In our previous blog on debtor analysis, we discussed how good risk management and cash flow analysis are essential for any business. This can be built through identifying financial risks, managing debt, and optimising liquidity so that SMEs can prepare for upcoming opportunities or challenges.

Let’s shift our focus to accountants—the custodians of financial health, strategic advisors, and often the professionals responsible for putting order into chaos for your SME clients. Among many tasks, debtor analysis is one of the key areas where an accountant’s help can greatly affect a business’s cash flow.

Debtor analysis means more than just checking unpaid bills; it helps find important patterns, spot problems, and guide your clients toward better money management. It helps answer hard questions: Which clients might not pay? How can we collect money without upsetting client relationships? And most importantly, how can we help your clients keep enough cash to run their business smoothly?

In this article, we’ll look at the main problems accountants face with debtor analysis and show you practical ways to turn these problems into advantages.

Challenges and Solutions of Debtor Analysis

Challenge 1: Identifying High-Risk Accounts

Problem: High-risk accounts—clients who may delay or default on payments—pose a significant threat to cash flow. Without detailed insights into payment behaviours or historical trends, accountants often struggle to spot these accounts early.

Impact: Arrears can disrupt cash flow, impact operational expenses, and lead to increased borrowing costs for SMEs. Accountants must intervene early to minimise these risks.

Solution: Accountants can mitigate this challenge by wielding tools that track payment behaviours and provide client-specific credit risk scores. Payment history analysis, Days Sales Outstanding (DSO) metrics, and credit score evaluations allow accountants to categorise accounts based on their risk levels. This enables informed decisions, such as adjusting credit limits or renegotiating payment terms.

Challenge 2: Monitoring and Managing Overdue Payments

Problem: Managing large volumes of receivables manually is overwhelming, especially with numerous outstanding amounts. Accountants end up struggling to prioritise what accounts need special attention.

Impact: Delinquent payments not only strain cash flow but also increase administrative costs for follow-ups and recovery efforts.

Solution: Automated ageing reports that categorise debts into time buckets (e.g., 0-30, 31-60, 61-90 days) help streamline the monitoring process. Accountants can use these reports to identify overdue accounts, prioritise follow-ups, and ensure timely payment recovery. Clear segmentation allows businesses to focus their collection efforts strategically, reducing the likelihood of bad debts.

Challenge 3: Lack of Granular Insights into Payment Trends

Problem: Aggregated data often fails to provide a complete picture of individual client payment behaviours. Without granular insights, accountants may struggle to tailor collection strategies effectively.

Impact: Generic collection efforts may alienate reliable clients or fail to address problematic ones, impacting long-term business relationships.

Solution: Accountants can use tools that offer detailed customer profiles, including invoice history and payment trends. Graphical representations comparing outstanding invoices to settled receipts enable accountants to spot patterns, such as clients preferring instalments or consistently paying late. These insights allow for more tailored and effective collection strategies, fostering better client relationships.

Challenge 4: Assessing Creditworthiness Accurately

Problem: A client’s creditworthiness is critical, but assessing it is time-consuming and prone to errors if the client does not have access to current financial data.

Impact: Mistakes in the credit appraisal can result in lending to risk-prone customers. This means increased chances of failed payments and loss of cash flows.

Solution: Accountants should rely on risk analysis tools that integrate credit scores, pending County Court Judgments (CCJs), and other business criteria. Metrics like maximum credit limits and credit scores help accountants assess whether extending credit to a client is prudent. Alerts for changes like the onboarding of new directors or the filing of new accounts further enhance decision-making accuracy.

Challenge 5: Forecasting Cash Flow from Receivables

Problem: Estimating cash inflows is difficult when receivables details and payback periods are unclear, making manual consolidation impractical.

Impact: Poor cash flow forecasting leaves SMEs unprepared for operational expenses, which they then have to borrow at expensive short-term rates.

Solution: Real-time information on total outstanding amounts with debtor ageing breakdowns helps the accountant’s forecast inflows of cash better. With a better understanding of when payments will be received, accountants can assist SMEs to maintain liquidity and prepare for shortages.

Challenge 6: Handling Client-Specific Credit Policies

Problem: Not all clients operate under the same credit terms, making it challenging to apply standardised policies across the board.

Impact: Inconsistent credit policies can lead to confusion, strained client relationships, and unpaid invoices.

Solution: Customisable credit terms allow accountants to set client-specific payment conditions. Automated reminders and scheduled follow-ups ensure clients adhere to agreed terms, improving payment compliance and enhancing client relations.

Challenge 7: Navigating Disputed Invoices

Problem: Invoice disputes often arise due to errors or discrepancies, causing delays in payment and additional work for accountants.

Impact: The disputes eventually result in poor relations, delayed payments, and reduced working capital

Solution: Invoice tracking systems that provide detailed records of invoice history, delivery confirmation, and approval timelines make resolving disputes faster and more transparent. This minimises delays and improves client communication.

Why Pulse is the Ideal Solution

Modern tools streamline debtor analysis, reduce manual effort, and ensure accuracy, empowering accountants to focus on strategic tasks. Features such as automated ageing reports, credit risk evaluations, and real-time dashboards transform debtor management into a proactive, data-driven process.

This is exactly where Pulse offers a comprehensive suite of features designed to address all the challenges accountants face in debtor analysis. Here’s how Pulse stands out:

• Automated Ageing Reports: Gain instant insights into overdue accounts segmented by time, helping prioritise collections.
• Credit Risk Scoring: Assess client creditworthiness with detailed metrics and real-time updates.
• Real-Time Dashboards: Monitor receivables and cash flow forecasts dynamically, ensuring up-to-date decision-making.
• Customised Credit Policies: Set and manage client-specific terms to avoid inconsistencies and disputes.
• Integrated Payment Tracking: Reconcile payments from various sources with ease, reducing errors and saving time.
• Dispute Resolution Tools: Access detailed invoice history for faster dispute management and improved client communication.
• Predictive Analytics: Forecast receivables with accuracy, empowering SMEs to prepare for potential cash flow gaps.

By integrating these features, Pulse equips accountants and SMEs with everything they need to optimise financial health and succeed in competitive markets.

Take the Next Step

Want to learn more about tackling financial challenges and improving your account receivable analysis process? Stay tuned for our upcoming blogs and resources tailored for SMEs and accountants.

Ready to see how Pulse can transform your debtor management? Book a demo at info@mypulse.io and discover how our platform can simplify processes, enhance insights, and drive growth for your business!