Out of control debtors can be detrimental to business. The main reason that many businesses fail is due to a lack of cash rather than weak sales. It’s critical that systems are put in place while the business is running smoothly, rather than waiting until you’re in trouble. If you follow these simple rules, you can do this in a cheap yet efficient manner.
1. Make it easy to get paid
Invoices and statements should clearly show all of the information necessary to make it easy for your clients to pay you.
- Send invoices as soon as possible, instead of waiting until the end of the month. This ensures you don’t miss your customers’ payment cycles, and you get paid quicker too.
- Display the due date by the invoice total
- Show payment methods and offering as many payment options as possible
- On statements, show ageing as “current” and “overdue”. Using 30, 60 and 90 day terms encourages late payment
- Find out exactly who should be receiving the invoice and sending it to direct to them so that it doesn’t get lost
2. Follow up
Businesses often have their own policies which can delay payment processes. Some pay the “squeaky wheel” first. While you may feel like a nag, a strict routine around overdue accounts is very important. The best way for employees to approach the matter is to make sure they are friendly and non-threatening when speaking to customers.
3. Clear payment terms
Though common sense, you’ll be surprised how many businesses do not include their payment terms on invoices. Your payment terms make it clear to the customer when the invoice needs to be paid by. If you leave this off the invoice, they may assume it’s not urgent and just pay it in their own time. Keep payment terms as short as possible.
4. Get staff involved
It’s essential for your employees to take part in the process. You could offer incentives for reductions in debtors days. Ensure your accounts team track the cashflow and own the debt-collection process. All new customers need to be credit worthy and checked that their accounts are paid when due.
5. Go digital
Online systems have many benefits. They allow you to keep track of your communications with debtors, minimising errors, email invoices and statements and be able to locate paperwork quickly and efficiently.
Do you have a debtor strategy that you can share? Did any of the above tactics work for you?
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Amanda Dyason, Founder of ProfitSmarts
We help Australian business owners increase profits, accelerate cash flow and master their financial management. We believe life is too short and precious to be stuck in an under performing business delivering mediocre results.
ProfitSmarts gives you more Profits and consistent Cash flow, putting you back in Control. Because when you get business right, the results are simply amazing.