Managing your debtors effectively is one of the most crucial aspects of running a successful business. But what is a debtor?
Simply put, they are your customers who haven’t paid you yet. They owe your company money and it’s essential to keep a close eye on this list. A simple monthly review of your debtors can make or break your cash flow and ultimately the success of your business.
But managing debtors is more than just reviewing them each month - let’s take a look at the steps you can take to keep debtors under control and your cash flow healthy.
Why Reviewing Your Debtors Regularly is Essential
Reviewing your debtor list ensures that payments are received on time and this in turn keeps your cash flow healthy. Here are some questions to consider at each review:
Is the invoice going to the correct email address?
Has the customer read and processed the invoice?
These might feel like simple or obvious questions, but they are usually the reasons why people end up as aged or old debtors. We once assisted a client in improving their credit control (the process of chasing up debtors) and discovered that an invoice sent four months prior had been sent to the wrong email address and the customer’s finance department had never received it. Asking the obvious questions can certainly unearth issues that might go unnoticed and potentially solve long-term issues quickly and efficiently.
Streamlining Your Invoicing Process
However, it is always best to tackle potential issues upfront. Ensure the invoice email address is a mandatory field when you set up a new customer account. You could verify this address to help facilitate prompt payments going forward and maintain a steady cash flow for your business.
You can also consider implementing automated reminders for overdue invoices - this will prompt any debtors to pay even if they have missed the initial due date. If you have consistent aged debtors it is good to put a system in place to follow up on late payments - from recording calls and actions to noting the reasons for delays. All of this will enable you to keep track of your debtors and understand the reasons behind late payments so you can resolve them efficiently.
Clear Payment Terms and Easy Payment Methods
If late payments are a recurring issue, it might be time to reevaluate your payment terms and methods:
Are your payment terms clear and easy to understand? Do customers mistakenly assume they have 60 days to pay when it’s actually 30?
Are you making it easy for customers to pay? Offering direct debit options or "pay now" links on invoices can streamline the payment process
By making your payment terms clear and how to pay as easy as possible, you can ensure a smoother and more consistent cash flow, which is vital for the ongoing success of your business. In addition, ensuring timely payments means you will be rewarded after working hard to generate the leads, prospects and sales for your business!
Your Business, Your Terms
Remember, you have control over your payment terms. While industry standards exist, you have the flexibility to set your own rules to suit your business needs:
Consider implementing shorter payment terms, such as seven days, or require payment in advance
For larger transactions, you might implement a deposit system
For services with fixed monthly fees or fixed project amounts, upfront payment can be stipulated in your contracts
Back to Basics
Don’t let payment delays undermine your hard work. Be clear about your payment terms and streamline your invoicing process to ensure timely payments. A healthy cash flow is fundamental to a successful business and it all starts with effective debtor management. But remember, managing debtors isn’t just a task on your list; it’s a strategic approach to ensure your business continues to thrive.
Regular reviews, clear communication and efficient systems are the backbone of maintaining a steady cash flow and ultimately leading to sustained success.
Take charge of your business and payment terms - it’s your business after all!
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Long White Cloud Accounting is based in Sutton, South London and serves established limited company service-based clients in the Greater London area. Led by Kath Vincent, we provide high-quality bookkeeping to keep you on top of what’s happening in your business each month. Looking for bookkeeping support? Click below to book a chat with Kath.
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