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Debt recovery: indicators to follow to monitor performance

Debt collection is a vital function for the financial health of businesses. Effective management of this activity helps maintain stable cash flows and reduce financial losses. To optimize this function, it is important to monitor the right performance indicators. In this article, we will enlighten you on the main indicators to monitor.

Debt collection: why measure your performance?

Measuring the performance of recovery actions is crucial for a company because it directly impacts its financial health . Effective debt collection management ensures stable cash flow. These regular flows then finance daily operations and the investments necessary for the growth of the company.

So, by keeping an eye on certain KPIs, a company can identify areas for improvement and take corrective action quickly. This also helps reduce collection costs by optimizing resources and strategies used. Additionally, good performance in debt collection helps maintain positive relationships with customers.

Finally, following up with a customer also avoids conflicts linked to late payments, and strengthens the credibility and reputation of the company in its market.

What are the main indicators to follow to measure performance?

The performance indicators to monitor to measure the performance of actions related to debt recovery are:

The recovery rate

The collection rate first is the basic indicator for measuring the effectiveness of your unpaid debt management process. It represents the share of receivables recovered in relation to the total receivables issued over a given period.

  • Calculation of the recovery rate : it is obtained by dividing the total amount of debts recovered by the total amount of debts issued. Then, multiply the result by 100 to obtain a percentage.
  • Interpretation: a high recovery rate indicates good efficiency in recovering the invoiced turnover. A low rate, on the other hand, suggests problems in the collection process.
  • Areas for improvement: to improve this rate, it may be useful to strengthen the procedures for monitoring and resuming payments. But also to offer incentives for early payments, and to use technological tools to automate the process.

The average recovery time (DSO)

Then, the average recovery time (Days Sales Outstanding or DSO) measures the average time it takes a company to recover its receivables after a sale. A short DSO is generally a sign of good financial health.

  • Calculation of DSO: there are several methods to calculate your DSO . The standard method consists of dividing the total receivables by the turnover achieved over the same period. Then you must multiply the result by the number of days in the period.
  • Interpretation: A low DSO indicates rapid recovery of receivables, which is positive for cash flow. A high DSO can signal receivables management issues.
  • Areas for improvement: to reduce the DSO, you can optimize credit conditions, improve invoicing and reminder processes. And consider offering discounts for prompt payments.

Bad debt rate

Next, the bad debt rate indicates the proportion of debts that cannot be collected. That is to say those for which we are certain of the definitive nature of the loss. This rate is important for assessing the financial risk linked to receivables.

  • Calculation of the bad debt rate: it is calculated by dividing the amount of bad debts by the total amount of debts issued, then multiplying by 100.
  • Interpretation: A high rate of bad debts may indicate poor credit management or a failure in the collection process.
  • Areas for improvement: to reduce this rate, it may be appropriate to carry out solvency analyzes on customers before granting credit. It can also be useful to closely monitor overdue debts, and to work with a collection company to benefit from their business expertise and the best tools on the market. Especially since if necessary, it will be able to send you a certificate of unrecoverability for each of your unrecoverable debts.

The litigation rate

As for the dispute rate, it indicates the number of claims disputed by customers. A high rate may indicate problems in the quality of products or services, or disagreements over terms of sale.

  • Calculation of the dispute rate: It is calculated by dividing the number of disputed claims by the total number of issued claims. Then you have to multiply by 100.
  • Interpretation: A high dispute rate may signal customer satisfaction issues or billing errors.
  • Areas for improvement: to reduce the dispute rate, ensure that your invoices are precise and clear, that the conditions of sale are well communicated, and that customer service is effective in resolving disputes.

The cost of recovery

Finally, the recovery cost measures the investments made to recover debts. A high cost can reduce the profitability of the company, even if the receivables are recovered.

  • Calculation of collection cost: It includes the salaries of collection department employees, legal fees, agency commissions, and other expenses related to the collection process.
  • Interpretation: A high recovery cost in relation to the amounts recovered may indicate inefficiency in the process.
  • Areas for improvement: To reduce this cost, consider automating certain tasks and improving the skills of the collections team. You can also use a collection company who will be able to adapt to your context and offer you tailor-made solutions.

The collection company, a key partner to improve your performance

Debt collection companies generally perform well. They vary according to several parameters. Indeed, the sector of activity of the creditors, the very nature of the debts (debit rejection, unpaid check, unpaid rent, debit balance, etc.), and the profile of the debtors (B2C, B2B, etc.) will influence the ability to quickly recover unpaid debts. On average, debt recovery firms manage to recover between 60% and 80% of the debts entrusted to them, a rate higher than that often observed in internal management.

This effectiveness is due to several key factors:

Expertise and compliance, guarantee of performance for recovery

French collection companies like GESTION CREDIT EXPERT have a perfect understanding of local and European regulations. Which allows them to avoid legal errors and navigate legal complexities effectively. Our in-depth knowledge of judicial and extrajudicial procedures allows us to maximize the chances of recovery while respecting the rights of debtors.

Advanced technologies and methodologies

Collection agencies use advanced technologies, such as debt management software, predictive analytics and automated communications tools, to track and optimize collection processes. These technologies make it possible to reduce the average collection time (DSO) and increase the success rate. They are expensive to internalize. Calling on a collection agency will allow you to benefit from the latest technological advances without having to bear all the investments or constraints. Think about it.

Customer relations and reputation

At GESTION CREDIT EXPERT we make it a point of honor to maintain good relationships with the clients of the companies who entrust us with their debts. A respectful and professional approach helps minimize conflicts. It also helps maintain customer satisfaction and loyalty.

Cost reduction

Outsourcing collections helps reduce costs associated with training and managing an internal team. This improves the profitability of recovery operations. In addition, specialized companies like ours can negotiate legal costs as fairly as possible. Concretely, they direct the actions of the lawyers and ensure that no unnecessary costs or diligence are passed on to the creditor.

Performance in an international environment

For international debts , French collection companies often collaborate with local partners. They thus ensure optimal effectiveness in various legal and cultural contexts.

In this regard, GESTION CREDIT EXPERT has, on the one hand, multi-linguistic collaborators. They have a perfect command of the legislation and customs of many countries. We work daily in 7 languages: French, English, Spanish, German, Italian, Portuguese, and Polish.

In addition, our teams maintain a network of 300 correspondents around the world. This international collaboration remains a major asset for our customers with unpaid debts abroad.

In conclusion, monitoring performance indicators is essential for effective debt recovery management. These KPIs will allow you to make the necessary adjustments to your practices in terms of managing your receivables. By following them closely, you will improve your cash flow, but also strengthen the financial health of your business. Finally, if you want to reduce operational costs, do not hesitate to outsource the debt collection process. Contact us.