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B2B Credit Control - Instalments & Late Payment Interest

 

There are suppliers and customers that, whilst in lockdown, have continued to trade as normal and the commercial cash has continued to flow. In some sectors (such as food retailers and their suppliers) the cash has flowed more quickly as payment terms have been shortened to help the smaller supplier businesses. Well, that’s the good news.

Yet there have also been many businesses that have supplied their customer and are finding themselves put ‘on ice’ with no payment made for supplies prior to the COVID-19 impact (and no supplies taken since). This has put suppliers in the difficult position of deciding how rigorously they collect what they are owed.

One factor that is very clear, however, is a backing up of liabilities owed by customers to suppliers that, at some stage, will become unblocked. But what does this potentially mean? Does this mean invoices will be paid in full on extended terms or by repayment instalments?

B2B credit control is, in the main part (noting some sector variances), not an area where payment plans are common throughout the sales ledger. A supplier would question their credit risk strategy if their customers could only repay supplies in instalments where the supplier’s terms are (say) 30 days from invoice. The supplier is used to issuing an invoice and being paid at full value, subject to any queries (our article on this thorny subject will follow…). We think this will change.

As everyone gets back to work, suppliers will need to consider which customers they want to supply on usual terms whilst managing any historic debt which may have built up. This may mean managing two balances for the customer – the pre-COVID one and the ongoing supply.

Cashflow constraints as this recovery takes place will mean that payment plans will become more commonplace as all that cash unravels.

There is also the decision on whether late payment interest is charged to compensate the supplier for the wait. The interest charged would be determined by the supplier’s terms or the late payment legislation and therefore any credit controller is going to need an interest calculator that enables statutory or contractual interest to be added.

Calculating interest and monitoring the addition and repayment of that to the principle debt is a time-consuming exercise (or labour intensive) for credit controllers. As these arrangements become more widespread across the sales ledger, they require monitoring and often re-calculating throughout the process.

There may be additional complexities to arrangements made with customers such as the arrangement may only apply to a certain timeframe, trade discounts may be withdrawn or additional discounts provided to prevent returns, and further down the line in the calculation of rebates.

Credit controllers need a tool that will enable them to manage this additional workload whilst maintaining their focus on the core credit control activity.

The new development within the Visibility™ system sees additional functionality given to credit controllers around instalment acceptance and monitoring which feeds into the cash flow reporting and contractual or statutory interest calculations.

“Historically repayment plan arrangements have been limited to the odd customer with cash flow issues, it is now more prevalent and credit control software needs to adapt to deal with that, free up the credit controllers time and provide accurate management information”. Janice Megram, Client Services Director, Veritas Commercial Services.

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