How can social care providers manage their aged debt?

Tackling late payments and managing debt is often at the forefront of many CFO’s and Financial Directors' minds. And in social care, these challenges are often compounded by ongoing financial struggles and funding gaps. Recently, 56% of social care Directors reported that providers in their area had closed, ceased trading or handed back council contracts.

In this article, we’re looking at how aged debt could impact your care organisation, from the social care cap to financial stability in social care, as well as some key strategies to help with debt management in social care.

What is aged debt?

Aged debt, in the context of a care organisation, is the total amount of money owed to you by your clients, whether they be self-funded, or local authorities.

An aged debtors report documents all outstanding invoices your clients haven't yet paid you for, less any credit notes you've issued 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 in social care?

• Strained 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. 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.

• Disrupted financial stability

Aged debt can also impact social care financial sustainability. Without timely payments coming in, your organisation may struggle to invest in your key priorities, such as building a stable workforce, maintain the services you 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.

Take a look at our blog ‘How can social care providers better control their spend?’ for more information.

• Operational blockers

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. But by preventing debt in social care, it can mean more time and resources can be dedicated to delivering excellent care.

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 for debt management in social care 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. With the introduction of the social care cap—limiting the total amount individuals pay for personal care to £86,000—while it reduces the risk of long-term unpaid invoices, as individuals won't be responsible for care costs indefinitely, it could mean that delays or mismanagement in responsibility to pay for care could lead to temporary gaps in payments.

So, make sure your invoices are correct, compliant and have outlined clear payment terms, payment methods and due dates. 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.

You’ll also want to think about regularly analysing aged debt trends to identify root causes and implement preventive measures. Keeping detailed records of all transactions, including payments received and outstanding balances can help your busy teams track your aged debt and identify any patterns.

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 and local authority funders 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

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 with robust financial reporting 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.

Plus, 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

Financial management for controlling aged debt in social care

Financials is our cloud-based finance management software that allows your finance teams to manage all accounting processes in one place.

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Book a demo to see Financials for social care in action today.