Do you know what your debtors owe you?

Wouldn’t it be lovely if everyone paid you on time! 

Unfortunately, this is not the case, and particularly in these uncertain times, customers can fall behind in their obligations to pay you, and then if you are not getting paid on time, you can fall behind in your obligations to pay others.

It’s also not uncommon for busy business owners to lose track of their debtors, for various reasons, like lack of time or no debtor processes in place, so you are not alone, but in business, it’s essential to know where your debtor days are at, and how much is owed to your business.

Why is it important to keep track of your debtors?

Incoming cash owed to a business is called accounts receivable. 

Not having a process for tracking your debtors and available cash, could lead to poor cash flow, lost revenue, accounting errors, and wasted time.

Poor cash flow can not only hinder the growth of a business, but it can stop a business in its tracks.

If you are unable to pay your suppliers, your future relationship with them could suffer.

If you are can’t pay operating expenses this can hinder the growth of your business and the relationship with your staff.

If you don’t pay your loans, your credit rating could be affected.

Not having a robust debtor system in place leads to wasted time as staff are spending time chasing debtors.

You may find yourself in a position where you may have to close your business.

To avoid this, invest in good accounting software which will track outstanding debt and assist in the process of debt collection. 

It’s important however to gain some basic knowledge of accounting and budgeting to help you to understand where you are positioned financially so that when you do run a report you can analyse it correctly and act accordingly.

Debtor Management

Set up

Talk to your accountant and make sure you have the best software in place for your business, what is suitable for your brother-in-law’s tiling business may not be suitable for your coaching business. 

Learn the basics of the software and understand what the figures in your business mean. 

You will need software that automates the debtor process i.e.

Turns quotes into jobs

Turns jobs into invoices

Sends automated reminders

Records date and all correspondence

Clear payment terms

Outline your payment terms and engagement terms clearly, by doing this you are making it easy for customers to pay you. Clearly show the amount owning, the due date, and how to pay.

Consider requesting a deposit, part payment, or progressive payments. This helps both you, and the customer, manage cash flow. 

Also, offer multiple payment options to make it easier for the customer to pay you, for example, offer credit card, PayPal, and direct debit options. Your software should have payment options included, but be mindful of the fees involved with these services.

Clear payment terms will build a better relationship long term as misunderstandings can be avoided.

The Service or Product

Do a good job, deliver on your promise, and provide a good service or excellent product. 

Customers will be inclined to pay you when they are happy with the goods or services provided.

If you wondering if you are pricing your products and services correctly check out 

Process

Make sure you record all the correct details of the client in your database.

Send Invoices immediately after completing the job.  Customers are more confident in paying you when they can relate the invoice to the service provided.

Send reminder invoices as soon as they are overdue and keep sending them until the invoice is paid.

Text messaging is also very effective in getting paid.

Follow up with a phone call if an email and text reminder go unanswered.

A Dedicated Role

Make sure you have a dedicated person in charge of accounts receivable who is following up late payers. 

This person needs to be considered for the role carefully. Are they calm, polite, and above all discreet? Make sure they follow the process that you have put in place and that they do so legally and ethically. 

While there is one person in charge of accounts receivable it’s important however that all the team are aware of the debtor process and respect the process. 

Are you in Trouble because of later payers?

Here are some quick tips:

1.Improve your cash flow by reducing the time between providing your service and receiving payment. You can do this by offering incentives.

2.Diversify your income stream so you are not relying too much on any one client so that a late payment from one problem client will have less of an impact on your business.

3.Renegotiate with suppliers.  Take the time to do this, request longer terms

4.Inventory – reduce stock sitting on your shelves

5.Call the bank and consolidate your loans.

6.When it comes to paying bills, consider how much interest you are being charged and if there are any penalties or late fees.

Don’t be afraid to chase your debtors, if you’ve provided a good service or product then you deserve to be paid. If a client is having real difficulty in paying, work out a payment plan, but explain how late payments affect your business.

Above all else try to maintain good customer relationships, a returning customer is a customer for life.