Debt collections-your mission critical part of business cash flow

A healthy debt collection process helps businesses of all sizes maintain positive cash flow which is critical for many reasons.

Cash flow is the backbone of any size business and positive cash flow keeps a business healthy and strong. It allows for consistent operations, a healthy bottom line, meeting the needs of your workforce and the confidence to know that you have the resources to grow if needed.

Your business must have positive cash flow!

Let’s go through some of the obvious and not so obvious reasons why debt collections is an integral part of your organization’s cash flow.

Debt collections help with recovering outstanding receivables

An effective debt collection agency will ensure that your business receives your payments for goods or services you provided. In fact, third party debt collections is a necessary part of your accounts receivables total process. We think about invoicing and follow-ups as part of an organization’s accounts receivable process. However, an organization’s healthy cash flow may rely on debt collection activity as a necessary part of the AR process.

Minimizing outstanding and longer term debts

Without a properly run debt collection program, your business can risk accumulating bad debt and the longer those debts stay outstanding, the more unlikely they will be recovered. When you properly pursue unpaid invoices, your business can identify potential outstanding invoices early and your organization can take appropriate action to mitigate losing out on your money. We emphasize promptly because the longer you wait to implement collection activity, the more difficult it becomes to settle those unpaid invoices.

Preserving your working capital

Did you know that unpaid invoices can tie up your working capital that could otherwise be invested into the operation of your business or even used to grow your business? If you’re suffering from negative cash flow, you’re tapping into your reserves to meet your ongoing financial obligations. Or worse, credit lines. Debt collections plays a vital role in preserving this capital by ensuring more timely payments and as a result, improving cash on hand.

Maintaining steady cash flow for your business

We work with many seasonal businesses and we handle for example, debt collections for lawn care companies. That’s one example of a business that needs steady cash flow because of the seasonality. Ongoing debt collections will ensure a steady flow of cash which will be essential for meeting your ongoing operational expenses, including payroll, rent, utilities and even expenses such as your own vendors. Debt collections is crucial for sustaining steady business operations year-round.

Debt collections builds trust and credibility

Many people might not think this way, but a rock-solid accounts receivable program that includes prompt debt collection reinforces a business’s reputation for professionalism. It shows to consumers that your business values its services and has expectations of timely payments. Debt collections does play a vital role in customer retention by demonstrating that professionalism and it can even help your customers stay on track.

Positive cash flow equals growth and possible expansion

Your organization will stay stagnant without positive cash flow. And positive cash flow is facilitated in part by effective debt collections. Recovering money owed to your organization whether it’s late or delinquent can provide you with the financial resources necessary to invest in growth. That growth can include launching new products or services, expanding into new markets, acquiring assets and talent acquisition. If you have outstanding receivables, your cash flow will suffer, and it will be difficult for you to expand.

Preparing for the next crisis

It is a shame how many organizations suffered financial damage during the COVID-19 pandemic. And it is even more disheartening how many businesses had to close their doors because they were not financially prepared for such an event and collectively, the business community had no idea how extensive a crisis like this could damage the business community. If we have learned anything from going through the COVID-19 pandemic, it’s that cash flow is king. And we may never know when the next crisis will face us.