If safeguarding business liquidity was a key goal for businesses during the pandemic, the recovery is all about managing cash flow to seize growth opportunities, despite almost constant increases in commodity prices. Maintaining cash flow will be particularly challenging for companies that have had revenues wiped out during the crisis and want to prepare for the removal of state assistance.
Without adequate cash flow, however, business will struggle to restock the inventory required to return turnover and sales to pre-pandemic levels. This problem is likely to be exacerbated by valuable cash tied up in work-in-progress, finished goods and the need to set aside funds to pay suppliers. There will also be an almost inevitable financing gap as companies await client payment, with delays creating a knock-on effect which will undermine their ability to pay suppliers.
The answer to this cash flow challenge is to be as proactive as possible when chasing receivables, taking steps to address non-payment the moment that an invoice becomes overdue, sending notices of late invoices to highlight the issue and timestamping all client interactions.
Throughout this process businesses are well advised to ensure a clear timeline for repayment is communicated with their customer and a detailed paper trail is maintained outlining the attempts made at recovery and client responses.
If these efforts to secure cash flow do not prove successful, organisations can explain possible next steps to their debtor’s trading partners; the option to escalate the issue within the debtor’s company, to cease trading with their debtor, and ultimately to instruct a third party such as a debt collection agency (if a small sum is involved), or legal representatives with a view to taking legal action if a larger amount is involved.
Trade credit insurers can help throughout the debt recovery process. They don’t just indemnify when clients fail to pay. Market-leading insurers can also help businesses to avoid bad debt in the first place. Euler Hermes, for instance, offers a range of services. We conduct customer health checks of the creditworthiness and financial stability of trading partners, set a maximum amount that will be indemnified if a customer fails to pay, provide trading limit updates, check the creditworthiness of new prospects as well as investigating and indemnifying upon non-payment.