Recommendations for the CFO to avoid debt

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When the Order to Cash (OTC) process is not well managed, it can lead to excessive debt. The CFO must avoid falling into an excessive amount of debt and know his or her business inside out.


Tips for CFOs to get debt under control


The risk of default is always lurking if you fail to act reasonably. A miscalculation can be fatal for a company that is not in a strong position. Also, bear in mind that the management of the collection process will always vary according to the particularities of each customer, which is all the more reason to carry out a proper profiling of the customer portfolio.


Improve your sales collection management


Optimising the collection management of your sales enables you to achieve good results in your OTC process. Make sure that the invoicing process you use is clear, as this will reduce payment times. It is also important that you monitor deadlines to check that customers are up to date. This ensures that you are aware of any debts that have been incurred.

Along with the above, an important option is to automate the collection process. This is a way to gain efficiency and reduce human error. The software takes care of sending invoices or sending you alerts or making any claims. Therefore, debts will be satisfied in a much more agile way.


Management control


Management control is another aspect that must be taken into account during OTC processes. With proper control, it ensures efficiency and profitability. In this sense, objectives have to be clear and linked to KPIs that allow assessing that they are being achieved. It is essential that CFOs include those related to their debtors. It is also advisable to carry out a detailed analysis of the data obtained from each customer. If a problem arises, you can take action.


Real-time reporting


Real-time reporting in a process facilitates decision-making. Managers in different departments can have real-time visibility of operations and follow up, giving them room to make adjustments. Should a problem or unforeseen event arise, they can act more proactively.


Customer profiling and segmentation based on payment behaviour


When you have segmented your customers, you are in a position to know them better, especially in terms of their payment possibilities. Doing so helps you reduce the risk of non-payment, as you know whether the other party has a good payment behaviour or not. You have a detailed history to take as a reference and develop personalised collection strategies.

Once the information is collected, you can segment customers according to their profile and payment behaviour. This allows you to adjust your management approach according to the customer group and improve your risk assessment. For example, you could establish a high-priority segment with the most compliant. Late payers would be included in a low priority segment that includes more thorough and detailed control.


Monitoring the debt ratio


This indicator reports the proportion of assets that are being financed with debt. Its purpose is to determine what proportion of debt financing the company has. It also shows the company’s equity. As to what the optimal ratio is, there is no exact figure, as it varies depending on a number of factors.


Controlling your Order to Cash process and comprehensive Accounts Receivable management is important to maintain optimal debt levels. If you have not taken precautions, you may face financial problems. To avoid them, you need the right tools to analyse the situation and act accordingly.

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