The flip side of increased sales is almost always an increase in accounts receivable. In the modern post-crisis situation, increasing production and sales is no longer a key factor in the development of the company. The main indicator of stability is competent control, planning and management of receivables.

At the stage of making a decision to provide a loan to a buyer, the following are of primary importance:

• the validity period of the contract for deferred payment (as a rule, standard contracts with a predetermined loan period are used);
• the level of solvency and reliability of the client, while special attention when collecting information is paid not only to open sources, but also to unofficial ones (for example, personal connections in regulatory and law enforcement agencies);
• creating a system of reserves in case of bad debts. The most reliable and honest client, on the basis of any standard contract, is exempt from liability in the event of force majeure circumstances, and although force majeure circumstances are rarely the real reason for non-payments, they should not be discounted;
• creation of a reliable mechanism for working with problem payers. As a rule, this responsibility is assigned to the enterprise security service. In addition, financial instruments are used, such as charging penalties for each day of delay, including the day of payment, revising the terms of the contract as a whole;
• providing a discount, the size of which is inversely proportional to the loan term. Thus, the client becomes interested in repaying the debt as quickly as possible.

However, as practice shows, the most advanced filtering system for customers purchasing goods on contractual terms is not capable of providing a 100% result. Accounts receivable in itself are not an evil for the company, although it is necessary to know exactly what size, quality and period of debt are acceptable or unacceptable for the supplier. A certain mechanism has been developed for this.

First, the level and dynamics of debt in the previous period are analyzed using the formula:

Kdz = Z/A,

where Kdz is a coefficient showing the level of involvement of working capital in accounts receivable;

Z - amount of debt;

A is the total amount of working capital.

An important indicator of the quality of receivables is the turnover rate of working capital invested in debt, which is calculated using the following formula:

KO = OR/Z,

where KO is the number of rotations of the remote control in the period under review;

OR - the amount of turnover in the period under review;

After this, the level of bad debt is determined using the formula:

Kpr = Zpr/Z,

where Kpr is a coefficient expressing the level of overdue debt;

ZPR - debt not paid under the contract in the period under review;

Z - the amount of debt in the period under review.

Then the efficiency ratio of investing working capital in accounts receivable is determined:

Edz = Pdz - Zdz - Pdz,

where Edz is the efficiency ratio of investments in receivables;

Pdz - profit received due to sales on contractual terms;

Zdz - costs associated with lending (verification, work with debtors, etc.);

Pdz - the amount of financial losses from non-repayment of debts.

Sdz = Or + Ks x (Pdn + Ppr),

where Sdz is the amount of funds invested in accounts receivable;

Or - planned sales volume on credit;

Kc - the ratio of cost and product price;

Pdn is the weighted average of the number of days for which goods are shipped on credit;

Pdr - period of late payments, days.

When a company cannot invest the necessary funds in accounts receivable, it is necessary to make adjustments to the planned revenue and profit received from sales on debt.

One of the new methods of debt management is the refinancing of receivables, the main forms of which are factoring, forfaiting, and bill accounting.

Of particular interest to the company is factoring as a tool that covers a significant amount of supplier risks. In addition, the capital turnover period increases; for a relatively small percentage, the company optimizes its financial structure and does not incur additional costs for working with problem customers.

One of the key conditions for granting a loan is determining the duration of the agreement. Due to an increase in the duration of the contract, sales volume and revenue increase, but the amount of funds that need to be invested in accounts receivable increases, and the company’s financial cycle increases. When setting the limit of a loan agreement, it is necessary to take into account all the stated points.

Determining for itself the importance of each factor, weighing all potential risks, the company builds its credit policy, which determines the credit limit for each individual period.

In combination with the period for which the loan is provided, its cost is of particular importance. Determined by a system of price discounts for immediate payments for the supply of products. Based on these indicators, the interest rate for the loan provided is calculated:

Pg = Cs x 360/Sp,

where Pg is the interest rate on the loan provided;

Tss - discount for immediate payment without deferment;

SP - validity period of the loan agreement.

A special feature of establishing this norm is that it is linked to the interest rate on a bank loan. In any situation, it should be lower than in financial institutions. Otherwise, it is more profitable for the counterparty to take out a loan from a bank and pay for the delivery on an advance payment basis.

Based on the experience of domestic companies, it is possible to create an algorithm showing the degree of responsibility of each employee in the process of managing accounts receivable. As a rule, the commercial division of the company (sales department) oversees sales and cash flow issues, while the financial service is responsible for information and analytical work. The legal service is responsible for the impeccable state of document flow for problematic shipments (a necessary condition in the event of litigation). If the debt becomes problematic, the company’s security service gets involved.

In addition, it is important that the functions of performers when working with a client are not duplicated. Otherwise, there is inconsistency between departments, leading to a decrease in operational efficiency. Therefore, it is necessary not only to clearly distribute functions between departments, but also to clearly describe their actions at all stages of working with a problem client (see table).

Distribution of functions of performers when working with clients

Accounts receivable management stage	Actions of departments for managing receivables	Responsible department
Establishing a payment period within the scope of the contract	Signing the contract	Financial Director
	Issuing an invoice for payment	Sales department
	Shipment of goods and support of shipment (issuing invoices, receiving confirmation from the client that the goods have been received in the proper quantity and quality)	Sales department
	Reminder of the payment date (three working days before the end of the contract)	Sales department
Control of overdue payments up to 7 working days	Finding out the reasons for the delay in payment	Sales department
	Coordination of a repayment schedule for overdue debts	Finance department
	Stopping further shipments	Commercial Director
	Written notification of the commencement of application of penalties	Financial Director
from 7 to 30 working days	Calculation of a fine	Financial Director
	Daily calls reminding you to pay	Sales department
	Personal meeting with the director or owner of the debtor company	Commercial Director, Sales Department
	Written notice of preparation for trial	Legal service
from 30 to 60 working days	Repeated personal meeting with the manager or owner of the debtor’s company, taking all possible measures to find a compromise solution	Head of Security Service, Sales Department
	Official complaint (written)	Legal service
more than 60 working days	Filing a claim in court	Legal service

An additional incentive that can reduce the number of bad debts is such an unpopular measure as establishing a relationship between bonus payments to sales employees and the state of the company's total accounts receivable. Despite the fact that all divisions of the company, without exception, take part in the process of assessing the solvency of a potential client, his reliability, it is the sales department specialists who are the first link in the chain of starting contractual relations, they always have more reliable and timely information about the state of the market, the solvency of certain counterparties. It is on the basis of information transmitted by the sales department to other divisions of the company that decisions are made to sign or not to sign contracts for deferred payment.

No less responsible is the financial department of the company, whose responsibilities include conducting an error-free analysis of the state of total accounts receivable for the company as a whole. System errors that can be made in this case are no less dangerous for the company’s activities than the occurrence of bad debts due to the collection of incorrect information about potential clients.

Accounting and timely analysis of the status of accounts receivable is currently impossible without the use of special computer programs and automation of cash receipts accounting. This is due to an increase in shipment volumes, the number of invoices issued and deferred payment agreements. At the same time, it is possible to perform an analysis not only by counterparties and periods, but also to identify for which product groups and in which price segment bad and problem debts most often arise. This, in turn, allows you to more accurately assess risks when deciding whether to sign an agreement with a particular buyer.

In conclusion, we would like to add that in the process of managing accounts receivable, professionalism and a high degree of motivation of the personnel involved in this process are of great importance. The preparation of all necessary documents confirming the fact of shipment and the imposition of obligations on the counterparty must be completed exactly on time and in the proper manner. Practice knows many examples when the debtor was released from payments during the trial due to the fact that the plaintiff did not submit all the necessary, correctly executed documents confirming the fact of shipment and the provision of a loan.

11.09.2012

In a manufacturing and technology organization with a variety of products, services and an ever-expanding customer base, it is not easy to monitor how well customers fulfill their obligations. He shares his experience in building a receivables control system in similar organizations in his article. Elizaveta Ivanova, Financial Director of Diesel Technologies LLC.

Construction of a receivables control system

- an important component of working capital of any organization. Diesel technologies are no exception. We provide services for the operation and repair of diesel fuel equipment. The auto business is developing, and with it the number of specialized companies is increasing. You constantly need to be on your toes. The use of such a sales stimulator as the provision of trade credit and deferred payment is by no means a superfluous tool in the fight for potential customers. Accounts receivable management directly affects the profitability of the company and determines the policy for providing credits and discounts to customers.

The main elements of the accounts receivable control system include: control and accounting of contracts with customers, control of registration of sales of goods, establishment of the nature of accounts receivable. In addition, the tasks of our company’s financial specialist in managing accounts receivable include:

1) determining the degree of risk of insolvency of buyers,

2) calculation of the forecast value of the reserve for doubtful debts,

It is important to note that the accounts receivable control system must cover all stages of the sale of goods - from the moment of concluding an agreement with the buyer to the actual sale of goods.

In our company, the construction of a receivables control system began with the creation of a credit committee. I gained experience in forming such a division in an organization while working in the lumber sales industry. This is a rather narrow market, and competition in it is very high. The credit department allowed us to control relationships with clients, while creating comfortable conditions for cooperation. When problem clients appeared at Diesel Technologies, the idea of ​​​​developing a similar system, only taking into account the characteristics of this particular business, at first seemed unrealistic. Too different organizational structures and different profiles of activities. However, in the end the concept was developed, and now the project is under active implementation.

The functions of the credit department of the Diesel Technologies company include the organization and implementation of a receivables control system, as well as its further maintenance at the proper level. We started by defining the levels of responsibility when making decisions that required approval by members of the credit committee.

Lawyers developed a unified form of contract for the supply of goods with deferred payment, mandatory for all divisions of the company.

This form of agreement was put into effect by a separate order of the general director of the organization. Delivery agreements with deferred payment, concluded in a different form, ceased to be valid and were subject to re-conclusion. Clients were warned about this by a separate information letter sent to the counterparty along with the new contract form.

Among other things, the unified contract for the supply of goods with deferred payment contains the following provisions (extract):

4.3. Payments for the Goods are made in the following order:

Within ___ (___________) business days from the date of issuance of the invoice/invoice/specification, the Buyer transfers to the Supplier's bank account an amount in the amount of 100% of the cost of the Goods indicated in the specifications, invoices, and invoices.

4.4. Deferment of payment in accordance with clause 4.3. The Agreement is provided to the counterparty subject to the monthly volume of purchases of Goods under this Agreement in the amount of at least ____________ (_____________) rubles per month.

4.5. The limit of the Buyer's debt to the Supplier for the delivered Goods cannot exceed _____________ (_____________) rubles.

4.6. If the conditions specified in clause 4.4 are not met, the deferred payment may be reduced or replaced by 100% prepayment.

This change in the payment procedure for the delivered Goods must be documented in a separate Appendix.

4.7. In case of using a trade credit, the Buyer undertakes to provide duly certified copies of the following documents of a legal entity (extract from the Unified State Register of Legal Entities, registration certificate, tax registration certificate, letter from the bank about open current accounts, financial statements (form 1, form 2), power of attorney for signing the contract). All documents must contain the inscription “Copy is correct” and be certified by the signature of the General Director and the seal of the Buyer.

4.8. The Buyer’s obligation to pay for the Goods is considered fulfilled after funds are credited to the Supplier’s account.”

In addition, the last sheet of our copy of the contract provides for mandatory endorsement by several company representatives: commercial and financial directors, general director. Responsibility for signing the unified contract form and the completeness of the accompanying documentation was assigned to the responsible sales manager.

Next, we made appropriate changes to the transaction registration algorithm in the company’s information system. Unlike contracts with a prepaid system, which were registered by sales managers themselves, registration of contracts with deferred payment was the responsibility of the financial manager. At the same time, he checks the completeness of the provided accompanying documentation, the presence of signatures of responsible persons and sets the appropriate conditions for trade credit (credit limit, deferment in days) in the information system. If the specified restrictions were set - exceeding the credit limit or there was a delay in payment - the goods could not be automatically shipped.

The next stage in creating a clear system for monitoring receivables was the inclusion of the item “Share of overdue receivables, %” among the key performance indicators of sales managers. This indicator is monitored monthly and is included in the calculation when calculating the monthly bonus.

Accounts receivable of XXXXXXX LLC as of ___________ 2012

Every month, before the 1st day of the month following the reporting month, a specialist from the financial department draws up a report on the status of receivables, including overdue ones. The financial manager provides the results obtained to the financial and commercial directors. In turn, the commercial director communicates the results of the audit to the responsible sales managers in order to control accounts receivable and determine further actions to repay debts.

The stages of collection of overdue receivables and the responsible persons at each stage of this procedure were also identified.

Thus, the organization built a system for monitoring receivables, covering all stages of the sale of goods from the moment of its occurrence until the actual receipt of funds into the company’s current account when collecting overdue receivables.

A few words about monitoring the validity of the size of the provided credit limit. Every month, on the last date of the current month, the chairman of the credit committee receives a report on the status of accounts receivable, which contains information not only on current transactions with deferred payment, but also data on the cumulative sales volume from the beginning of the year and the average monthly sales volume for each client:

This report allows you to assess how well the client complies with the terms of the provision of trade credit established under the agreement (see clause 4.4 of the agreement) and, if necessary, make appropriate adjustments.

I.Sales regulations as a tool for controlling accounts receivable

An important stage in building a receivables control system was the development and implementation of sales management regulations.

The purpose of introducing this internal regulatory document was to minimize errors in the sale of goods and divide the areas of responsibility of employees in the implementation of this business process. Since the provision of trade credit is one of the sales tools, the algorithm for controlling receivables was also included in the specified regulations.

Organizing sales according to a clear scheme makes it possible to quickly manage the process of sales and communication with clients.

Sales management regulations include:

• description of the business process of selling goods, taking into account the variability of existing methods of selling goods in the organization:
• delivery of goods on an advance payment basis;
• delivery of goods with deferred payment;
• sale of goods for export.
• structural diagram of the process of selling goods and customer service;
• primary and secondary responsibilities of sales managers, as well as warehouse and accounting employees;
• measures to control accounts receivable.

The regulations establish the conditions for providing commercial lending to buyers. They stipulate that this operation is carried out only for customers who have a positive purchasing history for at least 6 previous months, with constant turnover and the absence of unfounded returns and claims from the buyer. The maximum period of deferred payment provided to the client cannot exceed 45 calendar days from the date of shipment of the goods.

It also defines the limits of responsibility of managers at different levels when deciding on the size of the credit limit for the client. The decision to provide a credit limit for an amount over 50,000 and up to 500,000 rubles is agreed upon with the financial and commercial directors. Over 500,000 rubles - with the general director.

It is important to note that registering the terms of a supply agreement with an established credit limit in the company’s information system is the responsibility of the financial manager, and not the sales manager. If one or another condition is exceeded, the process of selling goods is automatically blocked by the system and shipment of goods becomes impossible. Only the financial manager can change the client’s credit conditions in the company’s information base; other company employees do not have these rights.

I would like to emphasize that debugging the company’s information system to meet the relevant requirements for ensuring debt control is a prerequisite for creating a working accounts receivable management system.

The stage of selling goods with deferred payment is also not left without attention. If there is a delay in payment for a previous shipment, the sales manager is obliged to suspend all subsequent shipments to the client until the overdue debt is repaid, or make subsequent shipments with advance payment. In accordance with the regulations, the responsibility for monitoring the receipt of funds when shipping goods with deferred payment is assigned to the sales manager.

II.Preventive work and mechanism for collecting overdue receivables

In addition to regulating the stages of concluding a supply agreement, selling goods, returning goods by the buyer and internal movement of goods, the sales management regulations contain an algorithm for the actions of employees when collecting overdue receivables and conducting preventive work on their occurrence.

Thus, sales managers ensure compliance with the following procedures for managing receivables:

1) From 1 to 30 days from the date the debt arose, the responsible sales manager sends a payment reminder once a week (every Monday).

2) 2-3 days before the payment is due, the sales manager by telephone reminds the client about the end of the deferment period and the need to repay the debt.

3) If payment is not made on time, the sales manager makes daily calls to find out the reasons and create a debt repayment schedule.

4) At the same time, during the period from 1 to 60 days of delay, the responsible sales manager sends the first payment request to the client once a week (every Monday). Within 2 days after sending the request, the manager must call the client to verify the receipt of this request and request information about the actions taken by the client.

If payment is overdue for more than 60 days, actions to repay the debt are carried out by the financial and legal departments of the central office. The financial manager takes all possible measures for pre-trial settlement and return of overdue receivables, including sending a second payment request to the client.

When the 180-day period of delay is reached, the legal department prepares a package of documents to transfer the case to the arbitration court or to an agency for collecting receivables, having previously sent a corresponding letter to the client.

All of the above methods for collecting overdue receivables are gradually being adapted to the field of Diesel Technologies. The proposed methodology allows you to control accounts receivable at all stages of its occurrence and existence, and also significantly reduces the risks associated with trade lending to customers.

It is important to note that for greater efficiency it is also necessary to link the motivation system for sales managers with the accounts receivable control system. For example, enter as one of the key performance indicators the volume (share) of overdue receivables in the total volume of “receivables” as of the reporting date.

Some organizations also resort to credit insurance - a measure against unexpected losses of bad debt. But I would advise, before making a final decision to purchase such protection, to evaluate the expected average bad debt losses, the financial ability of the company to withstand these losses and the immediate cost of insurance.

Elizaveta Ivanova, financial director of Diesel Technologies LLC

It is necessary to control accounts receivable for an enterprise not only for the sake of analyzing and tracking the necessary information on debtors, but also so that the management of the enterprise always has access to real information about the state of working capital for a given period.

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Such debts from individuals, legal entities or even government agencies threaten the enterprise with financial losses and the risk of loss of material assets. Therefore, they must be under control, and how to do this, you should study the methods and schemes in more detail.

What is it

Accounts receivable control is the settlement, management and accounting of the amount of debts in an enterprise formed by users of the working capital of a legal entity - debtors (debtors), which can be other enterprises, companies, organizations, as well as individuals.

The importance of such control is relevant not only for large corporations, concerns or industries, but also for small and medium-sized businesses. What will happen if you don’t control the so-called “receivables” for the enterprise?

In this case, the following scenarios may develop:

1. Amounts of money may be lost, and in impressive amounts, which will be very difficult to find. We will have to additionally hire specialists, auditors, and experts to conduct an investigation into the finances of the enterprise. The loss of amounts may especially occur when collaborating with fly-by-night companies, for example.
2. Financial instability in the enterprise will be recorded from month to month. This, in turn, will affect the regularity of payment to workers, the repayment of obligations to the state - tax or utility payments, and so on.
3. Inefficiency in spending the enterprise's resource base arises. Due to the fact that it will be necessary to involve the efforts of all key officials (directors, accountants, managers, lawyers and others), new projects will be slowed down, and the costs of legal fees in litigation with debtors will simply reduce the income of the enterprise.
4. The business reputation of the enterprise may suffer in the face of new customers who will understand that they are threatened with delays in deliveries or production of orders due to a decrease in the monetary resource base of the enterprise by its debtors.
5. The degree of competitiveness decreases due to the fact that due to accounts receivable the company incurs unnecessary expenses.

As you can see, everything goes like a chain - because of someone’s debts, the enterprise begins to lose its activity, stability, reliability and productivity.

But the main danger when ignoring this point of accounting and auditing is that the enterprise will simply come to an inevitable and uncontrollable increase in debt and material losses. And this, in turn, will create great obstacles to business development and growth.

Accounts receivable are perceived as an asset (that is, repayable funds are considered a replenishment of the cash register, part of the property of the enterprise) and are distinguished according to the following classification:

Short-term debt assumes that the company will receive back payments within 1 calendar year, if we take the reporting date as the starting point.

In the long-term option, the terms increase and exceed 12 months after the reporting dates. When the current debt is determined, this means that payments are expected within the period of time specified in the contract.

In case of doubtful debts, the company itself is confident that it will receive its money back, despite the fact that the debtor has already missed the deadline for their payments.

Bad debt indicates the impossibility of debt repayment and the absence of real ways and opportunities for debt repayment.

Pay attention! Large corporations or companies, or, conversely, small businesses, may well establish their own types of receivables. It all depends on the scale of activity of the legal entity.

How to control

A reasonable approach to conducting business activities is to measure and take into account all financial indicators, including accounts receivable, as accurately and constantly, methodically.

In order to ensure competent control of accounts receivable, every manager of an enterprise must know a number of important activities that must be carried out.

“Receivables” should be controlled according to a certain algorithm of actions, which are expressed in the following stages:

1. Appointment of an official authorized to regularly monitor the status of receivables. This position is often simply called an auditor.
2. Identification of dates for control actions.
3. If a mechanism such as deferred payment is used, then introduce specific and understandable regulations for the transfer of products and monitor its implementation.
4. Accounting actions for volumes and amounts of debt.
5. Establishing limits on deferred payments and their duration for all counterparties without exception.
6. Weighing the composition of the debt - how much is the debt and when it was formed.
7. Conducting a comparative analysis between the timing of debt elimination and the timing of obtaining loans.
8. Carrying out collection calculations using special coefficients that would show what proportion of payments were made for the current period of time before the products were shipped.

In all this, it is very important to keep constant records of companies, enterprises, organizations and even individuals with whom the enterprise in one way or another conducts partnership activities.

It does not matter how long-term or short-term the cooperation between the parties will be. At the same time, records are kept of all contractors who are already considered to be indebted to the company.

Such maneuvers will allow you to timely track deadlines, who owes and how much. And such timely output makes it possible to take certain measures in a timely manner so that debts are repaid as soon as possible or have a high degree of repayment guarantee.

The procedural steps for controlling accounts receivable are as follows:

• shipment of finished products to the consumer;
• control that payments for shipped products are made on time;
• debt inventory;
• issuing penalties to the violator of contractual obligations in case of delays in payment;
• legal proceedings to recover debts from debtors;
• connection of reserve funds.

Methods

Lately, most enterprises have felt the burden of more and more growing accounts receivable. According to experts and researchers, this state of affairs most often manifests itself due to the slow pace of payment transactions (turnovers) between organizations, firms, and enterprises.

To do this, in order to avoid such phenomena, it is necessary to manage debt constantly. At the same time, along with management, the “receivables” must correspond with other points of the general financial policy of the enterprise.

At the same time, control and management of such debt must also be consistent with marketing policy.

There are quite optimal methods for controlling accounts receivable, which are as follows:

1. Monitoring the status of accounts receivable.
2. Ranking of debtors, where debtors with large debts are identified.
3. Analysis of debts by type of product, profitable and unprofitable goods.
4. Realistic assessment of securities and the possibilities for their profitable sale.
5. Carrying out work with debtors in court and pre-trial procedures.
6. Tracking the balance of accounts payable and receivable.
7. Market expansion, increase in consumers.
8. Finding ways to optimize credit policy.
9. Motivate employees working to sell products.
10. Promote and encourage early and timely payment for products.

When solving problems that control accounts receivable, they use special indicators, which are presented in relative values, and even in dynamics over a certain period of time - quarters, years.

The most key indicators are the following:

• collection ratio - thanks to it, you can determine the amount and time of receipt of money from sales in a specific period of time, these are the expected receipts from the sale of products;

• receivables turnover ratio;

• the period when the “receivable” is repaid;

• normal repayment ratio of “receivables”.

The results from the calculations that are made using such formulas can even be used to monitor and manage the organization's credit policy.

There are also ways to refinance receivables, which consist of the following methods - factoring, forfaiting, accounting and pledging bills as collateral, as well as other forms of financing receivables for a short period of time.

When the composition of debt is studied, the results of the analysis of reserve data, doubtful debts, and losses that are recorded as actual are necessarily taken into account.

To prevent the growth of accounts receivable, you can take into account and use the following methods for its optimization:

1. Require advance payment from new customers before shipping products.
2. Provide a guarantee of payments by the consumer in the form of collateral, surety, or some kind of bank guarantee.
3. Plug the “holes” of accounts receivable with accounts payable.
4. Connect a letter of credit - a third party capable of resolving the issue of solvency of the consumer of the product.
5. Obtaining a loan as debt refinancing.

Pay attention! The letter of credit service is very expensive, so it is used extremely rarely, and because of this, it is not particularly popular when resolving issues with receivables.

Internal control of accounts receivable

It should be noted that there are no universal methods to combat the growth of receivables.

Everything is so relative and each individual case has its own specifics that specialists have to look for more and more new ways to control and manage accounts receivable each time.

In many ways, a large role is played by the economic activity of the enterprise itself, what amounts pass between the accounting department and customers or clients, as well as the situation in the market itself, in the niche in which the organization operates.

But there are already proven methods that, in a standard situation, will act as a classic method of internal control of “receivables”:

1. There should always be a planned level of debt. If the level exceeds the planned level, measures are taken to reduce the growth of debts.
2. The use of deferred payments or loans, but not for all clients, but for those who are guaranteed to repay their debt. In this case, you should always set a specific deferment period and secure this with an additional agreement to the cooperation agreement. Usually 15 or 30 days of deferment are used.
3. Motivate employees to increase productivity. Here it is desirable to use a system that could make the payment of earnings to employees closely dependent on the timing of receivables.
4. Develop the very scheme according to which the procedure for deferred payments provided to clients will take place.
5. It is important to determine the parameters and evaluate the information provided by the consumer about valuable property that can be used to cover receivables in the event of their intensive growth.
6. It is necessary to correctly distribute the responsibilities that legal, commercial and financial services, departments of the corporation bear when monitoring receivables.

Technology for effective conflict-free collection of receivables

Unruly customers owe your business varying amounts of money. Some amounts are so large that it causes serious damage to your business, and many “small” debts, the non-payment of which are puzzling, also add up to a large sum. In order to reclaim them and not spoil relations with debtors, appropriate technology is needed.

Further presentation is based on the fact that you have a good product and you have properly fulfilled your obligations to the debtor under the contract and applicable law.

Why do overdue accounts receivable occur?

1. The debtor has flimsy reasons for not paying you.
2. He doesn't have the money to pay the debt.
3. The debtor chooses other spending priorities.
4. Debtor is undisciplined or dishonest.
5. The employees of your company did not take the required actions to collect debts in a timely manner.

In all these cases, your main tool should be an agreement with the debtor. Unfortunately, usually agreements between enterprises are formal pieces of paper that do not protect either party from the arbitrariness of the other.

An agreement that reduces the risk of accounts receivable

In order for an agreement to be the key to conflict-free cooperation between the parties, it must contain detailed algorithms for the actions of counterparties in various situations.

Before concluding a contract, the parties assure each other of their reliability and commitment. And no matter how thorough the negotiations are, it is still not possible to provide for all the nuances. Some of the ideas of the negotiators and their understanding of certain details remain different. At the same time, all ideas that are important for each of the negotiators are perceived by them as an obligation given by the other party.

If some of the details are not carefully reflected in the contract, then different understandings carry the risk of potential conflict. Often, a contract will include a never-controversial clause that reads: “The parties acknowledge the completeness of this contract and the replacement by it of all previous agreements between them, whether written or oral.” This correct phrase cancels the right of the parties to say about something not included in the agreement: “And you promised.” This point is equivalent to the fact that there were no negotiations before the signing of the agreement. Therefore, do not hope that, as it seems to you, the debtor promised something else. If it did, it doesn't matter. The debtor cares only about his own interests, which is natural. You have a responsibility to take care of yours too. By the way, your verbal promises are also void. You never know what your salespeople blurted out in the heat of the moment.

Why the debtor does not pay and how to deal with it

• He has no money;
• He has other priorities;
• He does not consider himself a debtor:
• This is beneficial for him; He is confident in his impunity.

So that he cannot fail to pay, the contract must be provided with conditions when it is more profitable to pay. That is, it is necessary to provide sanctions for violation of obligations that would force the debtor to change his payment priorities, or take out a loan, or sell an asset dear to his heart, but pay you off.

During contract negotiations, the issue of applying sanctions should be considered as a test of the commitment of the counterparty. Objections to the inclusion of provisions in the contract for serious penalties for late payments should be taken as a wake-up call. You can overcome these objections by pointing to assurances of integrity made by the counterparty, and by including “mirror” sanctions for failure to fulfill obligations by your enterprise.

The non-conflict nature of the application of sanctions is ensured by the inclusion in the contract of an easily accepted clause with the following content: “The parties understand the issuance of an invoice for payment of penalties as proper fulfillment by the fining party of its obligations under the contract.”

By the way, do not forget to include clauses in contracts providing for restrictions, suspension or termination of the fulfillment of your company’s obligations to the debtor in the event of overdue debt.

Algorithm for fulfilling obligations, information content of the contract

There is nothing obvious to everyone in the world. What is obvious to you is not so to the client and vice versa. Therefore, the more detailed the actions of the parties, their sequence, deadlines for execution, conditions of execution, and the procedure for documenting are reflected in the contract, the more accurately the obligations of the parties will be fulfilled and their interests will be respected.

Don’t skimp on the paper on which the contract will be printed; it will pay for itself instantly. Representatives of the counterparty are able to read and understand text that is dozens of pages long. By describing the algorithm for fulfilling obligations, the parties will often quickly come to an agreement “on little things”, which has a beneficial effect on establishing mutual understanding and trusting relationships. Most likely, this approach will allow you to reduce the time required to agree on the contract as a whole.

During the execution of a contract or the application of its results, clients often encounter certain difficulties that they cannot guess about in advance. For example, when introducing technology, the details of which are described below, resistance may arise from your employees. The reasons for this may be: fear of changes in the procedure for performing duties, the need to reconsider your views on relationships with client representatives, personal material losses due to the exclusion of opportunities for obtaining unreasonable income, and others.

The occurrence of unforeseen difficulties by the client will cause dissatisfaction with your product and you with any possible consequences. To avoid negative consequences for you, the client must be warned about all potential difficulties that are not obvious to him that may arise even if the parties strictly fulfill their obligations under the contract. To do this, include information clauses in the contract that reflect that the client has been warned and understands the nature of potential difficulties. These points do not require agreement and do not oblige the parties to perform any actions, but they guarantee that your client will not feel that you have deceived him. The customer's understanding of the possibility of difficulties provides him with a more careful approach to the operation of your product. And this is beneficial for you, because the client can avoid these difficulties.

Contract templates

I recommend that you develop a set of contract templates for the various most frequently encountered options in your relationships with clients. This will not only save time on drawing up and agreeing on a specific contract, but will also allow you to remember to reflect in it the provisions that are fundamentally important to you.

A template is not a dogma. Never tell the client that the contract can only be concluded in the form in which you developed it. Otherwise, you will lose most of your best potential clients. The only exception to this may be the accession agreement, which consists of two parts: the agreement itself and the rules for using his product that cannot be changed by the client. But even in this case, the client may be given the right to include provisions that are important to him and acceptable to you in the contract.

Contract templates may contain clauses on the inviolability of which you not only can, but must insist on. These are items the exclusion of which will almost inevitably lead to conflict with the client. For example, finished software products are sold on an “as is” basis. That is, no matter how obvious to the client the mandatory presence of a particular function in the product is, if the developer has not implemented it, then no complaints about this from buyers will be accepted.

If a potential client insists on excluding such a clause from the contract, then it is more profitable to refuse the client than to later conflict with him when he refuses to pay using flimsy pretexts.

Why are your employees avoiding collecting accounts receivable?

Almost always, avoidance of collection of receivables is associated with psychological barriers that employees build in front of themselves. The reasons are usually:

1. Upbringing. Money is one of two topics that people usually feel uncomfortable discussing even with those closest to them. Religious commandments, philosophical and artistic literature, proverbs, sayings, and anecdotes have been devoted for thousands of years to presenting money in a negative light. Therefore, it is often difficult to even demand that people give back their legally earned money. They are embarrassed that they must demand money from those who lack it.
2. Fears. Employees are afraid of being rejected, of doing something wrong that will lead to the loss of a client, of innocently experiencing a negative reaction from colleagues to real or fictitious actions, and others.
3. Negative attitude towards the product of your company. Pay attention to how your employees perceive incidents related to the use of your products and services. They discuss them vigorously, remember them for a long time, and tell them to new colleagues. They are silent about normal situations, believing that this is how it should be. Benefits and customer satisfaction, if remembered at all, are considered as advertising and PR. Therefore, repeatedly inflated, even if few, incidents create a persistent bad opinion about the goods and services of your enterprise. And if so, then workers consider it indecent to demand money from debtors for them.
4. Personal mercantile interest. It manifests itself in two ways. One of the manifestations is an agreement between an employee (usually a seller) interested in a percentage of the amount of “sales” and the debtor, which is expressed in an increase in accounts receivable due to an increase in shipments with deferred payment in case of incomplete payment for previous deliveries. The second manifestation is the receipt by an employee obligated to collect a debt of personal “remuneration” from the debtor for improper performance of functions in demanding payment of the debt.

Development of debt collection technology

Management technologies, like production technologies, include strict sequences of actions performed by employees. The construction of a chain of steps should begin with the formulation of the last step. In this case, this is an accounting entry that closes the client’s receivables. Having formulated this step in the past tense “An accounting entry has been made,” it is also necessary to consistently formulate all previous steps in the past tense, including the step “The occurrence of overdue receivables has been recorded.”

Formulating steps in the past tense is a technique that allows the technology developer to think through everything to ensure that each step is feasible.

In order for the occurrence of overdue debt to be recorded automatically, it is necessary to continue formulating the steps until the moment “An agreement has been concluded with the client.” Among them, it is necessary to reflect the movement of documents and the transfer of information about the fulfillment of contractual obligations.

The process of collecting overdue receivables will be activated immediately when your employees become aware of its occurrence. To do this, you need to provide for informing the relevant employees about the fulfillment of obligations under contracts between your company and clients. That is, your employees must inform each other in writing about the conclusion of each contract with clients, about the timing of shipments and payments for goods (services), about the receipt of payments, and other features of the contracts. To do this, it is convenient to use software products of the CRM system class. This will simplify and automate the creation, storage and transmission of the necessary information.

As each technology advances to a previous step, its developer automatically determines which of his existing workers should perform that step. Transition points between individual employees and departments of the enterprise are identified. The procedures for transmitting information and documents, as well as the requirements for monitoring what the recipient receives, become apparent. This gives rise to the criteria for acceptance or refusal. Thus, at every step, each performer is obliged to carefully fulfill his duties.

Regulatory support of technology

In addition to the current legislation, the regulatory framework for the technology includes a number of documents. Including:

• Agreements with clients;
• Acceptance and delivery of primary accounting documents (acts, invoices);
• Orders for the enterprise on the commissioning of technology and the responsibility of employees for its implementation;
• Templates for letters and claims sent to debtors and orders for the enterprise to suspend or limit the fulfillment of obligations to debtors;
• Technological instructions for workers, including prohibitions on performing certain actions.

Templates for information and reporting documents.

These documents are necessary not only to formalize relationships with clients, but also to formalize the performance of duties by your employees. Availability of these documents:

1. Eliminates the fears of employees who are afraid of being punished for possible mistakes.
2. Prohibits them from performing actions that damage your company. (Usually, many prohibitions are taken for granted. But since they are not reflected in the current legislation and internal documents of enterprises, they are allowed. That is, employees can justify themselves by not knowing that a harmful action is prohibited).
3. Prescribes what, how and when to do. (Employees will not be able to tell you: “I thought it was better the other way”).
4. Ensures that employees are required to report in writing on the duties performed. Fake reports are impossible, since specific results of actions must be presented.

Very important document

It is a training manual “How to sell product “X””. This is not only an important tool for sellers, but also a psychological support for employees whose responsibilities include collection of receivables.

The fact is that usually enterprise employees know very little about their products and services. Test your employees to see if they can even answer questions about your products clearly, let alone convincingly:

• What are the advantages of your products compared to the competition?
• How do they work (operate)?
• What problems do your clients solve when using them?
• What benefits do customers get from using your products?
• What guarantees and under what conditions does your company provide to customers?
• Why are your products fairly priced?

Knowing the answers to these questions, employees will not treat your products with disdain. They will know that they are fairly demanding that they pay their honestly earned money. After all, having sold you their time and idle in the office, they, with a sense of trampled justice, will begin to demand a salary if you do not pay it to them on time due to the fact that the debtors have not paid you off.

You can read how to develop this document in my electronic collection of fifty articles “Secrets of Success” published in the magazine “Machine Park”. I can send this collection free of charge at your request. And the development of technology in general is described in detail in my books “Frankly about enterprise management” and “Bioroboticization of workers.”

Principles and techniques for implementing debt collection technology

Before implementing the technology, do not be too lazy to check everything thoroughly once again. Of course, the ideal is unattainable, and it is impossible to do without changes in the operation of the enterprise, but the technology must initially be developed so that changes can not be made to it for years.

Following this principle will ensure that you have minimal employee resistance to the introduction of technology. They should not have valid reasons to criticize her. Even if some rough edges are identified, try not to make changes to the technology. After all, if workers feel that something can be changed, they will increase their pressure to abolish the technology as a whole. Well, they don’t want changes in their work and in their consciousness that are vital for you.

Employees must familiarize themselves with your order on the introduction of technology by signature. A signature on the document is obligatory. It deprives the employee of the opportunity to say: “I didn’t know.”

To perform technology properly, workers must be well aware of the content of their technological instructions. The volume of each instruction can be several dozen pages. Using the excuse of an imaginary lack of time to study, they will sabotage the implementation of the technology. To prevent this, it is necessary to organize an exam on knowledge of the instructions for each employee. Two to three days are enough to prepare for the exam, because you don’t have to know the instructions by heart. It is a working tool that should be “at hand” in case you need to clarify the correct performance of duties.

Conducting an exam will deprive workers of the opportunity to not know what and how they are required to do. At the same time, you will check the attitude of those involved in the technology for their attitude to your orders and, in general, to the performance of their duties.

In the first weeks of implementing the technology, you need to check daily employee reports on the performance of debt collection duties. They are obliged to see and feel your determination that this is serious and forever.

Within three to four weeks from the date of passing the exam, and maybe faster, your employees will be drawn into meeting the requirements of the technology. Their murmurs will noticeably weaken. You will be able to indulge yourself personally in regularly checking your daily reports. But workers must always know that control has not weakened and will never be stopped.

Your employees should know and feel well that you do not print or steal money, that their salaries are paid from the funds that your company receives from customers. By developing and implementing receivables collection technology, you will create the basis for the systematic development of your business.

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