Tackling late payments and managing debt is often a key challenge for many CFO’s and Financial Directors across all industries, including the social care sector, with more than one in five home care providers saying they feared the collapse of their business in the next six months because of unpaid bills.
In this article, we’re looking at the problem of aged debt in the care sector, how it can affect your organisation, as well as some key strategies to help you manage your aged debt.
What is Aged Debt?
Aged debt, in the context of a care organisation, is the total amount of money owed to you by your residents and clients, whether they be self-funding individuals, families of service users, or local authorities.
An aged debtors report documents all outstanding invoices your customers haven't yet paid you for, less any credit notes you've issued to customers and not yet refunded them for. This report provides an overview allowing you to see exactly which of your clients have unpaid invoices, how many they have outstanding or how long the debt has been owed, such as over 30, 60 or 90 days.
What are the impacts of aged debt on large social care organisations?
The problem of aged debt has been exacerbated by the cost-of-living crisis, which is impacting on the ability of some self-funders to pay their care provider. According to the University of Warwick Business School, this presents added financial pressures on care home and home care organisations, at a time when running costs have already increased due to inflation.
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Cashflow
One way aged debt can affect your organisation is by disrupting your cashflow. Unfortunately, it can often be the case that invoices aren’t paid straight away. In fact, over 60% of home care providers have at least one or more invoices unpaid after six months. However, the longer these accounts go unpaid the more it can affect your organisations cashflow, particularly if your incomings are struggling to keep up with your outgoings.
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Financial Health
Aged debt can also add financial strain to your care organisation. Without timely payments coming in, your organisation may struggle to invest in your key priorities - such as building a stable workforce - maintain the services your currently provide or plan for future growth. It may even prevent you from being able to pay your suppliers on time, adding strain to those important relationships.
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Operational Disruption
You know just how long complex financial processes can take. So, when your busy teams are constantly trying to manage aged debt, it’s likely taking their attention and your resources away from other core operations. This disruption and potential financial strain could unfortunately affect your organisation’s access to essential services, having the potential to affect the quality of care your service is able to provide to your clients.
How to manage aged debt as a large social care provider
So, what can social care organisations do to try and manage aged debt? We’ve put together some strategies that you may find beneficial:
1. Make sure your invoices are accurate
First of all, you don’t want to give your clients a reason to reject your invoices. And in social care, it can often be the case that invoices need to be different depending on the recipient, such as a local authority or private funder. So, make sure your invoices are correct, compliant and have outlined clear payment terms, payment methods and due dates.
Check out our blog: How Social Care Software Helps You Improve Invoice Accuracy
You may even want to provide your invoice in multiple formats, such as a PDF attached to an email or made available through an online portal.
2. Identify your largest aged debtors
Your aged debtor report will likely indicate which of your clients have outstanding payments and how long they have gone unpaid. It can even break this down into individual invoices and the total amount they still owe you.
It may then be worth identifying who has the largest unpaid invoices because they are likely having a greater impact on your cashflow than smaller ones. Your teams can then focus their efforts on recovering these more pressing funds, helping you safeguard your organisation from unmanageable aged debts piling up.
3. Communication is key
There may be lots of reasons why your clients are struggling to pay your invoices on time, but you do still need to receive payment for the services you have provided. Being clear about payment terms, having open lines of communication and nurturing a positive relationship with your clients can be helpful when these discussions do need to take place.
As well as this, make sure that as soon as invoices are overdue, your teams are keeping an exact record of how they have been chasing the outstanding payments so you can provide evidence if the debt recovery is escalated.
4. Replace manual processes with dedicated software
Our latest Finance & Procurement Sector Trends Report 2024 found that 30% of finance professionals’ main challenge in their role is access to accurate data. So instead of relying on manual or paper-based processes to manage your accounts, financial management software can offer vital data insights to help you optimise your aged debt recovery.
Dedicated software can allow you to drill down into key information so you can instantly see in real-time where your aged debt sits and how long those payments have been overdue. Modern solutions like Financials even offers a user-friendly customer portal. That way, instead of your teams having to chase an invoice to get a bank transfer, your clients can simply review their account balances and settle invoices themselves through online payments.
Financials is our cloud-based finance management software that allows your finance teams to manage all accounting processes in one place. Many UK providers of residential and domiciliary care use our cloud-based Financial Management software to help them manage their finances and keep track of debts through the solution’s automated real-time reporting. Discover how we can enhance your organisations’ digital journey today!
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