Monday, 20 April 2015 00:29

Managing the Debtors

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As a Bookkeeper Melbourne I come across a lot of business with high sales but are still struggling with cash flow.

For any business, Cash Flow is most vital and in order to have a good cash flow one of the most important things is to manage your debtors. Bookkeepers play a very important role in it.

First important step in managing your debtors is to understand that each business is different, it is very important to identify each customer’s business; their trading volumes etc and then give them the credit facility accordingly. You will notice that rather than applying 30 days blanket rule to each customer it benefits if you had different customers on different trading terms such as 7 days, 14 days or 30 days. Its keeps the cash flow coming all the time.

Another important thing is to apply credit limits which many small businesses fail to do. Once you have credit limits in place, then if the customer does go over the credit limit for that particular period, you can always ask for upfront payment for the amount over the credit limit.

One thing which I stress again and again with my clients is that if you get a sales order from one of your customer who is outside the trading terms even if it is a day, please do not be afraid to get in touch with them and advise that you will need the old account to be settled before you can provide anymore goods/services. I think it is a biggest crime in debtor management to keep on supplying even when the customer is outside the trading terms.

Another way of identifying the non-paying customer is to put them on pre-paid basis for the first few orders, you will know with the promptness of their payment if they will be paying on time or not once you give them a credit facility.

For those people who have over-draft’s or debtor finance facility, you should have a clause in your credit application that you will be charging interest as the same rate as the bank for the overdue invoices and do not be afraid to charge interest. In this way you can at least pass the bank charges to the customer rather than absorbing them.

Get your Bookkeepers to send the statements out every week and follow up on the debtors. Do not be afraid to put them on stop supply and after 3 instances of not sticking to the payment terms the customer should be immediately put on pre-paid terms.

Any debt which is over 90 days, send them a letter of demand and if still not paid it should be immediately forwarded to the debt collection agency.

Read 1338 times Last modified on Wednesday, 27 May 2015 03:19

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