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Tips for managing debtors

Positive cashflow is crucial to the success of your business operations.  As a business owner, how you manage your debtors can be the difference between failure and success.  Without the resources that larger companies enjoy, small businesses are at greater risk of bankruptcy if a large client refuses to pay.  And while debt collection may seem like a chore, there are some steps you can put in place to simplify your collection process, and improve your cashflow.

Invoice immediately

It can be very easy to get wrapped up in the day to day activities of running your business however, you must make time to invoice for your goods and services too.  It can be tempting to leave your invoicing until the end of the week, or worse, the end of the month, but this is how cashflow problems occur.  Send your invoice immediately – you cannot expect to be paid if your customer doesn’t have your invoice. 

Most cloud accounting software, such as Xero and Quickbooks Online, offer invoicing on the go from any mobile device, as well as automatic follow up reminders, and other great tools to help manage your debtors.  Check out our recent cloud accounting blog, or watch the videos available on our Resources page to learn more.

Communicate with your customer

Ensure your trading terms are clearly stated on your invoice, and follow up on unpaid invoices quickly.  Send monthly statements, phone your customer a day or two after the payment date to confirm they received your invoice, and remind them that payment is past due.  Oftentimes, a single phone call is all that’s required to sort payment on an overlooked account.  If your client is struggling financially, it can be beneficial to negotiate a payment plan.  It is generally better to collect in instalments than to receive no payment at all. 

Be consistent

Having a structured, consistent approach to management of your debtor book is critical to your success.  This is best achieved by having a documented collection procedure and charging someone in the organisation with the responsibility for implementing and administering it.  Establishing a methodical collection process will also help your debtors to understand and meet your payment expectations going forward.

Make it easy for customers to pay you

Having a variety of payment methods detailed on your invoice will encourage your customers to pay your account, and electronic payments mean you can get paid faster.  In an increasingly cashless society, it makes sense to offer e-payment facilities.  There are many providers offering low-cost options for accepting credit card payments, and cloud accounting software often has in-built payment services which allow clients to click a link to pay their invoice via a secure payment gateway. 

For businesses that operate on the go, there are a number of Point of Sale (POS) devices that pair directly with your smart phone or tablet so you can collect payments wherever your business takes you. Some options include Emmy (Commonwealth Bank), Genie (Westpac), FastPay® Next Generation (ANZ), PayPal Here and Square.  Setup costs, fees and charges vary according to provider, so it’s worth doing your research to find the most cost-effective solution for your business.

Engage the professionals

At some point, all business owners will encounter a customer who just won’t pay.  It’s at this point that you need to escalate your collection requests.  You can send a final demand – there are templates online if you wish to send it yourself – or you can pay to engage a solicitor.  You may find that your customer is more inclined to pay once the lawyers are involved! 

Another option is engaging a debt collection agency.  Debt collectors usually charge a commission on recovered amounts, so you need to decide whether the cost of collection will outweigh the amount owed to you. Depending on your terms of trade, you may be able to recover debt collection costs, in addition to the invoice value, from your customer. It’s worth having a solicitor draw up your terms in this regard.

In some cases, it makes more sense to write off uncollected invoices as “bad debt” and simply absorb the loss.  For example, if your debtor has declared bankruptcy, you will simply be wasting time and money chasing a debt that will never, ever be paid.

We can help

When it comes to managing your debtors, the key is to act quickly – invoice immediately and follow up non-payments promptly.  We can assist you with developing your debt recovery plan, and put you in touch with recovery specialists if required.   For more information, contact our office on 07 3217 2477.