Good Debtor Management for your Company
Good Debtor Management for your company is extremely important to ensure good cash flow for your business. Good cash flow is the lifeblood of any business and without it your business will fail to get off the ground, or fall over in the early stages. Here are a number of practices that any start up should practice to ensure you get paid on time and have a healthy cash flow position at all times.
- Get signed up to Cloud Accounting.
A good cloud accounting software package like eFolio Accounts will help you ensure that your invoices go out on time. But managing this software is only the start. A cloud accounting software package will allow you to make sure that all your debtors are accounted for at all times, and that they are reminded that you are a creditor of theirs.
- Get invoices out quickly.
Once a job is complete the invoice should be issued as quickly as possible. The reason to get it out quickly is to reduce Debtor Days. Debtor days are the number of days from when you provide an invoice to your client and the day they pay it.
- Get into a routine
Its important to get into a routine of communicating with your Debtors on a weekly/monthly basis. Once an invoice goes out a statement should be provided at the end of each month. If the invoice remains unpais then a reminder email should go out at the third week of month 2. If it remains unpaid by the end of month two a friendly phone call should be made but businesses are different and this activity may not suit your clients. More contact or more spread out communication may be necessary.
- Use interest on late payments.
Applying interest on late payments is governed by the European Communities (Late Payment in Commercial Transactions) Regulations 2012 – SI 580 of 2012 It should be stated in contracts or terms of business that interest can be applied for late payments.
- Offer incentives where possible.
If you can offer an incentive that a 5% reduction can be made to an invoice if it is paid within 5 days of issue?
- Stop Work until you are paid on longer debtor day invoices.
You should strategically advise clients that an invoice should be paid prior to providing further services. Talk to the client and come to agreement even a partial payment in two stages.
- Get to know the late payers.
Focus your attention on the late payers. If the incentives dont work, talk to them before providing services and try to agree stage payments. If your business has larger invoices with fewer clients the this strategy works.