Is Your Debtor’s Book Killing Your Cashflow?
Debtors must be managed or they will become the small leaks that sink a great ship
How we manage our debtors plays a large role in our company’s viability. Don’t let poor Debtor Management ruin a great business. By implementing these fundamental principles into your business, you can get a better grip on your debtors.
1. Be CLEAR in your Policies and Documents
Are you clear about when and to whom you will extend credit? Do you have a clear policy in place that gives your employees the tools to make good decisions when extending credit? You should only extend as much credit as your company is able to manage.
Working out what you can and can’t afford, upfront, is the first step in managing your debtor’s book.
Have you got clear payment terms? Are these easy to see and understand on your contracts, quotations, invoices and statements?
And whilst we are asking about your invoices, etc. Do your invoices and statements make it easy for your clients to pay you? Have you got all the necessary information reflected clearly? Is the amount due easy to read? Are you able to make use of an online payment system that links your invoices directly to an account into which payment can be made?
Technology allows us to simplify so many tasks. Make sure that your invoices and statements are so clear that there is no reason for a person to delay in paying you.
2. Be Proactive in Your Communication
How much time lapses between your client receiving a quotation and a service? More importantly, how much time lapses between a client receiving a service and receiving an invoice? This might require you to modify your systems or even get upgraded systems. But swift invoicing is key to good debtor management.
The sooner a client receives their invoice, the sooner you are likely to get paid.
Good debtor management requires you to keep a close watch on your debtor’s book. As soon as you notice that one of your clients may be struggling to pay you, reach out to them. Have you ever noticed how much easier it is to speak to someone about a challenge you are facing, when they seem genuinely concerned and willing to help?
Make it easy for your debtors to speak to you about their challenges, so that you can find a way around the problem before you become just one of the creditors on the list they present to their debt counsellor!
3. Be Consistent and Persistent
Do you have a robust collections system? Do you stick to it, or can your clients sweet-talk you into giving them one more chance? Do your clients know what will happen if they default? Do you follow through on your threats?
Like raising children, managing our debtors requires us to set clear boundaries and consistently apply the system.
And, starting back at the beginning: Do you enforce the credit policies that you have developed? Be wary of extending more credit than you had budgeted for, in the hopes of a great sale. Its the small leaks that sink a great ship.
The art of leadership is saying no, not saying yes. It is very easy to say yes. (Tony Blair)