working capital position before year end.

Alongside profit and loss, working capital is an important metric in assessing the long-term financial health of a business. Companies with a high level of working capital generally have improved liquidity, greater operational efficiency, and greater profits. It is therefore unsurprising that it is one of the key metrics businesses review as they approach their financial year end and start planning their business strategies and objectives for the following year.

Working capital is managed through four key processes: cash management, inventory management, credit and collections, and accounts payables. Ensuring efficiency and effectiveness of all four of these processes will maximise a business’ long-term cash flow and reduce risks and costs.

However, if a business is looking to make an immediate impact on their working capital position, a review of their credit and collections function provides the best opportunity to deliver quick wins. In credit and collections, the volume of activity tends to directly correlate to the results achieved. Therefore, if you increase the volume of activity, you will in most instances increase the volume of cash collected. A tight deadline will also often provide the necessary impetus to make overdue decisions on ageing ledgers or bad debt which could make significant impact on cash collection. Outlined below are three potential strategies to consider:

1. Increase credit-control coverage

It is quite common, particularly for business which work solely with an inhouse team, to have to make strategic decisions over who they touch with credit-control activity. Limitations to human resources can often mean only 20% of accounts are regularly contacted. And, despite the myths, it very rare for these priority accounts to deliver 80% of revenues – in most cases well over 50% of revenues are not being chased.

If you inhouse team are at capacity, an outsourced credit management agency will have the flexibility and scalability to help you deliver 100% of your customer base with contact. And with activity delivering results, there is no doubt that this will substantially improve your cash collection prior to year-end.

2. Outsource ageing ledgers

Everyone know the statistics, the greater the age of the debt, the harder it is to collect. If your business is sitting on ageing ledgers that your inhouse team haven’t managed to work yet, the likelihood is they aren’t going to in the foreseeable future and the prospects of collecting those revenues are diminishing. If you want to improve you cash position, it is worth considering outsourcing any ageing ledgers to a debt collection agency. Not only will most debt collection agencies work on a contingency basis, so you will only pay when monies are collected, but their commission rates generally increase as the debt ages, so it makes financial sense to not let any ledgers age further.

With a surprising number of blue-chip businesses sitting on millions in ageing ledgers, simply making the decision to get them collected has the potential to make a substantial difference to a business’ working capital position.

3. Do a deal on provisioned debt

How many businesses write of hundreds of thousands in bad debt each year? This is often because it is too small values to warrant servicing or simply lack of available resource. Whatever the reasons there will be few businesses that do not make an annual provision for bad debt. However, even if your business has written it off there are opportunities to generate additional revenues. The first option is to sell it on – this will generate a guaranteed value – although it is highly likely this will be nowhere near its original value at to your business. There are also considerations to had regarding your reputation as a business when debt is sold off. The other option is to pass provisioned debt to third party with instruction to do deals within agreed parameters. This will enable you to realise as much revenue as possible, all of which would be upside from your current position- without impacting your commercial reputation.

These relatively simple to implement strategies can make a real difference to your working capital position within a few months of year end. However, it is without question that businesses who prioritise working capital and have a long-term roadmap of initiatives to drive improvements across all four key processes will ensure the business is in the best possible to weather any downturn and deliver sustained growth.

Author: Mark Smith

If you have a challenge within your credit and collections process and would like to discuss how 4D Contact outsourced credit management solutions could help, please click here to request a call back.

Contact us now at sales@4dcontact.com or on 020 37691487 for a no-obligation quote.

Interested in receiving more news and views from 4D Contact?

Subscribe to our weekly newsletter

[TOFU offer] eBook – A C-Suite executive’s guide to Delivering successful order-to-cash transformation
Download our eBook

A C-Suite executive’s guide to Delivering successful order-to-cash transformation

A review of the considerations and tactics critical to achieving successful transformation within your order-to-cash function

Download

You may be interested in these other recent articles

7 Strategies to help businesses overcome staff shortages

16 November 2021

As the world reopens after Covid-19, there have been reports from employers in the United States, Canada, Australia, parts of the EU and the UK…

Read more

7 Common Pushbacks to Outsourcing Credit and Collections

5 October 2021

Outsourcing Credit and Collections: 7 Common Pushbacks and how to overcome them When it comes to credit-control and debt collection outsourcing, it is very common…

Read more

Order-to-Cash Transformation Support

23 September 2021

Looking to improve the efficiency and effectiveness of your credit and collections process, and reduce cost to serve, you’ve invested heavily in a new credit…

Read more

Outsourced Credit-Control Case Study: Schindler UK

9 September 2021

How Schindler UK delivered a 581% increase in cash collection This case-study from Schindler highlights how the strategic use of outsourced credit-control can help improve…

Read more

Building Resilience Through Effective Credit Management

26 August 2021

Often overlooked in the good times, effective credit management is critical in a downturn when maintaining cash flow is key to ensuring resilience. Post Covid-19…

Read more
[TOFU offer] eBook – A C-Suite executive’s guide to Delivering successful order-to-cash transformation

Download our eBook

A C-Suite executive’s guide to Delivering successful order-to-cash transformation

A review of the considerations and tactics critical to achieving successful transformation within your order-to-cash function

Download

Book a consultation

Discover the benefits your business could achieve with a bespoke, outsourced contact solution.

Our brief consultations are designed to outline the impact your organisation could achieve, whatever your starting point and unique requirements.







Register to receive updates

Enter your email to receive regular news and updates.


Our contact details

4D Contact: London

Barratt Smith Brown & 4D Contact
Bentinck House
3-8 Bolsover Street
London
W1W 6AB

4D Contact: Malaga

Four D Contact S.L.
Camino de las Cañadas 1D
Centro de Negocios Martín Buendía
Planta 1ª, Oficina 17
29651 Mijas Costa
Málaga, Spain

4D Contact: Dublin

The Black Church
St Mary’s Place
Dublin
D07 P4AX

Global Sales Enquiries:

© 2021 4D Contact. All rights reserved  |  Privacy
Registered in Ireland, number 626576  |   Website by Jeremy Hickman