Collecting overdue invoices in the textile sector can become a juggling act
Late payment happens to be part of the deal for most businesses, especially in the textile sector. In these intricate supply chains, one business struggling with late payment means its suppliers could be the next.
This could happen to your new and existing customers alike. As a result, any of your accounts receivable can carry the risk of late payment.
The problem of late payment is its far-reaching effects. It takes up time and resources from other business aspects. It eats into cash flow and profit margin (1).
It reduces investment for growth. The more outstanding accounts receivable you have, the more adverse the effects become. It is crucial to minimise the number of outstanding invoices and keep credit risk under control.
(1) A one-standard deviation increase in delayed payments is estimated to reduce profit growth by between 1.5% and 3.4%. [Research by the International Monetary Fund (IMF), ‘Governments’ Payment Discipline: The Macroeconomic Impact of Public Payment Delays and Arrears’, (March 2015)]
However, when the number of outstanding receivables goes up, collections turns into a different game. Suddenly it is a struggle just to keep tabs on the invoices. What has been paid? What has not been paid? And why was that? While you are juggling with the overdue invoices, new invoices become past due. Too many balls in the air.
In such situations, it is important to be consistent in your approach and know all your options. Below are four practical guidelines that can help you successfully manage a large volume of outstanding accounts receivable.
1. Monitor your accounts receivable
2. Remind your customers before, during, and after the due dates
3. Negotiate and renegotiate if necessary
4. Expand your collections capability