Germany: Proactive Cash Collection is more important than ever

28 Jul 2020

Germany: Proactive Cash Collection is more important than ever

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It is summer. Trade transactions are slowing everywhere. Sluggish order entry and slow payments characterise international trade, in the summer period.

Normally, transactions speed up by the end of August. It is going to be the case, this year, as well?

Dieter Kempf, President of the Federation of German Industries (BDI) expects the worst economic downturn since the Second World War. Insolvencies might hit heavily small and large enterprises in Germany; companies having weak margins.

If the strongest economy of Europe was hit by a recession, the negative effect on other countries, dependent on German consumption and supply chain demand, would be inevitable.

Large scale government support and EU programs are being prepared, however, the question is what could Credit Controllers do to protect their companies’ investment into Accounts receivable assets?

What can YOU do to prevent your company from being part of the dominos which might fall more rapidly than what some industrial leaders think?

Tools are numerous, and here we listing a few important ones:

1.       Proactively planning of your collection call is more important than ever. It is not enough to send standard payment reminders when seeing your overdue raising! Talking to the customer, agreeing on due time settlement, and making your customer accountable for their payment promise will enable you to identify customers at risk. These are the customers you need to address differently! 

2.     Understanding your customers’ financial situation is more essential than ever. If their margins are weak, in a 2-4 % range, set them on secured, or semi secured terms or leverage via order control.

3.     Creativity in structuring the deal, maintaining a balanced approach between closing sales and protecting assets is key to support sales growth. Milestone payments, retention of title, letter of credit, promissory notes, and other techniques can help you to both make the sales and mitigate risks. Supporting your customers’ efforts to activate EU funds is also an option.

Our advice is don’t slow down much, this summer. However it is tempting to relax and take long holidays, it is probably wiser to proactively address those imminent working capital challenges. 

Your finance technical knowledge is important but it is your attitude that will make the difference. 

Don’t forget as Benjamin Franklin said; “an ounce of prevention is worth a pound of cure.”

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