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Why you should consider outsourcing your credit control and accounts receivables

For many small and medium enterprises (SMEs), effective credit control and the management of their accounts receivable represents a significant outlay of time and money.

In a perfect world, SME owners would be able to focus on providing the best quality product or service in return for prompt payment. Unfortunately, 52% of all invoices sent by SMEs are paid late.

Late payment of invoices has resulted in the average UK SME being owed £63,881 and 51 per cent of the 500 companies interviewed by Dun and Bradstreet say the situation is getting worse. In total, the UK government estimates that £23.4 billion worth of late invoices is owed to firms across Britain.

In this article, we’ll be looking at the impact of late payments on SMEs and how outsourcing credit control and accounts receivables is the solution.

The impact of late payments

The primary impact on SMEs of widespread late payment of invoices is a lack of cash flow. In a recent survey by Xero, 30 percent of small businesses listed consistent cash flow as their consistent business challenge.

A lack of consistent cash flow has both business and personal implications. On a business level, 26 per cent of business owners list it as the primary failed to pay their own suppliers on time.

Late payment of invoices causes the closure of 50,000 businesses every year and 58 percent of business owners say late payments are putting their business at risk of failure.

Late payment of invoices causes the closure of 50,000 businesses every year and 58 percent of business owners say late payments are putting their business at risk of failure.

There is also the added business cost of chasing late payments. New research from digital banking platform Tide reveals that the average UK SME is chasing five outstanding invoices at once. Chasing these invoices results in SMEs spending 30 percent of their time pursuing unprofitable credit control tasks.

On a personal level, late payments also caused 51 per cent of SME owners to use personal savings to cover shortfalls.

The stress caused by late payments means around 26 percent of all small business owners report that they would have better physical and mental health if they could maintain consistent cash flow.

The stress caused by late payments means around 26 percent of all small business owners report that they would have better physical and mental health if they could maintain consistent cash flow.

Consistent cash flow issues can and do push SMEs into insolvency. However, many businesses that aren’t in danger of folding still experience the negative consequences of late payment.

Not having consistent cash flow can prevent and SME from hiring new staff or investing in new equipment. They may also choose to reduce staff hours, limiting their ability to trade.

As we’ve already mentioned, 26 percent of business owners are in a position where cash flow issues caused them to be unable to pay their own suppliers, putting them at risk of late payment fees or reduced credit terms.

For most small businesses, hiring a finance director or a full accounting team is simply not within their means. This is especially true given the challenging economic climate caused by the coronavirus pandemic.

Time is money

Unpaid invoices impact everything which means if cash flow is interrupted you won’t have the money to keep your business operational. They deserve your immediate attention. But, how can you go about in addressing these unpaid invoices?

In theory no company should have invoices outstanding more than 10 days past their terms let alone 3 to 6 months. Collecting these overdue invoices will have an immediate positive effect on your cash flow. However, credit control is a skill and for most businesses, it is a very time-consuming role. Many businesses report that they make the time to chase invoices outside of their working hours, as they simply do not have the time to do this effectively during the day.  

As an example, construction businesses spend, on average, 130 hours each year chasing late payments (Constructing Excellence). Likewise, for small and medium sized businesses with lower head-counts (which make up the majority of the construction industry), time is their most valuable resource.

Why you should be outsourcing your credit control

Given the state of late payments and the impact it is having on small businesses, there are a range of benefits associated with outsourced accounts receivables and credit control.

1. You don’t have to hire new staff

As with many other traditionally in-house services, credit control as a service represents an opportunity for smaller businesses to experience the benefits of a committed professional credit control team, without the outlay of hiring full-time staff.

In addition to the cost of paying new staff members to chase outstanding invoices, the recruitment process comes with its own costs, such as recruitment costs, training, onboarding and NI & Pensions to pay and administrate.

Those businesses that already have finance managers can use outsourced credit control to prevent a £30,000 salaried professional from wasting time on unprofitable administrative tasks and refocus on facilitating growth.

2. You don’t have to do it yourself

Outsourcing your credit control means that you can focus on what you do best, instead of trying to squeeze credit control and invoice chasing on top of your other everyday tasks.

3. Reduce days sales outstanding

You can benefit from an average 25% reduction in days sales outstanding (DSO) with Chaser. To put this into perspective; if your construction clients are used to waiting 15 weeks for payment, this can equate to you getting paid over 26 days faster! A welcome aid to cash flow.

4. The costs are low and the terms are flexible

Chaser’s credit control services start from £310+VAT per month, significantly less than employing a full-time in-house credit controller for, on average, £22,000-£30,000 a year.

Our flat monthly fee, as opposed to a commission system, means you can stay on top of your costs with a predictable spend.

Our contracts operate on a flexible rolling monthly basis, meaning you don’t have to commit to more than a month in advance.

5. We act as a natural extension of your team

Outsourced professional credit control services will allow you to shift your resources to meet demand rather than having various resources in your business carrying our invoice chasing. Outsourcing means you do not have to fill in the gaps an increased workload creates.

Once you contract with Chaser credit control services, we act as an extension of your team. That means you can trust us to communicate with your customers in the same tone and voice you would.

We intimately understand just how important your relationship with your clients is and how important it is that we both maintain and improve those relationships. We firmly believe that credit control should not just be a function of finance, but an extension of providing excellent customer service.

Our qualified and experienced credit control team aligns themselves with your best practice guidelines and constantly optimises their service delivery to achieve the best results for you.

When our standard credit control measures are no longer effective, we escalate cases to our innovative Chaser Collections team.

6. You need the right technology

There is a lot to know when it comes to effective credit control and accounts receivables management. You need the right experience, the right software, and the right technology. You need to be above keeping track of all invoice payment chasing activities to ensure you don’t chase an invoice payment twice, have the ability to ensure invoices don’t get chased twice or worse, don’t get chased at all. It is a lot to juggle.

When you outsource your credit control and accounts receivables to Chaser, you automatically get access to award-winning credit control software, plus all the expertise in setting best practice processes. Furthermore, our team is trained to ensure that customer relationships are preserved under all circumstances.

7. Keep customers happy

Implementing best practice credit control, with set schedules and cadences, and friendly and polite messages, ensures that customer relationships are kept intact. Also, by freeing up your time by outsourcing your credit control, you create more time to focus on customer satisfaction, and that is a win-win. Outsourcing this part of your business sends a strong message to your customer that you are professional and you have stringent controls in place.

8. Proven results

Chaser’s outsourced credit control services are cutting-edge, but we already have proven results. On average, our clients experience a 16-day reduction in debtor days, save 15 hours per week on credit control, and enjoy a $22,000 boost in cash flow for every $500,000 of turnover.

The Chaser app is currently the highest-rated credit control app in Xero App Marketplace with over 400 five-star ratings. We are also the winner of the Accounting Excellence Cloud App of The Year, 2018-19 and the Xero App of The Year 2016.

Conclusion

Let’s face it, in order to operate effectively, you need an accurate picture of your business’ cash flow. You need to know exactly where your financials stand and how you can do better next quarter. When you outsource your credit control, you will have experts on your side aiming to reduce your days sales outstanding and your receivables. They will work towards helping you get paid sooner. You get to focus on running your business, and we focus on making sure things are running smoothly behind the scenes.

Why leave it there?

Are you stressed over chasing late payments?

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