12 Tips to Better Debtor Management

For a small business a high level of debtors can have a detrimental effect on your profitability and your business longevity therefore keeping your debtor levels under control is a must for all businesses. There are a number of options available to small business owners to help reduce or at least better manage your debtor control processes:

  1. A detailed Sales Agreement between yourself and the customer can outline your payment requirements and must be signed off by the customer prior to delivery.
  2. Asking for payment upfront is becoming more and more popular and eliminates the need for chasing debtors.
  1. Many financial institutions offer Invoice Financing Solutions. This essentially allows you to borrow money against the outstanding balance of your debtors giving you access to finance when you most need it.
  2. Make it easy to pay you. Many small businesses fail to offer EFTPOS or credit card payment facilities due to the vendor costs. As more and more people move away from carrying large sums of cash and bulky cheque books the lack of electronic payment options is a major inconvenience.
  3. Ensure your invoice is easy to read, especially your payment terms, payment details and Due Date.
  4. Debtor Funding is a facility that you can offer your customers to help them spread their payment. Companies like ProFee pay you the full amount upfront and they collect the debt (plus interest) from the client over a number of periods.
  5. Payment facilities such as ezidebit allow you, with your clients permission, to automatically deduct your service fee from their nominated bank account on a scheduled basis. This is also offered by most major banks.
  6. Virtually all businesses will experience cashflow issues at some point. To ensure you have vital funds available all year round a cashflow budget (or forecast) can help you plan for any shortfall in funds and will help if you need to approach your bank for additional funds.
  7. Know when it is time to bring in a Debt Collection agency. For a percentage of the overdue amount a professional debt collection agency can often get quick results.
  8. Services such as CreditWatch can help you check the credit history of customers alerting you of potential problems before they happen.
  9. Build daily reports to monitor your debtor levels, debtor days and bank balance to ensure you don’t run into cashflow trouble.
  10. Your collection process is extremely important so build quality systems around it so it is made a priority and is consistently done. If you don’t have the time or inclination to do it yourself then find someone that will.

If you are a small business that needs assistance in managing your debtor processes talk to your accountant or bank manager about tools to help you or consider outsourcing your debtor management to a firm that specializes in this area.

Richard Kemp – Watts Price Accountants
E: richardk@wattsprice.com.au

The advice provided on this Article is general advice only. It has been prepared without taking into account your objectives, financial situation or needs.