Receivables management is professional dunning, with the goal of avoiding payment defaults and ensuring the long-term liquidity of a company. It is part of the internal accounting department and begins with arranging, recording and organising outstanding payments. In the event of a default in payment, functioning receivables management ensures that the recipient of the invoice is not only reminded of his payment obligation in a timely and effective manner, but is also instructed to settle. Efficient receivables management begins before the collection of outstanding payments and a first payment reminder. Even before initiation of a business relation, especially for large-volume orders, it is advisable to check the credit rating of the business partner, and to view their debtors' and commercial register as well as annual financial statements. This is referred to as debtor management. It consolidates all processes within a company's accounting department and is likely to prevent bad debts from the beginning, as well as to effectively counter any existing bad debts.
Professional receivables management and the protection against bad debts begin with the drafting of a contract. By stipulation an expiration clause, exact payment dates or a specific payment term can be agreed to, for example, payment of the purchase price upon receipt. Especially for bulk transactions, contract execution can be simplified and accelerated by means of pre-formulated clauses. This refers to the General Terms and Conditions, which, alongside warranty periods and liability limitations, may include dunning costs and collection costs. Effective receivables management also covers auditable invoices. They must comply with legal requirements and regularly include non-mandatory details such as the payment due date. If the customer has allowed the last day of an agreed payment period to pass by without action, he is in default of payment. If no deadline has been agreed and no dunning been sent yet, the default in payment will occur 30 days after receipt of invoice, although this provision only applies to business customers. If it concerns a consumer, he must be advised of the 30 day deadline.
A dunning letter to a consumer generally does not require a specific form, but should contain essential points, such as the invoice date, invoice number, due date, the amount of the outstanding receivable and a new payment term. If receivables management remains ineffective up to this point, the only way is a strong and firm form of dunning: the legal dunning procedure, which results in the issuance of a legal enforcement order (title) by the responsible debt collection court.
Due to a rapid increase in the legal dunning, receivables management is a must-have for all companies and freelancers alike. Depending on the size of the company and the number of customers, it may be useful to assign the dunning to companies that specialise in the recovery of payment defaults. The making of a decision for or against outsourcing also depends on a cost-benefit analysis.