Tips for Handling Debtors
Any business that offers credit terms to its customers and sends out invoices has the potential to accumulate a crippling cash flow problem. How well you handle the invoicing process can make or break your business.
So here are some simple tips on improving your debtor situation and ultimately your cash flow position.
- Ensure someone in your business is responsible for monitoring debtors nearly due, due or overdue and how much cash is in the bank on a daily basis.
- Create a system for debtor management including how and when communication is made with debtors, responsibilities for chasing the debt, repayment options and when to use debt collection, litigation or write the debt off.
- Keep on top of debtors because if the cash isn’t coming in other essential parts of the business such as purchasing, wages, advertising will struggle. Having slow payers will also hamper your chances of obtaining good lines of credit.
- Ensure your invoices look professional and contain all the appropriate details. Failure to do so will result in debtors not taking you seriously.
- Carefully consider your payment terms and ensure they are on the invoice. Generally the shorter the period allowed the more likelihood of being paid on time.
- Provide various options for payment to make paying easier such as cheque, cash, credit card or EFT POS facilities at your premises or internet banking, direct debit and financing options via organizations such as SmartFee or ProFee.
- Consider providing a Terms of Trade document prior to completing the sales process. This will mean there is no excuse for late payment as terms are clearly spelt out.
- If chasing debtors is something you feel uncomfortable doing hire a collection agency to act on your behalf.
- When chasing debts make sure you are talking to the right person, be professional, be focused and firm about having the payment resolved ASAP and be prepared for the objections difficult debtors will use.Understand that if you want to foster a long term relationship with your slow paying customers that you will need to provide different options as one size certainly does not fit all. A weekly payment of fifty dollars can often see a debt paid off quicker than waiting for the full payment all at once.
- When chasing debts make sure you are talking to the right person, be professional, be focused and firm about having the payment resolved ASAP and be prepared for the objections difficult debtors will use.
If you need any assistance creating a debtor policy or finding a collection agency, talk to the team at Watts Price Accountants.
Richard Kemp – Watts Price Accountants
The advice provided on this Article is general advice only. It has been prepared without taking into account your objectives, financial situation or needs.