Why E-commerce Merchants Should Automate their Debt Collection

The Burden of Late Payments

Late payments can be a bane to business which give on to debt collection. They can have a negative impact, particularly on smaller businesses, limiting cash flow and hampering operations. According to the European Commission, only 40% of businesses are paid on time in the EU. Late payments account for 1 out of 4 bankruptcies.

Another study by UK-based independent consulting firm Plum shows that 11 percent of all invoices issued by SMEs are paid late, totalling a staggering USD 1.01 trillion every year!

The pandemic has further restricted the cash flows of European businesses, and they are under pressure to manage their cash and liquidity efficiently. According to a recent report from Intrum, 51 percent of business owners across 29 European countries felt late payments reduce their liquidity, compared to 35 percent before the pandemic.

Chasing down late payments can cost your business a lot of time and money. And efforts that you could otherwise put into more productive tasks. That is why reliable debt collection is essential for every business. You need an efficient system to collect your claims from your customers worldwide, from the first dunning letter to the judicial dunning process.

Why Should You Automate your Debt Collection?

McKinsey’s research shows that more businesses pursue traditional debt collection methods such as phone calls rather than digital multichannel methods. This, despite the fact that a large portion of customers prefers a “digital-first” approach. Thus, merchants can target more customers and become more competitive by automating their debt collection.

Automating your accounts receivable (AR) and debt collection process significantly decreases the manual and repetitive work associated with collections. You get real-time access to accurate data, enhanced end-to-end visibility of this data, and improved working capital.

You can also avoid mismatches between your customers’ preferences and the channels you use to reach them. Thus, you maximize your chances of collecting the payments that are due to you. In fact, data indicates that using phone calls decreases the chances of a business receiving a full repayment by 47%. But using mobile reminders and push notifications increases the chance of getting both a partial and full repayment by 44%.

How Does Automated Debt Collection Work?

Automated AR systems cover all the critical steps in your collection process – from invoicing, cash application, and dunning to managing your collections management.

1. Makes your invoicing process completely automatic and removes manual effort

You can raise and distribute invoices with ease as the process is fully automatic. For cross-border invoices, you do not have to implement separate solutions for different countries. The same solution takes care of all invoice initiation and distribution.

2. Simplifies your cash application process and saves time

Automated debt collection helps you easily match the incoming payments with existing customer data. It saves hours of your employees’ time as they do not have to enter the data manually. They can rather spend this time monitoring and analyzing the data.

3. Helps you prioritize your invoices based on their value and payment probability

Smart AR systems help you to aggregate and match data from different sources such as emails and web payment portals. Having access to these data-based insights helps you prioritize your invoices.

4. Automates the Dunning Process

Dunning is the process of sending out payment reminders to customers. Smart AR systems use analytics, AI, and machine learning to send personalized reminders at the right time through the right channels.

5. Make predictions about expected payment dates and working capital

Machine learning algorithms analyze historical customer data to give insights into user behaviour and the cash flow of your business. Using this data, you can predict the expected dates of payment or your working capital. They can suggest personalized incentives and offers to target customers and speed up debt collection.

6. Reduces the Days Sales Outstanding (DSO)

Days Sales Outstanding (DSOs) indicate how much time a business takes to collect due payments from customers. Automated AR systems reduce the DSO significantly. Thus, you have more working capital to fund your daily operations and invest in other areas.

How to Automate Your Debt Collection?

Talk to your payment service provider on how to automate your debt collection. Choose an international payment service provider with proven expertise across markets in Europe. Your service provider should offer AI-based risk management tools that help you to automate your receivables management. They should also help you with easy integration and customization.

The right service provider can guide you in creating the right AR strategy for you. They can help you collect payments on time, reduce losses from bad debts, and maintain a healthy engagement with your customers.

In Conclusion

As online shopping and digital payments go up in Europe, there will be a greater focus on AI-powered debt collection in the future. The use of digital communication channels, self-service options, and AI will make the debt collection process much smoother, saving businesses a lot of time and money. If you have not moved to automated debt collection yet, now is the time to take that step. With the right tools and AR strategy, you can ensure your collections are timely and you avoid bad debt. This will help you safeguard your liquidity and stay competitive in your business.

Jose Augustine

Jose Augustine is the Chief Business Development Officer at Novalnet with extensive experience in European payment industry and a knowledge powerhouse.