Your Virtual Credit Manager

MARCH 5, 2024

Finding the time and resources to accomplish all the collection activities required to do a good job is a constant challenge. Most small companies come up short because when there isn’t a dedicated employee responsible for credit and collections, the owner or CFO have more important things to do. Even when another person has been assigned collection responsibilities, they may also have other responsibilities that get in the way.

Past Due Invoices 100

Past Due Invoices Credit and Collections Collector Accounts Receivable (AR) 100

Your Virtual Credit Manager

FEBRUARY 27, 2024

For a small business owner or executive, navigating credit decisions can be challenging, especially when they clash with the goals of other stakeholders within the company. Situations often arise when the prudent action involves denying credit to a potential customer, imposing limits on existing accounts, or delaying the fulfillment of large orders until payment is received.

Accounts Receivable (AR) 130

Accounts Receivable (AR) Bad Debt Days Sales Outstanding Credit and Collections 130

Your Virtual Credit Manager

FEBRUARY 20, 2024

(Photo by Carlos Muza on Unsplash ) A Framework for Choosing Suitable AR Metrics Businesses should carefully assess their specific needs, objectives, and operating context when selecting metrics for accounts receivable (AR) performance measurement. The chosen metrics should provide relevant and actionable insights to support strategic decision-making, financial management, and operational improvement initiatives in light of the following issues: Business Model and Industry: Different industries

DSO 130

DSO Days Sales Outstanding Credit and Collections Accounts Receivable (AR) 130

Your Virtual Credit Manager

FEBRUARY 15, 2024

Thank you for being a free subscriber to Your Virtual Credit Manager (YVCM). If you like this newsletter, get value out of it, and believe in paying people for their work, please consider a paid subscription. Here’s what you will get: Expert guidance on a wide range of credit and collection topics, all geared towards small businesses that extend credit to other businesses Advice that will help you hone your accounts receivable management skills and maximize cash flow The ability to share c

Credit and Collections 130

Credit and Collections Credit Management Small Businesses 130

Your Virtual Credit Manager

FEBRUARY 13, 2024

Historically, business failures increase after a recession. After, the Great Recession of 2008, commercial bankruptcies peaked in 2009 and did not drop below pre-recession levels until 2012. Following the sharp but short Covid Recession, roughly 5 million small businesses closed shop in the first six months after the economic shutdown, but commercial bankruptcies did not begin increasing until May of 2023, ostensibly due to the government’s economic stimulus programs.

Bankruptcy 130

Bankruptcy Credit and Collections Bad Debt Accounts Receivable (AR) 130

Your Virtual Credit Manager

FEBRUARY 6, 2024

As a small business owner or executive, managing accounts receivable (AR) and navigating through various credit decisions is an integral part of the job. After all, credit and collections is essential to the performance of your order-to-cash (O2C) process and cash conversion cycle. From processing credit applications to negotiating payment plans, each AR activity you undertake requires thoughtful consideration.

Credit and Collections 130

Credit and Collections Accounts Receivable (AR) Bad Debt Credit Risk 130

Your Virtual Credit Manager

JANUARY 30, 2024

The evolution of Accounts Receivables (AR) automation has revolutionized our collection strategies. Previously, decisions were largely left to the discretion of individual collectors, resulting in subjective and inconsistent approaches. Manual collection processes centered on an aged accounts receivable trial balance (ARTB) lack the regimentation and efficiency brought about by automation.

Credit and Collections 130

Credit and Collections Collector Accounts Receivable (AR) Days Sales Outstanding 130

Your Virtual Credit Manager

JANUARY 23, 2024

Approving a customer for credit terms is merely the first step in an open credit relationship. Situations change, both for you and for your customer. Economic circumstances may cause you to tighten your credit policies and customer credit limits. Even more likely are changes to a customer’s business. (Photo by Chris Yang on Unsplash ) Statistics from Dun & Bradstreet suggest that 20 percent of your customers will incur significant changes during any one year.

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Credit Application Bad Debt Bankruptcy Credit Scoring 130

Your Virtual Credit Manager

JANUARY 16, 2024

If you sell on open credit terms, you need to plan on having to expend time and resources collecting from those customers that don’t pay when due. No matter how much effort you put into evaluating customer credit, some customers will not live up to your expectations. Late payments and even non-payment are simply inevitable. In addition, customer situations change, and it is impossible to keep up, especially when you have a growing customer base.

Debt Collections 130

Debt Collections Collector Credit and Collections Bad Debt 130

Your Virtual Credit Manager

JANUARY 9, 2024

Two weeks ago we recapped the three most read articles from 2023: identifying red flags, understanding why customers pay late, and the secrets of successful collectors. Then last week we looked at credit hold best practices. From a credit management perspective, these are largely reactive topics. There is nothing wrong with that. In fact, once you decide to sell a customer on open credit, most of the accounts receivable (AR) management tasks that follow have a reactive component.

Credit and Collections 130

Credit and Collections AR Aging Accounts Receivable (AR) Deductions 130

Your Virtual Credit Manager

JANUARY 2, 2024

Contacting customers to pay past due amounts (collecting) is an essential element of accounts receivable (AR) management. For most firms, late customer payments are a frequent occurrence and collecting them can be a difficult task. If collections are not done properly and in an adequate frequency , your AR will age, cash flow will decrease, and the risk of bad debt loss will increase.

Bad Debt 130

Bad Debt Credit and Collections Accounts Receivable (AR) Credit Management 130

Your Virtual Credit Manager

DECEMBER 26, 2023

Happy Holidays! During this season, many people take pause to review the ups and downs of the year gone by. Publishers are no different, but we like to focus on what piqued the interest of our readers…and then give them more of the same. In our case, we found our readers had an affinity for articles on identifying collection risks and the best ways of dealing with past due balances.

Collector 130

Collector Credit and Collections Default Third Party Collections 130

Your Virtual Credit Manager

DECEMBER 19, 2023

If you are an executive at a small or mid-sized business, chances are you are in the process of putting together a budget for 2024, or have already done so. As part of that budget, you have likely made some accommodation for your accounts receivable (AR), probably in the form of a Days Sales Outstanding (DSO) objective based on past performance. Maybe you have factored in an incremental improvement in DSO, but how much thought have you given to how you are going to meet that budgeted goal?

DSO 130

DSO Third Party Collections Credit and Collections Deductions 130

Your Virtual Credit Manager

DECEMBER 12, 2023

Recurring Revenue is derived from providing a continuous, ongoing service, such as a subscription, license, rent, or a maintenance contract. It is governed by a contract for a fixed period of time (often one year). If the contract is not cancelled, it can provide steady revenue and cash flow every month, year after year. Recurring revenue is sought by businesses and prized by Wall Street in its valuation of companies.

Days Sales Outstanding 130

Days Sales Outstanding DSO Credit Management Small Businesses 130

Your Virtual Credit Manager

DECEMBER 5, 2023

“One size does not fit all.” To often we try to put round pegs in square holes. This misguided search for a singular understanding applies to many things, including collecting Accounts Receivable (AR). Optimal Collection results are achieved by utilizing different collection techniques with different types of customers. Treating them all the same is a sure path to mediocre results.

Credit and Collections 130

Credit and Collections Accounts Receivable (AR) Third Party Collections Credit Risk 130

Your Virtual Credit Manager

NOVEMBER 28, 2023

Cash forecasting is the process used for projecting how much cash you will have on hand in the future. Short term cash forecasting is usually done for every week of the forecast period, typically the current month. Longer term cash forecasts are also prepared for each month, with a focus on the next 3 to 6 months as an operational necessity. Longer term forecasts are useful for planning.

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Cash Forecasting Credit and Collections Accounts Receivable (AR) Invoice Disputes 130

Your Virtual Credit Manager

NOVEMBER 21, 2023

For most small businesses, collections are reactive. When a customer goes past due, they then go into action — typically with a call, though it is also likely that unless a sizeable amount is involved a call is not made right away. In the meantime, routine collections are driven by passive activities, often just a monthly statement. It’s an improvement when statements are backed up by written notices.

Credit and Collections 130

Credit and Collections Past Due Invoices Small Businesses Credit Management 130

Your Virtual Credit Manager

NOVEMBER 14, 2023

Credit Policy is an inextricable part of a company’s Sales Policy. If you choose to sell on open credit, the terms you offer are in effect part of the price. If you discuss credit terms with a competitor, you are in violation of anti-trust statutes forbidding price fixing. Credit industry groups discuss the payment history of common customers, but they always have an independent moderator present so that customer discussion do not veer off onto the topic of how individual companies plan on

Credit Sales 130

Credit Sales Bad Debt Credit and Collections Credit Risk 130

Your Virtual Credit Manager

NOVEMBER 7, 2023

There is often a very fine line between getting paid and getting paid much later or not at all. Frequently there is a small window of opportunity for getting paid sooner rather than later. Any number of factors can put your company on the wrong side of the equation: Your competition also wants to get paid. If their collection efforts are more aggressive than yours, the customer will tend to pay your competitor sooner, while you end up waiting for this mutual customer to accumulate additional fun

Credit and Collections 100

Credit and Collections Collector Credit Management Small Businesses 100

Your Virtual Credit Manager

OCTOBER 31, 2023

Accounts receivable (AR) represent the amounts owed your business by your customers for the purchase of goods or services delivered on credit. Because AR constitutes one of largest assets on your books, proactively managing accounts receivable is crucial for the financial health of your business. Especially in these times of high interest rates and economic uncertainty.

Bad Debt 130

Bad Debt Credit and Collections Accounts Receivable (AR) Credit Risk 130

Your Virtual Credit Manager

OCTOBER 24, 2023

As with any other task, some people are better at debt collections than others. The good news. everybody can improve! This includes people who are not comfortable in a collection role, which is a common situation in smaller organizations, especially for those that doesn’t have formal credit and collections training or experience. (Photo by Jo Coenen - Studio Dries 2.6 on Unsplash ) After observing top notch collectors doing their job you might come to the conclusion that personality is cri

Collector 130

Collector Credit and Collections B2B Credit Debt Collections 130

Your Virtual Credit Manager

OCTOBER 10, 2023

In larger organizations, those with credit professionals on staff, the credit function is sometimes disparaged as the “Stop Sales” department. When that’s the case, it’s clear that sales and credit are not properly aligned and the resulting friction is bad for business. (Photo by krakenimages on Unsplash ) The purpose of having a credit function is to ensure a profitable sale.

Bad Debt 130

Bad Debt Credit Risk Credit Management 130

Your Virtual Credit Manager

OCTOBER 17, 2023

Extending credit is the financial backbone of Business-to-Business (B2B) commerce. If you require payment in advance or upon delivery of goods or services, you are unlikely to find many customers willing to trade on those terms causing your business to not generate enough revenue to survive. (Photo by Jandira Sonnendeck on Unsplash ) In most cases, you therefore have to extend credit to your B2B customers, which entails the following risks: Not being paid anything Being paid an amount less than

Bad Debt 130

Bad Debt Credit and Collections Credit Risk Accounts Receivable (AR) 130

Your Virtual Credit Manager

OCTOBER 3, 2023

The typical course of action on managing bad debt loss is to identify, then focus credit and collection activities on individual customers who are financially weak. These customers pose the highest risk of bad debt loss. This is a classic approach and when executed properly, it can enable a company to satisfactorily manage their credit risk. It should also facilitate maximizing revenue from customers with a higher degree of credit risk.

Bad Debt 130

Bad Debt Accounts Receivable (AR) Credit Risk Credit and Collections 130

Your Virtual Credit Manager

SEPTEMBER 26, 2023

Your accounts receivable (AR) and cash balances as of December 31, 2023, are very important numbers. Suppliers, lenders, and credit rating agencies place substantial importance on these numbers when assessing your liquidity and overall financial strength. Their assessments of your business based in large part upon these metrics will determine your credit limits, collateral requirements, lines of credit and borrowing capacity.

Credit and Collections 147

Credit and Collections Accounts Receivable (AR) Deductions Collector 147

Your Virtual Credit Manager

SEPTEMBER 19, 2023

Most businesses put up with customers that are chronic slow payers. Many of these customers pay late, but not seriously late, and the amounts involved do not create an exposure problem. There will always be a few customers, however, who consistently delay and end up paying large balances substantially beyond terms. Despite what these customers may tell you, the reason for their payment behavior is a lack of financial resources.

Credit and Collections 130

Credit and Collections Bad Debt Default Credit Risk 130

Your Virtual Credit Manager

SEPTEMBER 12, 2023

Effectively managing accounts receivable (AR) is essential for a company's financial well-being. Poor receivables performance affects cash flow, and it is no secret that cash flow problems are the leading cause of business failures. (Photo by Kind and Curious on Unsplash ) Traditional AR operatuons, involving manual data entry and processes, too often result in costly errors and inefficiencies.

Credit and Collections 130

Credit and Collections Bad Debt Accounts Receivable (AR) Deductions 130

Your Virtual Credit Manager

SEPTEMBER 5, 2023

Many firms offer early payment discounts as part of their terms of sale. Whether you should or not depends on the competitive conditions facing your firm as well as the benefits and costs your firm will realize from offering discount terms. The benefits acrue from the volume of accelerated payments you can realize and the costs that result given your capital structure.

Bad Debt 130

Bad Debt Credit and Collections Accounts Receivable (AR) Default 130

Your Virtual Credit Manager

AUGUST 29, 2023

Effective collections are crucial to maintaining a healthy cash flow and the financial stability of your company. If your business is struggling with cash flow or AR balances are growing, it could be a sign that your collections policy requires updating. Photo by Austin Chan on Unsplash The reason for having a collections policy is to make sure customers pay on time.

DSO 130

DSO Credit and Collections Bad Debt Collection Effectiveness Index 130

Your Virtual Credit Manager

AUGUST 22, 2023

Photo by Tim Mossholder on Unsplash One of the only positive developments of the Covid pandemic was that it stimulated a large increase in startup companies. For the most part, that 50 percent increase in new business formations has continue to hold. The good news is that this is an increase in potential customers. The bad news is that nearly 21 percent of last year’s startups will fail this year leaving you with a bad debt on your books if you sold to them on credit terms.

Credit and Collections 130

Credit and Collections Bad Debt Credit Risk Bankruptcy 130

Your Virtual Credit Manager

AUGUST 15, 2023

Each past due account presents a unique set of circumstances. Consequently, your collection process needs to adapt to each situation if you are going to realize the best outcomes possible. A one size fits all approach to collections will not achieve as high a level of recoveries and cash flow as a strategic approach to collections. Photo by Berkeley Communications on Unsplash In all probability, your accounts receivable (AR) portfolio conforms to the 80/20 rule.

Credit and Collections 130

Credit and Collections Accounts Receivable (AR) Credit Management Small Businesses 130

Your Virtual Credit Manager

AUGUST 8, 2023

Collecting from other businesses begins as a series of reminders followed by administrative tasks to provide your customer with the information they need to pay your invoice, and can also involve reconciling your information to theirs. To be effective at this requires good process and time management. Later phase collections require a much heavier reliance on problem solving and negotiation skills.

Credit and Collections 100

Credit and Collections Third Party Collections Bad Debt Credit Management 100

Your Virtual Credit Manager

AUGUST 1, 2023

Even though the economic headwinds are moderating, now is not the time to become less vigilant from a customer credit perspective. Commercial bankruptcies began rising earlier this year after an unprecedented lull during the Covid crisis. Historically, bankruptcies have tended to peak after an economic crisis has passed and that appears to be what is happening now.

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Bankruptcy Chapter 11 Chapter 7 Bad Debt 130

Your Virtual Credit Manager

JULY 25, 2023

From a working capital standpoint, cash flow is the result of several factors. Turning your inventory over faster and your payables slower will add cash to your balance sheet, as will raising capital by selling shares in your company or getting a loan or line of credit. The other option you have involves improving the performance of your accounts receivable (AR).

Best Possible DSO (BPDSO) 130

Best Possible DSO (BPDSO) DSO Cash Forecasting Credit and Collections 130

Your Virtual Credit Manager

JULY 18, 2023

Photo by Campaign Creators on Unsplash Commerce between companies is facilitated by a trade credit relationship. When a supplier or vendor grants open credit terms to their business customers, both parties benefit. Access to credit in the form of open terms expedite the order fulfillment process, assuming the customer has an adequate credit limit, thereby greatly enhancing the Customer Experience (CX), while at the same time avoiding the need to deal with payments in advance, cash on delivery (C

Credit and Collections 130

Credit and Collections Credit Scoring Credit Management Credit Application 130

Your Virtual Credit Manager

JULY 11, 2023

Accounts Receivable (AR) is among the three largest assets on most companies’ books — inventory along with plant and equipment are the other two. AR is also the primary source of cash to fund daily operations. As a result, most companies measure their performance in managing the AR asset to: Monitor the level of risk of not being paid a portion of AR Identify opportunities to increase cash flow through better management of this relatively liquid asset.

Best Possible DSO (BPDSO) 100

Best Possible DSO (BPDSO) DSO AR Metrics Credit and Collections 100

Your Virtual Credit Manager

JUNE 27, 2023

Just like people, business customers come in all shapes and sizes — personalities, too. Some business customers are easy to deal with, others not so much. Some customers buy from your firm on a regular basis, other infrequently. Some have good credit, others are clear risks. Some pay promptly, others pay intermitantly, and still others you have to chase down every time.

Collector 26

Collector Credit and Collections High-Risk Accounts Accounts Receivable (AR) 26