Your business needs a positive cash flow to survive.
When debtors fail to pay on time, your cashflow as well as the ability to meet quarterly reporting obligations are affected.
Here are some tips to help you manage your debtors and maintain your cash flow.
Allow Credit on a Selective Basis Offer credit on a selective basis to trusted customers.
Their timely payments will improve your cash flow.
Track Changes in Customer Credit History Delayed payments affect funding.
If a long time customer suddenly begins delaying payments, this may indicate difficulties in their business.
Industry gossip may also be informative, and help you determine if a customer is credit worthy.
Develop of Plan for Recovering Money At times your customers may experience financial difficulties and be unable to make payments.
In these circumstances you need to take action to protect your cash flow and recover as much money as possible.
• Politely ask for payment, and offer to send a courier to pick up a checque.
• Carefully consider an offer from a customer in financial distress.
Receiving partial payment is better for your cash flow than none at all.
• Don't rush into expensive legal action.
Your business funding may be more affected by taking a customer to court than negotiating terms with the debtor on your own.
Know What You Are Owed Managing debtors and maintaining a positive cash flow requires knowing at a glance the status of your accounts.
Offer Discounts Offering discounts may encourage customers to make payments before they are due, which can save you money and improve cash flow.
Make Debt Collection Easy Managing debtors is important for maintaining a positive cash flow.
The following are points to consider when attempting to clear outstanding accounts and increase cash flow.
• Politely, persistently demand on time payments • Avoid giving credit whenever possible • Begin accepting credit cards for payment • Institute a credit policy and make sure all employees are familiar with it • Stay up to date with invoicing and debt tracking Your credit policy should include the following: • The firm's credit strategy • Terms of payment • Location of due dates on invoices • Reservation of Rights - reasons you will refuse credit • Persons with authority to grant credit • Debt collection procedures and the person responsible for collections, and exceptions to the policy • Person responsible for reviewing new client credit histories • How credit limits will be determined • Person responsible for authorising credit suspensions and a suspension policy • Actions to be taken for bad debts Invoicing is a crucial aspect of debtor and cash flow management.
Invoicing should occur upon completion of the service.
Invoices should be complete and free of errors so that there is no reason payment can be delayed.
Invoicing delays negatively affect business funding; conversely, timely billing will have an overall positive effect on your cash flow.
Collection procedures should be pursued early and often.
Debt collection is yet another way to build client relations, and a positive attitude when attempting to collect on invoices is important.
Monthly statements and mass mailings may not be as effective as the personal touch.
The telephone is often the better choice.
Deal directly with the person responsible for approving payments and maintain records of all contact.
Do not allow debts to become too old, the longer the debt lingers the less likely payment will be received.