Do You Have a System for Managing Your Debtors?
We all know how important it is to make sure you have cash coming into your business to enable you to pay yourself, your suppliers and the tax man. The saying “cash is sanity and profit is vanity” cannot be more important in these uncertain times.
At the start of the lockdown and virtually overnight businesses had no choice but to start looking at their immediate cashflow and in addition to reviewing all their outgoings many businesses started looking more closely at how quickly their customers were paying them and reviewing their debtor collection systems and in some cases actually put some systems in place.
It has been proven that those businesses with a systematised debtor collection system will have a better cashflow than those without. I have expressed on numerous occasions with clients that starting to chase your customers when you need a few quid in the bank is too late and doing it ad-hoc when you get 5 minutes will not work.
So where do you start?
The first thing to do is work out your debtor days number, so you know where you are today and then set yourself a target for the next 90 days. Setting it for the next 90 days gives you something to aim for that is not too far down the road and you can break it down in to 2 x 30 day targets to hit your 90-day goal. If you do not measure something, then how can you improve on it?
You must then write down your new system step by step and allocate tasks to your team to ensure each step is followed. If it is yourself in charge of debt collecting, then make sure you prioritise your time to make sure the tasks are completed. If you think this is going to be a challenge, then make yourself accountable to someone each week or month to make sure you are on track and maybe to see if you are on target. It might be worth giving yourself a small bonus from the business if you hit the target as there should be sufficient cash in the business to enable you to do this.
Whilst you are writing your system it would also be very useful to look at ways of improving the debtor collection process and maybe including new ideas that could get your customers to pay you quicker, a few of these could be:
Offer discount for prompt payment
Make it easy for customers to pay by accepting credit card payments
Look at using incentives for them to pay you quicker for example using www.peasy.com
If you would like a full list of ideas that have proven to work for businesses then please let us know and we can send you the list and just picking one new idea a month and really making a concentrated effort on debt collection will make a positive impact on your cashflow.
If you would like to find out more, or to get in touch with one of our advisors then please click here.