Good debtor management is critical to ensuring your business has enough working capital to reinvest and grow. Here's some insider information on how to manage your debtors effectively to keep your cash flow healthy and achieve business success.
1. Make sure your systems are up to date and monitored
The secret to good debtor management is well-maintained information. There are many software solutions available to help you with your credit management, and increasingly more of them are cloud-based. Good software solutions can relieve you of much of the administrative and management pain associated with debtor management.
The best way to minimise issues is to monitor your debtors ledger closely – by keeping close track of the days outstanding you’ll be able to spot adverse trends and take prompt action before they start to have an impact on your cash flow.
2. Automate your debtor management process
Automation software, such as Xero, is a great way to streamline the debtor management process.
With accounts receivable automation, you can build your payment term policies into the system that sends the invoices and tracks payments. Consider implementing automated emails to your clients 7 and 3 days before an invoice is due. Also ensure the overdue email reminders are set up for 7, 14 and 21 days, and that you’re notified as soon as an invoice is more than one day overdue.
3. Reduce your payment terms
This may seem counterintuitive – if a client is struggling to pay within 30 days now, why make the invoice due even earlier? A month, or longer, gives clients far too much of an opportunity to forget about (or misplace) your invoice. Instead, consider if 7 or 14 day payment terms may work better for your business. Cash-on-delivery is also increasingly common (although these days, it’s more tap-on-delivery or bank-transfer-on-delivery) and may work for your business, given the right mobile point of sale technology. At the very least, consider it as an option for clients who have been repeat late payers.
4. Send invoices and reminders immediately
Don’t lose your momentum. As soon as you’ve completed the work, or the customer has the product in hand, send your invoice.
Additionally, if you're not receiving payments when you should, it’s time for your follow-up system. Everyone will feel better if you send friendly reminders ahead of payments, as opposed to a rough demand when a payment is late.
You might not hear back or receive payment after the first reminder. However, it might be just a case of a missed email, so pick up the phone and chat. Sometimes that’s all it takes to get paid.
5. Late payment conditions
Don’t offer credit to everyone – you’re not a bank, and the banks wouldn’t either! Do background checks before you agree to anything.
Once approved, make sure you outline your credit conditions clearly. If you’ll charge interest on overdue amounts, your terms and conditions should say so (there may even be set legal requirements – it's best to check with your accountant or lawyer).
Then always stick to your conditions. If you offer a prompt payment discount, be strict with it. It shouldn’t apply if the payment is even a day late. If you bend this rule for a customer, make it clear that it’s a one-off because you value the relationship.
6. Bad debt provisioning
Have your terms of trade reviewed by your solicitors to make sure they are legally compliant, so there will be no impediments when it comes to recovering debts.
You may want to consider using credit insurance products and debt recovery services to manage the risk and effects of bad debts. Don’t put off sending professional demand letters or threatening legal action – and be prepared for the possibility of going to court.
Credit management is about safeguarding your profitability, so you should make provisions for bad debts in your annual or ongoing budgeting process, and act swiftly if your debtors begin to exceed your provisions.
Bad debts can quickly spiral out of control and have a serious impact on your cash flow. These six strategies will help you set up robust credit relationships with your customers from the outset – and give you the tools you need to identify and respond swiftly to individual risks or dangerous patterns in your receivables.
In this blog we will discuss about How to Write Off a Bad Debt in QuickBooks.
Bad debt is the amount that a business or a company is unable to recover from the debtor in case the borrower has gone bankrupt or is unable to pay the debt for some reasons.
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The debtor then brought an action for breach of contract arising from the sale of a business,..
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The work of a Collections Attorney is to make a record of all the legal possessions that are to be seized in order to pay for the some that your debtor has failed to pay.
Such attorneys bring every possible possession such as vehicles, property, and bonds.
You can hire a lawyer at Snellings Law LLC.
