Receivables management: why it hits your liquidity straight away

What receivables management actually is

Receivables management is everything you do to get your invoices paid. It starts with the credit check beforehand and ends with collection.

In between sits the real work: invoicing correctly, setting terms, following up. It is a process that runs from the order onwards, not a bookkeeping task after the fact.

Why it hits your working capital straight away

Every day an invoice stays unpaid, you are financing your client. That money sits locked in your receivables position.

As turnover grows, so does that position. You sell more, and at the same time your free cash headroom falls.

If the payment term keeps creeping up, that reaches your buying power. You pay suppliers later and lose negotiating room.

In the worst case a business with a full order book grinds to a halt on its own receivables.

Six things you can put in place now

1. Check creditworthiness before you deliver. The trade register of the Dutch Chamber of Commerce (KVK) shows who is authorised to sign and how the business is doing.
2. Set the payment term in your quotation, your order confirmation and your terms and conditions. Put it on the invoice itself as well.
3. Include a retention of title. You remain the owner of what you supplied until the client pays.
4. Invoice the way your client needs it. A missing timesheet, cost centre or purchase order number is enough to leave an invoice sitting for weeks.
5. On long projects, work with part invoices per month or per milestone. That way your pre-funding does not build up until the end of the project.
6. Call on the day the term expires. You will hear straight away whether it is a complaint, a mislaid invoice or unwillingness.

What you do when the term expires

A fixed follow-up route keeps arbitrariness out of your receivables management.

1. Payment reminder on the day the term expires. Short and factual, with the invoice attached.
2. Phone contact after a week. Ask the reason and put the new payment arrangement in writing.
3. Formal demand if that arrangement is not met. State the consequences and the deadline.
4. Hand over to a collection agency or a bailiff. From that moment the client relationship is a file.

Set this route down once and have everyone follow it. Then the follow-up does not depend on who happens to be on the admin desk that week.

What the statutory payment term says

If you agree nothing, a payment term of 30 days applies to business invoices.

You may agree a longer term, up to a maximum of 60 days.

Where an SME supplies a large company, 30 days is the statutory maximum.

So put the term explicitly in your conditions. Otherwise you fall back on the statutory rule rather than on your own planning.

When outsourcing starts to make sense

At a certain point, following up more sharply no longer helps. Your receivables position is then simply too large for your cash headroom.

With factoring your full receivables book passes to the financier. You are paid the invoice amount, less an agreed fee.

SOOF Finance also takes over the receivables management. The credit risk on your receivables is covered through credit insurance.

That only works with the full book. SOOF does not buy individual invoices.

Want to know whether your position is large enough? Take the quickscan or read what is factoring.