What is accounts receivable monitoring?
It is a simple and effective tool that can significantly reduce the time from the conclusion of a transaction to the receipt of receivables. The monitoring service involves keeping in touch with counterparties by letter, email and telephone. The company that performs accounts receivable monitoring is supposed to regularly ask recipients to pay them. This is intended to improve payment discipline.
Companies that provide monitoring services usually use applications that, when properly configured, enable them to respond immediately to even the slightest delays by contractors.
As part of the receivables monitoring service, companies can:
- send notifications and reminders, informing contractors of upcoming payment deadlines,
- Keep track of deadlines and regularly renew contact in case of further delays,
- Send pre-court summonses for payment,
- Check the financial credibility of contractors,
- clarify inaccuracies and assist in the amicable resolution of any disputes.
What are the benefits of launching monitoring?
One reason for late payments is lack of control. It can be difficult for an entrepreneur who handles hundreds of customers a month to check on an ongoing basis for which ones he has already received funds and which ones he is still waiting for.
Implementing accounts receivable monitoring gives a company a better chance of maintaining liquidity, including through constant contact with invoice recipients.
Many smaller entrepreneurs assume that accounts receivable monitoring is a service reserved for larger companies – those that process thousands of transactions and employ a multitude of employees. In reality, however, the smallest businesses – especially those that don’t have their own administrative or collection departments – can benefit equally well from this service.
First contact with the payer
The first contact with the payer should be made even before the due date. Under the pretext of confirming the customer’s receipt of an invoice, it’s a good idea to remind the customer by phone to pay by a certain date. Although this custom is not common and may seem like a hasty action, it is simply one form of security – it is worth remembering that on the other side of the transaction there are also people who may have trouble keeping track of all payments on a regular basis. Contacting the recipient even before the due date sends the message that we will not tolerate delays.
Contact at maturity
The opportunity for a second contact with the payer comes at or just after the due date. It is then necessary to make sure that the customer has transferred the payment – especially if you contact just after a weekend or a holiday. However, if no clear confirmation is received, there is no point in waiting for the situation to change on its own. Even the day after the due date is the right time to firmly remind the customer to pay the amount due and set another, this time a deadline for payment. If, despite the expiration of the second deadline, the amount due has not reached the creditor’s account, you should make another phone call or send a letter with a final demand for payment. It is worth stipulating in the conversation with the debtor that if he fails to do so again, the case will be referred to debt collection.
A major challenge for the company’s internal resources
Monitoring receivables can be done internally, but implementing such a system would involve a lot of work for the finance and collection department – assuming the company is large enough to have similar units in the structure at all. Constant monitoring of outstanding receivables and upcoming payment deadlines is also a lot of work, which would require an increase in staff. That’s why many companies choose to use third-party providers.
Pre-indemnification activities are also a difficulty for some entrepreneurs because they are concerned about the deterioration of business relations with customers. Engaging a professional debt collection company for this purpose partially solves this problem – an external entity inspires more respect and more effectively mobilizes payers to pay their obligations on time.
If an entrepreneur decides to use an outside company, the key to proper monitoring is ongoing cooperation between the principal and the monitoring company. The transfer of the necessary information is usually carried out electronically, and the hired company keeps the client informed of the progress and results of the ongoing activities.
Monitoring of receivables in factoring
Monitoring of receivables generally takes about 30 days. After that, unpaid receivables automatically go to pre-court collection. Monitoring is often done in-house by companies. However, it is important to note that for companies with a wide portfolio of customers and a large number of receivables, they may have trouble conducting monitoring activities efficiently and effectively.
One of the important features of the factoring service is that the entrepreneur using it can also choose a number of additional services – including monitoring of receivables. This ensures that the entrepreneur not only receives the money for the invoice before the due date, but also has the confidence that the factor will make sure that the invoice recipient pays the obligation on time. It is worth noting, however, that not every factor offers such a service. So if you’re concerned about making sure that your accounts receivable deadlines are met, make sure first that the company you want to use has accounts receivable monitoring and other services that are relevant to you.
In many cases, it is also possible to purchase an insurance service for receivables with assumption of risk. In this scenario, the factoring company has no recourse, so in the event of the counterparty’s insolvency, it carries out the collection procedures itself without involving the factor.
