This is the third and final blog of our risk-debtor management series, this part will delve deeper into the debt-collection process and the best practices in the (PaaS-)industry. As a PaaS-company do you growl or do you bite when a customer is non paying?
November 9, 2020
Reading time: 5 minutes
This is the third and final blog of our risk-debtor management series, this part will delve deeper into the debt-collection process and the best practices in the (PaaS-)industry.
You cannot fully ban out risk...
Unfortunately, even if you did all things right, there is still a chance that you will have to go into a debt-collection process. These are often long, slow, and time-consuming processes that take a lot of energy away from the business. Hence a lot of companies send their documentation away to debt-collecting agencies to take it over from there.
Best practices within the industry include:
Prevention and mitigation are more important than debt-collection.
Debt-collection often results in a low success rate, it should only be started when the potential benefits outweigh the cost, or you want to make a statement.
Good documentation is -again- key for debt-collection as you don’t want a case to be dismissed due to procedural errors in court.
Having well-thought-out terms and conditions can help you getting back the product and the missed payments, having professional parties establish these is never a waste.
Often companies need to find a balance between growling their teeth and biting (= going for debt-collecting). This is because they do not want to lose a customer or have an unhappy customer. So often they get in contact to see how to resolve it. Sometimes growling is enough to have a good paying customer in the future too. A lot of companies thus take a friendly approach; which works best with the image these companies have.
Recommendations for starting PaaS companies:
We can conclude that automation in the risk & debtor management process can save a lot of time and money and can thus be considered a huge commercial opportunity. For one company this is at least 1 full FTE and soon it needs to be a team on this solely.
Prevention and Mitigation are more important than debt-collection. For one it saves a lot of time, hassle, and many chasing non-paying customers. It is not a fun activity and the chances of getting your money back are slim: one company said they on average got only 27% of the head-sum back. Often these cases result in a debtor that is already broke; so no money can be extracted from him anymore.
This means investments in a good customer-base are crucial, and good acceptance or credit checks needs to be made at sign-up. However, if a customer will become non-paying or even fraudulent, companies value not to spend a lot of time and effort on them and pass them off to a debt-collection trajectory. They would rather focus on making their current customers happy and keeping high retention (and preventing them from churning).
Most companies did acknowledge that completely mitigating non-paying customers are not possible. Knowing how to deal with these correctly is therefore a must. Being able to compile good documentation and having good terms and conditions are important; this will help you in the process of debt-collection and prevent mistakes (technicalities or procedural errors) in any possible court-cases.
That is why having a good flow or architecture that will streamline this whole flow is important. This is how a good risk-debtor management flow (architecture) might look like:
Want to know more about how Firmhouse can help you with all three blocks of risk-debtor management? Get in contact with us or request a free demo of our platform on our website here: https://www.firmhouse.com/demo.
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