Why is managing your debtors crucial to your business?

What is the key driver to generating Cash-in to your business? That’s right, Sales!

Most retailers are fortunate because they are cash businesses and receive payment at the time of making the sale. But, if you sell goods on account to your cutomers it is crucial that you minimise the amount of time between the date of the sale and the collection of the money from those sales. Leading credit reporting firm Dun & Bradstreet reports that the average number of days that a customer takes to pay its bills is currently 53.2 days. That is almost 2 months between making the sale and banking YOUR money!!

The frightening news is that some businesses are operating with debtor days out to 90 days and beyond. Effective managment of your debtors can in essence have the same impact as an additional client or two!! IF you have annual sales of $1,000,000 and your average days to collect those sales in 90 you will have $246,575 sitting in your clients bank account instead of your bank account. If you reduce these debtor days to 53 the balance will reduce by $101,370 to $145,205 and further if you reduce debtor days to 30 days the balance outstanding will reduce by a further $63,014 to $82,192.

A few crucial steps that you can take to improve your debtors are;

1. Clearly articulate your debtors policy to your client at the time of commencing your relationship. A client that baulks at this stage will most likely be a headache later.

2.  Invoice early and invoice clearly. Find out who the people are that approve payments, if you are working with a large corporate or government department understand their processes and protocols. Ensure your internal processes are effective to collate all the necessary information and ensure that your invoice is clear so your client does not need to come back to you for more information.

3.  Reconcile invoices to workflow periodically and ensure no products or services “slip through the cracks”. Sales teams will be quick to “authorise” write offs, ensure appropraite approvals are sort prior to writing off work.

4.  Review outstanding invoices weekly and commence collection early, make your phone calls, email reminders, reminders by letter … and more phone calls. The rusty gate gets the oil!!  Once again, sales teams will be quick to say “don’t chase” payments but with all due respect ignore them. A sale that you don’t get paid for isn’t really a sale at all!!

5.  Send monthly statements.

For more on managing debtors our specialist Newcastle Bookkeepers have the skills to help you make the most out of your cash and ensure that your bookkeeping problems are solved quickly. For a complete list of bookkeeping services contact Shelley on 0412 481 559.

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