Article Risk & Credit

Accounts Receivable Management: How to avoid payment defaults

Payment delays and bad debt losses quickly lead to sensitive short-term liquidity problems. A professionally organised Accounts Receivable Management secures the existence of your SMEs. Prevent yourself from falling into a threatening liquidity trap.

The aim of Accounts Receivable Management is to avoid payment defaults and to secure liquidity in the long term. Even before concluding a contract, your SME should check the creditworthiness of each business partner . In this way, you largely avoid payment defaults in advance.

If payment is nevertheless delayed, Accounts Receivable Management ensures that your customer is reminded of his payment obligations as quickly as possible and will be motivated to pay.

Tasks of Accounts Receivable Management

Accounts Receivable Management is of great importance from a strategic point of view. The question here is how Debtor Management as part of Working Capital Management fits into the corporate strategy.

  • Definition of the own credit and collection policy
  • Determination of payment and delivery conditions

From an operational point of view, Accounts Receivable Management is understood in a narrower sense as the implementation measures for the above-mentioned requirements. It covers the following areas.

  • Obtaining information in advance, possibly with the support of external service providers such as credit bureaus
  • Accounts receivable accounting
  • Orderly and prompt invoicing
  • Monitoring of credit limits and payment behaviour
  • Dunning and debt collection

Do you want to have your customers' money on your bank account faster? Here you will find 9 tips for fast payment receipt.

Particularities of international Accounts Receivable Management

Export-oriented SMEs face special challenges in Accounts Receivable Management. You are certainly familiar with the customs of business dealings on a national level. But what if you win a new customer in other European countries or even from overseas?

It’s sure: When things get difficult, they get even more difficult abroad.

Foreign languages, different time zones, different ways of thinking and behaving and above all a different legal situation make problem solving difficult. With these six tips, you as the CFO can reduce the risk of payment defaults.

6 tips for international Accounts Receivable Management

  1. Avoid unstable regions and countries.
  2. Get to know the payment practices in your target country and adapt your offer accordingly. For example, the D&B International Risk and Payment Review offers you a valuable overview from a macroeconomic perspective.
  3. Check your contractual partner with an internationally active credit bureau: Does the company really exist, who is the authorised signatory, who are the owners, what is the creditworthiness of this company?
  4. In the contract, regulate the conditions in detail and name Switzerland as the place of jurisdiction.
  5. Follow the guidelines of your Working Capital Management and make sure that your credit policy also covers this case.
  6. If your customer does not pay his invoice despite all precautions: Seek external support as quickly as possible from a debt collection service provider operating in the target country.