Which of These Common Mistakes in the Credit and Collections Area are You Making?

While collections is a complicated area in which we frequently run into obstacles, such as delinquent customers that slow down the corresponding processes within our company, there are several internal mistakes that we are probably making in the administrative area that affect financial liquidity.

With a clear collections strategy, defined processes and objectives, and adequately trained agents, it is possible to achieve good results. These are the most common mistakes you should avoid when executing credit and collection actions.

Most Common Errors in the Credit and Collections Area

Not Having a Credit and Collections Policy

Credit and collections policies are vital to an organization as they help generate more sales and maintain good customer relations. From the beginning, a company that is going to grant credit must establish its policies in writing in which it creates the following for the client:

• Criteria and requirements for granting credit
• Stipulated dates for payments.
• Considerations for overdue balance and the consequences of not making the payment and being considered in arrears

In addition to transparency, it is essential that the company always respects these policies and makes no exceptions.

Concerning credit policies, it is crucial to determine the amount the client can respond to, considering their history and the appropriate investigation to establish a credit limit, not assuming unnecessary risks for the company.

In the case of collections, seeking the portfolio's recovery without affecting the relationship with the client and carrying out the process in an optimal and timely manner –so that it is not necessary to apply aggressive collections, should be the base.

Losing Invoices

One of the most frequent errors in this area, and the one that most delays payments and subsequent processes, since it's required to track the lost invoice and resend it to the corresponding site.

Your company's invoicing process must work efficiently, and the document must be delivered when providing the product or service. If it is a recurring concept, it must be programmed, so there is no delay since this will only cause a hold on the client's payment days.

Failure to issue invoices immediately results in payment delays and leads customers to consider having more days to cover their debt. They will prioritize invoices sent on time and promptly as agreed, sending a message of formality and seriousness on behalf of your business.

It’s important to emphasize that customers should know that their credit period begins upon receipt of the corresponding invoice.

Not Following Up

It’s crucial for companies to closely monitor their AR to minimize the risk of losses for the business. One of the fundamental responsibilities of your team in the credit and collections area is to ensure that customers are paying their invoices within the time stipulated in their contracts.

One recommendation is to have an aging report of balances with your customers and their respective debts, details, and the time of maturity. It is also advisable that the sales manager has this information so the team is aware of customers who have debts or overdue credits and can take it into account for sales negotiations.

It’s essential to follow up on payments, keep an updated database, assign a responsible person to the client's accounts, and require them to be up to date; this can be achieved through periodic reminders when the payment date is approaching or in the case of delays.

Failure To Update Databases

This mistake goes hand in hand with the previous point since not only should billing and collection be followed up, but any change in our clients' data may affect this process.

A shift in area manager or address can make the difference in receiving or not receiving an invoice. It is a small mistake that can have significant consequences and is very easy to avoid.

Not Automating Your AR Process

Not using specialized software for the collections area is much more common than we think. Many companies manually perform all their credit and collections management and follow-up processes, increasing the propensity for data errors, delays in sending invoices and collections, etc.

When you don't have an automated system to help you with your customer portfolio and collection process, it can be easy to lose sight of important accounts, omit key activities, do extensive paperwork, or handle different electronic files.

There are many benefits of automating the collection process. Still, the most important is to have updated information on each of your customers to make the right decisions at the right time and in the right way. Likewise, automated collections and customer follow-up reminders will streamline the process.

Another advantage for your organization is to have electronic invoicing and send it to your customers at the time of a sale, facilitating their control and monitoring.

As you can see, these mistakes are elementary to avoid, especially when you can count on the help of Paystand. Our platform adjusts to your business needs helping your collection process with flexible payment options, recurring payments, and detailed reporting. Book a demo with us today and see what we can do to make your business thrive!