Article:

BDO Know How April 2016: Our top Five Debtor Management Tips

27 April 2016

Your business is ticking over, your customers are happy, and most importantly your employees are happy. So why isn’t your cashflow, well... flowing? 

After checking year-to-date performance you see your overheads tightly controlled, sales are increasing, and wages are as budgeted. But have you checked your debtor balance?  Debtor management can have a major influence on the cashflow of your business. 
When implementing a successful debtor management system consider the following tips:

  • Don’t be shy. It’s business. Don’t be afraid to inform customers of your trade terms. This approach can imply payment is expected soon after work has been completed. You may also find it’s easier to follow up payment with the customer, as it has previously been discussed.
  • Make it easy for customers to pay. If your customers choose to pay by bank transfer, have your bank account number clearly displayed. If customers feel they have to search for details they may delay the process.
  • Have a process in place. The task of following up debtor payments may be delegated to an office manager or accountant. However, if you are a sole trader then the process relies on you.  Having time set aside each fortnight or month to chase up debtors is arguably as important as winning new work.  
  • Review timeliness of payment. Work out how long it is taking you to recover your debts (Google “accounts receivable turnover” for the calculation).  The lower the number, the faster your customers are paying.  If you notice an increasing trend, acting fast to uncover the reason why is essential.
  • Use your accounting software. You can use Xero to automatically set reminders on invoices which are overdue. This smart accounting software also allows you to customise letters and choose which customers you want to send the reminders to.

 
For further advice, contact your local BDO office.