How to mitigate risks on accounts receivable?
Control of debtors. Before agreeing on paying after the goods or the services are provided, it is worth checking the partner’s financial stability. It can be done by using Teatmik and various credit information bureaus, such as Creditinfo. When evaluating the company, it is worth checking such indicators as outstanding tax debts, share capital size, active late payments to creditors or suppliers, and the amount of outstanding financial liabilities. In addition, it is important that your company has its own inner (at least very simple) procedure on in which cases postpay is acceptable and how postpay amount is set and updated.
International databases. Before cooperating with a new international client, it is even more important to verify the client’s integrity and ability to pay. Information about each company can be found in the respective country’s business register, for example Germany, the UK or Sweden – information about late payments and tax debts can give a great insight in the company’s payment discipline. It is also important to check the company’s security from the money laundering perspective by verifying if the company and its related persons are not included in sanction lists here.
Developed debtor control mechanism. If the client starts being late, it is important not to avoid the problem and perform specific actions to recover the debt. Many companies have already prepared procedures on what to do if the client is late for a payment. During the first late days, it is recommended to contact the client via phone or email in order to understand the reason for the late payment and the potential repayment date. If the payment is late for a longer time, it is recommended to gradually send various warnings about publishing the debt to public databases. However, in cases when the client is continuously late or is not reachable, it is necessary to contact collection agents who would collect the debt through court.
Debtor insurance. For wholesale companies with large sales amounts and long client payment days a suitable solution to avoid late debtors is invoice purchasing or debtor insurance. Insurance companies prefer to insure international companies with large sales amounts.