How a Spanish ceramic tile factory reduced receivables from $1 million to $ 330,000 in one year
Receivables are company assets. But if this indicator is constantly growing, it’s destructive for the company. Here’s why:
- There’s a risk of no return if the debtor goes bankrupt.
- Financial sustainability issues. If there’s no available money to pay salaries and taxes, it’s hard to scale a business.
- Company development issues. This is because a lot of effort goes into returning receivables. As this involves executors, lawyers, managers, there is simply no one else to engage in the development of new business lines.
- Loss of competitive advantages. Until your money is returned, you cannot use it for business development. Your competitors can take advantage of this and outperform you.
- Loss of business reputation. If, due to lack of available funds, you cannot fulfill your obligations to other partners, this will have a negative impact on your business relationship with them.
A company’s employee should monitor the receivables. In order to do this, he forms a reconciliation statement on mutual settlement of accounts every quarter. In this case, we will show you an example of a company from Spain and how the amount of receivables were reduced by almost €700,000 in one year due to organizing the production of ceramic tiles.
The source data
Company Information: Spanish Factory A, which manufactures ceramic tiles, operates in the domestic market and supplies finished products to the Czech Republic and Slovenia. In the future, it is planning to enter the German market. The production facility area is 30,000 square meters, which allows the company to produce 7.3 million square meters of ceramic and porcelain tiles annually.
Problem 1: In a year, the receivables of Company A amounted to 1 million euros. This figure increased by 30% compared to the same period last year. Court proceedings were ongoing with 3 debtors, which was taking a lot of time and money.
Problem 2: Company staff analysts have been collecting up-to-date records on potential contractors for a very long time. However, the obtained data becomes outdated in a matter of days. This complicates the search for reliable partners because you can only learn if the counterparty has issues after some time has passed.
Objective: Optimize counterparty verification, minimize the amount of receivables.
Tasks: Reduce the amount of receivables.
What did we do?
- Set up change monitoring of contractors in Datapo. We decided to track changes in all fields: financial transaction data, information on sanctions, court cases, registration data. This was to help get up-to-date information on all changes that happen with debtors.
- Set up change monitoring of company representatives. This allowed us to properly and timely respond to events.
The tile plant won lawsuits against Debtors B and C, totaling at €670,000. These contractors had been collaborating with Company A for several years; however, problems with the return of funds had just recently begun to appear. Representatives of Company B claimed that they did not have the opportunity to pay off receivables in the amount of €430,000 at that moment. However, with the help of Datapo, the management of Company A found out that Organization B bought commercial property worth €318,000, which meant that the debtor had money.
The decision to file a lawsuit was made. After lengthy proceedings, the court ruled in favor of Company A and ordered the debtor, Company B, to repay the debt in the amount of €430,000.
A similar situation happened with Company C. There, the debtor initially announced a situation close to bankruptcy, but thanks to Datapo, analysts of Company A tracked that their “partners” had successfully signed a new contract. Company A filed another lawsuit which resulted with the court ruling in favor of the claimant. This time the company got back €240,000.
Additionally, the plant’s management refused to cooperate with Company D, which subsequently went bankrupt. The first sign was the information that administrative proceedings had been opened against their CEO, and there were problems with paying taxes. When Company A made inquiries about the situation inside Company D, they found out that bankruptcy proceedings were launched against Organization D.
A year later, the amount of receivables decreased to €330,000. Following these events, this indicator has a greater tendency to decrease because now Company A selects only trusted counterparties and instantly responds to all changes that occur within the other organizations that it collaborates with.