The final sprint to the end of the financial year is coming up fast, and every day counts when it comes to speeding up your cash inflows. With Coface's expert advice and insights from our clients, learn how to target bad debts, master your aging balance, mobilise your teams and leverage digital debt collection solutions to boost your performance and secure your cash flow before December 31.
Why aging balance is a strategic lever to improve your cash flow
Constrained by an economic environment marked by high loss rates, continuing increases in late payments and accelerating insolvencies, companies are now urgently seeking solutions to protect their cash flow and manage client and supplier commercial risk more effectively.
Today, 25% of companies' bankruptcies are directly linked to unpaid debts. Faced with this direct threat to their cash flow, the priority for decision-makers is to be sufficiently equipped to collect money on time. However, behind these unpaid invoices often lies the poor use of a key tool: the aging balance. This tool provides a clear and dynamic view of future cash flows, detailing customer receivables, supplier debts, amounts due and their due dates.
Too often used as a simple accounting reporting spreadsheet, consulted from time to time during financial reviews, the aging balance is in fact a genuine barometer of the robustness of your cash flow and, therefore, the financial health of your business. At a glance, you can see which customers are in difficulty and likely to generate unpaid invoices, and anticipate which supplier payments should be made as a priority.
Consulting your aging balance every week allows you to detect, in almost real time, an increase in late payments from some customers. This visibility is crucial for anticipating cash flow needs, making the right strategic decisions, and effectively managing your debt collection actions. Neglecting or misusing this tool can therefore weaken your business and even threaten the stability of your company.
The aging balance is the core of the engine: if cash does not come in as expected, this can quickly lead to cash flow problems for the company, which will then find itself in great difficulty in meeting its own commitments to its suppliers. This is what we call the domino effect!
Nathalie Paris, Claims and Debt Collection Director for Coface France, Europe and West Africa.
Aging balance and bad debts: what should you pay attention to
Cleaning up your aging balance requires a rigorous methodology and clearly established processes. It is not just a matter of identifying delays, but of understanding their origin and their impact on the financial health of the company.
The first step is to ensure that each recorded debt is real and due, with supporting documentation: invoices, delivery notes, proof of services provided, letters and emails. Check for any disputes, billing errors or duplicates, and track down every anomaly: the devil is in the details. A client case study demonstrates this reality: a company discovered nearly £1 million in unpaid debts... simply because of a billing error! Regular monitoring of its receivables portfolio would have allowed this anomaly to be rectified quickly.
Once the debts have been validated, prioritise your Debt Collection actions. Unlike popular belief, the most effective approach is to tackle the oldest and largest debts first, those that weigh most heavily on your cash flow, by classifying your debts into three categories:
- Those due on D+30
- Those due on D+60
- Those due at D+90
If you notice a significant volume of debts overdue by more than 90 days, it becomes necessary to set up an action plan. If these debts represent more than 10% of the aging balance, you need to act quickly. And if they exceed 15%, it becomes urgent to equip yourself with solutions for debt collection and protection against unpaid debts.
- Rachid Aoulad Hadj, Debt Collection Services Sales Director for Coface France, Europe and West Africa.
Monitoring your aging balance must be based on clear warning signals that allow you to act quickly:
- decline in the collection rate,
- changes in contact persons,
- negotiations of payment plans,
- lack of response to your requests and reminders,
- increase in complaints.
These ‘qualitative’ signals must be supplemented by ‘quantitative’ signals, monitored with dashboards and indicators such as DSO (Days Sales Outstanding) or CEI (Collection Effectiveness Index), which measures your actual ability to collect cash. If your CEI, usually around 90%, falls during your weekly or monthly measurements, this is a strong warning sign. When monitored diligently, these indicators allow you to anticipate difficulties, adapt your payment terms in a flexible manner, organise your debt collection actions or opt for a trade credit insurance solution.
Early reminders, codification and joint engagement: quick wins to implement
To speed up your cash inflows, setting up a preventive reminder system is particularly effective. However, the return on investment of these reminder actions will depend on your organisation: your system must be based on clear processes that are shared (and respected!) by everyone in the company. Sent before the payment due date, pre-reminders allow you to detect potential disputes early on, streamline cash flow and avoid blocking situations at the end of the year.
Overall, opt for timed reminders tailored to each customer's profile: a small number of customers appreciate being reminded before the due date, while a large number do not. The paradox is that those who object to preventive reminders are usually the ones who pay on time. This tailor-made approach allows you to modulate your reminder process to secure cash flow while preserving your commercial relationship. This is why it is important to codify the reasons for unpaid invoices (price issues, missing items, delivery failures, etc.) in order to better target corrective actions, but also to mobilise other departments in your company in the resolution of commercial disputes.
The success of your collection strategy does not depend solely on your finance teams. The involvement of the sales, customer service and even logistics teams is crucial: everyone at their own level of the customer relationship can help to remove obstacles to payment.
You shouldn't wait until the due date to send a reminder and then discover a dispute. It can take months or even longer to resolve.
"Through follow-up actions and a system for codifying unpaid debts, you can better qualify and clean up your aging balance and, for example, launch an internal communication campaign to quickly resolve a dispute, with the aim of collecting cash as quickly as possible." -
Farah Anezot, Credit Manager at JJA Group.
Digital Debt Collection and outsourcing: levers for optimising your performance
The automation and digitalisation offered by new technologies are transforming trade receivables management. ERP, CRM, scoring solutions... The debt collection ecosystem is evolving, and digital tools are now essential allies for ensuring data reliability, automating repetitive tasks and providing a granular, 360° view of your company's financial situation:
- ERP (Enterprise Resource Planning) system allows you to centralise your financial flows and automate your reminders, as well as automatically sort your receivables by age!
- CRM (Customer Relationship Management) is essential for understanding the commercial context before contacting your customer;
- Scoring solutions help you assess the financial health of your counterparties and target your actions at the most solvent customers to maximise your debt collection.
- Collaborative tools, such as dispute management platforms, facilitate the flow of information and fast problem resolution.
The experience of JJA Group, which recently equipped itself with the MyDSO digital collection tool, demonstrates the efficiency gains made possible by the digitisation and automation of the debt collection process.
The results speak for themselves: the company has increased its collection rate from 80% to 90% in (just!) one year. Beyond operational performance, these tools also free up time for higher value-added actions and improve the quality of client relationships.
The time spent on manual tasks is now allocated to building relationships. You develop a much stronger relationship with your business partners.
- Farah Anezot, Credit Manager at the JJA Group.
As a last resort, handing over to an expert and outsourcing your debt collection can be a wise move when your internal actions have reached their limits, particularly in the case of large, complex or international debt portfolios. The recognised expertise of a third party also has an immediate psychological effect on debtors.
Entrusting debt collection to an expert service provider such as Coface means that you become a priority again in the debtor's payment decisions, while continuing to focus on your business.
- Rachid Aoulad Hadj, Debt Collection Sales Director for Coface France, Europe and West Africa.
Finally, proactive management of your aging balance strengthens your company's credibility when dealing with financial partners, such as banks or trade credit insurers, who will be more willing to grant you financing or guarantees, even in times of tension.
Start taking action now
The end of the financial year is fast approaching, and every day counts when it comes to securing your cash flow. Don't let your debts and aging balance slow down your business growth:
Contact our teams to assess your needs and discover our trade credit insurance and debt collection solutions, tailored to your industry and geographical area.
