To enhance comparisons of its various entities, the Sfpi Group engages in a rigorous provisioning of bad debt. Receivables with a due date exceeding 12 months are 100% provisioned, with a rate of 50% applied for six months to one year and 25% for three months and above.
With this kind of detailed risk management, outstanding receivables can constitute a big part of Delta-Neu’s overall financial position, historically accounting for upwards of 40% of all receivables. This has had a significant impact on the corporate treasury.
Hence the goal of stabilizing the percentage of outstanding receivables at maximum 20%, to ease working capital needs, improve the cash position, reduce customer risk thus enhance earnings.
Delta-Neu’s first step was to set up a detailed debt monitoring system identifying reasons for any non-payments. This has been accompanied by strong communications ensuring that each case is treated appropriately, whether this means technical litigation, unblocking administrative obstacles, working with financially strapped customers or dealing with ones who simply have bad payment habits (and therefore require accelerated litigation).
Delta-Neu then started organizing operations to raise staff awareness of everything that debt collection involves. Several times a year, for instance, the company arranges specific actions aimed at reducing the volume of outstanding receivables. This includes sending out reminders, calling customers and/or holding group meetings with agency directors, sales staff and sales assistants who might help to clear up a situation.
With this long-term strategic vision, Delta-Neu is also pursuing another goal: spreading and maintaining a debt collection culture. An indicator was even added this year to staff members’ profit-sharing scheme, with employees now receiving a bonus if outstanding receivables stay below 20%.
The end result is better control of total receivables, a reduced risk of non-payment and a minimal provision for bad debt. The treasury position has improved without any adverse effect on earnings.
Delta-Neu has saved itself a lot of time and no longer needs to spend month after month monitoring the same files!
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