High-growth startups: how to control your receivables?

Rapid growth is a goal for many startups and small and medium-sized enterprises (SMEs). However, this development is often accompanied by significant financial challenges, particularly those related to receivables management. Growth, if not controlled, can jeopardize the financial health of a company and hinder its progress. In this article, we remind you why and how to manage trade receivables, even for the most promising startups and SMEs. Finally, we give you the keys to healthy and effective management of your receivables, including turning to a debt collection company that will be able to offer you tailor-made solutions while preserving your image.

Understanding the problem of receivables

What is a claim?

A receivable is an amount owed by a customer that has not been paid within the originally agreed time frame. This can include unpaid invoices for products or services provided. Receivables can create cash flow problems for businesses, limiting their ability to invest in growth and meet their own financial obligations.

Why are receivables common in startups and SMEs?

It is difficult and sometimes complex to control your receivables when a company’s activity suddenly explodes. Here are the main reasons:

Lack of a solid credit policy : Very often, companies forget to define a clear policy regarding credit and payment terms granted to customers. Fast-growing companies also often lack well-established processes for assessing the creditworthiness of their customers. When growth is rapid, the challenge lies in the ability to scale processes at the same pace.
Focus on growth : in their quest for new customers, startups and SMEs may be tempted to reduce payment requirements. Priority is often given to sales growth rather than risk management. However, well-crafted general terms and conditions of sale that are adapted to each company’s environment can be an effective bulwark against the risks associated with late payments and bad debts.
Limited resources : Due to often unstable cash flows, young companies have not yet released the resources needed to recruit qualified staff fully dedicated to managing customer accounts and then recovering unpaid debts. The outsourced services of a debt collection company can therefore prove to be a real asset for fast-growing companies.
Intense Competition : To stand out, some companies offer flexible payment terms that can lead to extended payment terms. If the risk is not controlled, it can lead to the failure of the company in the short term. Monitoring and optimizing DSO then becomes fundamentally strategic for maintaining the good financial health of a startup or a rapidly growing SME.

The impact of trade receivables on fast-growing companies

Accounts receivable can have several impacts on growing businesses:

Cash Flow Problems : Late payments directly affect a business’s ability to pay its own bills.
Additional financial costs : Using lines of credit or loans to cover cash flow deficits may result in additional costs.
Loss of investor confidence : Repeated cash flow problems can affect the perception of potential investors.
Impact on growth : Limited financial resources may restrict investment in business development.

7 strategies for effectively managing your receivables

The problem of controlling debts affects all companies. In France, the total amount of unpaid debts amounts to 56 billion euros. Of this total, 4.8 billion are never handled by debt collection services, leading to bankruptcies. 5.6% of mature French startups have gone bankrupt since 2023 and the phenomenon continues in mid-2024, announces the media La Tribune, a consequence of the financing crisis that has hit global tech.

For startups and SMEs, which are more exposed to financial uncertainties, it is essential to put in place solid strategies to reduce the risk of non-payment. Here are some effective approaches:

startups how to manage receivables in growth phase

Assess your customers’ creditworthiness: Check the payment history of potential customers before granting them credit and use legal and financial information tools to assess the risk associated with each customer.
Establish clear payment terms: Define and communicate your payment terms clearly and precisely. Make sure your customers understand them before signing a contract.
Use online payment systems : Make paying your bills easier with convenient and secure online payment options.
Use invoicing software that allows you to automate invoice tracking and reminders to improve your efficiency.
Track your accounts receivable regularly : Monitor each customer’s balances to quickly identify late payments. Then, establish a structured and consistent follow-up process to encourage payments.
Work with a debt collection company that will support your teams to develop the strategy best suited to your context and the nature of your receivables. Outsourcing the management of your receivables is an opportunity to identify areas for improvement internally, train your teams if necessary, and use the right legal levers to get your customers to honor their financial commitments to you without further delay.
Create a contingency fund: Establish a financial reserve to cushion the effects of late payments and other financial contingencies. And integrate receivables management into your overall budget planning.

Case studies: Fast-growing online running startup faces debt challenges

A startup specializing in online running experienced rapid growth but encountered problems controlling its unpaid debts, jeopardizing its expansion. By implementing a rigorous credit management system and entrusting the recovery of its receivables to GESTION CREDIT EXPERT, it managed to reduce its receivables by 45%. In addition, net recovery performance increased by 55% in 3 years.

Receivables represent a major challenge for high-growth startups and SMEs, but with the right strategies and proactive management, it is possible to minimize the associated risks. By adopting sound credit practices, using technology and outsourced services from a collection agency, businesses can not only protect their cash flow but also create an environment conducive to sustainable growth.

Finally, effective receivables management is not only a matter of financial survival, but also a lever to build investor and business partner confidence. Investing in robust receivables management processes is therefore essential for any business that wants to thrive in the long term.