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6 easy tips for improving debtor management

BlogEnterpriseYour business By Duncan Khoury – 03 September 2020

Chasing unpaid invoices can be a nightmare and the time invested on the process can take its toll. No one wants to spend hours reminding clients that their invoices are overdue and it certainly doesn’t help foster a positive relationship. 

But, what choice do you have? Cash flow issues due to late payers can be detrimental to your business. While you may have resolved your overall cash flow management approach, specific attention needs to be paid to debtor management strategies. That’s why we’ve collated these six easy tips for improving your debtor management. 

Firsty, though, why is a debtor management strategy even necessary? 

From bad to worse: why debtor management strategies are so important

While it may start with a few late payments, it doesn’t take long to escalate. Yes, all clients should pay by the due date of each invoice, and it shouldn’t be your responsibility to remind them. However, sadly, this isn’t always the norm. 

Debtor payments have long been notoriously tricky to navigate for businesses, especially in the B2B world. 

In consumer-facing businesses, generally you sell something and get the money from the customer before delivering it (or at the very least simultaneously or soon after delivery). In B2B entities, especially service-based ones, you may secure the sale and get a deposit, but you’ll often deliver the services or products in full before the balance invoice payment terms. 

This puts a cash flow squeeze on your business even when clients do pay by the due date. And especially when you’ve had to pay your suppliers in advance. 

So, what happens when a few clients don’t pay by their invoice due dates? You can quite easily be on the slippery slope towards cash flow disaster.

This is just one reason why debtor management strategies are so important. Putting a few small changes in place can keep you off that slope and also have a positive impact on:

  • Business growth – taking a back seat on debtor management can significantly affect your cash flow. If you’re serious about business growth, you need cash flow to make it happen. Being proactive can pay dividends when it comes to your plans for expansion. 
  • Incurring additional fees – not following up with late payers may not just mess with your cash flow. It may also mean you’re accruing interest and other fees on money you owe to suppliers and/or any business financing methods, including credit cards. 
  • Client relationshipsultimately every business transaction starts with a relationship between people. Without clear debtor management strategies, your clients may feel pestered by inconsistent or sudden demands for payment. This could lead them to move away to your competitors, which is a result no one wants. 
  • Visibilitylate payments may mean more than just tardiness or a dire lack of administrative organisation. Your clients may be in financial strife and having an open line of communication means they can safely raise this with you. Gaining visibility into their situation then gives you the chance to offer flexible options – so while it may take longer for the invoice to be paid, at least it will be paid eventually. 
  • Team morale – cash flow issues can impact your ability to pay not only suppliers, but your team as well. Keeping your staff motivated and excited about growing the business is key. Better cash flow management will help you continue to pay wages on time, invest in positive team activities and ensure the team has access to the technology they need.

6 easy tips to improve debtor management

Thankfully, it’s not rocket science. There are lots of easy debtor management strategies you can employ. We’ve assembled our top 6 tips here for you as we believe they’re generally the ones most likely to deliver quicker results. 

1. Be crystal clear with your payment policies

Don’t fall into the trap of assuming your clients will read the fine print – even when you’ve made signing the contract dependent on their acceptance. 

The easiest debtor management strategy you can put in place is adding essential payment term information in prominent positions on your proposals, invoices and even your website. Make the information easy to find, clear and concise. Also consider adding in a step to your proposal process to seek clarification from the client that they’ve understood, and accepted, those terms in particular. 

2. Reduce your payment terms

This may seem counterintuitive – if a client is struggling to pay within 30 days now, why make the invoice due even earlier? A month, or longer, gives clients far too much of an opportunity to forget about (or misplace) your invoice. Instead, consider if 7 or 14 day payment terms may work better for your business. Cash-on-delivery is also increasingly common (although these days, it’s more tap-on-delivery or bank-transfer-on-delivery) and may work for your business, given the right mobile point of sale technology. At the very least, consider it as an option for clients who have been repeat late payers.

3. Offer early payment discounts

While it may not always be an ideal option to offer an incentive to pay on time, it can be a powerful tool for getting invoices paid early. Consider a small percentage discount for paying before the due date, or provide an additional service or product instead.

On the flip side, you could also consider charging interest on late payments – although always make sure this is clearly stipulated in your terms and clients are acutely aware that this penalty exists. A surprise late payment fee is never a good look.

4. Automate your debtor management process

Automation software, such as Xero, is a great way to streamline the debtor management process.

With accounts receivable automation, you can build your payment term policies into the system that sends the invoices and tracks payments. Consider implementing automated emails to your clients 7 and 3 days before an invoice is due. Also ensure the overdue email reminders are set up for 7, 14 and 21 days, and that you’re notified as soon as an invoice is more than one day overdue.

5. Provide additional payment options

Some clients want to pay via bank transfer, others via credit card. Some want to pay online, some in person. Offering a wide variety of payment methods, such as our AccountsPay solution, gives your clients the freedom to choose their preferred way to pay, making it all the more likely that they’ll pay on time. 

6. Consider funding support

If you’re still experiencing cash flow woes after you’ve put these strategies in place, it is worth speaking to a business working capital specialist, like us. One of our solutions, Debtor Finance, is specifically built to help businesses gain access to faster cash flow. 

Once you’re approved and set up, all you need to do is upload your invoices and we then release up to 85% of those funds to your bank account within 24 hours. Once your client pays, we immediately transfer the balance, minus our fees. 

Gaining faster access to your receivables can empower you to capitalise on opportunities and keep the business growing. If you’re interested, get in touch.

 

Disclaimer: The following comments are only our views and should not be construed as advice. You should act using your own information and judgment. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgment as at the date of publication and are subject to change without notice.