Reducing the cost of working capital
If you are serious about reducing the cost of your working capital, then credit, collections and complaints management needs to be on your agenda and not only with a focus on DSO reduction.
Of course, reducing payment times is of great importance as this frees up cash and provides independence from outside sources of liquidity. But good credit and collections management can also reduce write-offs. Thus, it improves your profitability and increases your stakeholder value. Additionally, it also provides transparency and accountability. For many companies in the service industry, the item ‘Accounts receivable’ is often a major item - in many cases the major item - on the asset side of the balance sheet. But, if we examine the quality of the item, does it stand up? What really is the quality of your accounts receivables? Does it pass the test of integrity and correctness? And is it transparent for your stakeholders?
For companies looking to reduce the cost of their working capital, a good credit, collections and complaints policy is not a luxury. It is a valuable aspect of doing business that provides tangible financial and operational benefits.