small business owner managing debtors online

8 smart ways to manage your debtors for business success

Getting paid on time is critical to managing your small business’ cash flow. And, let’s face it, cash flow is critical to your business’ survival. Paying suppliers and salaries, investing in infrastructure and growth – if you don’t have the cash your business is in trouble.

It be wonderful if customers paid on time every time right? Yes! Of course! But in reality, it’s likely that even the customers you thought you could rely on won’t get the cash to you as quickly as you’d like – unless you focus on making that happen.

Luckily, there are some relatively simple ways to manage your debtors; things that business owners and managers can do right now to get the cash flowing. Implementing good policies and procedures, using the right tools and optimising your invoices can pay real dividends.

1.      State your payment terms upfront.

Don’t mess around here and don’t hide your terms in unreadable fine print. Getting paid will be easiest if everyone knows the terms from the start. Make sure that:

  • Quotes and contracts address your payment terms.
  • You set your terms out clearly on your invoices.

Sometimes you may be best to openly discuss your terms with a potential customer – don’t be afraid to bring it up, they will likely be thankful to know where they stand.

2.      Consider what you’re asking for

30 day invoices are almost a thing of the past.  Consider whether any of these terms might suit your business better:

  • Reign in the payment due date to 7, 10 or 14 days
    Don’t even suggest that it’s ok to wait “a month or so”. Those 30 day invoices tend to go in the pile for “next month”, which probably means the end of the next month!
  • Require cash-on-delivery (COD)
    If not for all customers then perhaps at least for those with a tendency for slow payment.
  • Encourage timeliness
    Offer a discount for early payment, or charge interest for late payment.
  • Get paid first
    Ask for a deposit or part-payment at the time an order is made or a job starts.
  • Get paid progressively
    Ask for progressive payments over the course of a longer job. You may even find, as we have, that your customers like to pay progressively. It will help them manage their own cash flow – win/win.

There’s no single “right” solution for setting payment terms; it depends on your business, your product or service, and your customers. Talk to us to consider the options and make sure your payment terms will work for your business.

3.      Get the details right

You can’t get paid if the invoice doesn’t get to the right person with the right information.

  • Check that email addresses (or postal if you still use snail-mail … but that’s another conversation we need to have …) are correct – an invoice can’t be paid if it’s never received.
  • Make sure you are communicating with the right person – the person who pays the bills.
  • Include the information that your customers need to make processing your payment easy. That might be job numbers, customer reference numbers, quote numbers, custom descriptions, cost breakdowns or unit prices. Find out what will make your customers’ lives easier.
  • Choose invoicing software that allows you to play with your invoice template to get it looking just how you want it.
  • On that note, consider that software that tells you whether an invoice has been viewed by your customer can be handy for cutting through the “I haven’t received it” excuses!

4.      Send invoices promptly

Send invoices promptly after you have finished the work or the customer has the goods. After all, what are you waiting for?!

5.      Send timely reminders

Regular reminders are more effective (and less stressful) than final demands.

  • Keep your reminders friendly but firm.
  • Have a system for regular follow-up.
  • Make sure your customer knows exactly who in your business they can talk to with any concerns.
  • If you haven’t heard back or received payment after the first reminder, don’t be scared to pick up the phone. Your customer may not have received your email (with the right software you’ll already know if that’s the case!), or they may simply need to check some details but haven’t put it at the top of their to-do list. Don’t dread these calls – a quick chat might be all that’s needed to get the payment heading your way.

6.      Make sure people can pay you easily

  • Offer a variety of payment options suitable to you customer base (e.g. cash, cards, direct deposit, BPay, payment plan, online, in person) .
  • Make sure payment options are clear on your invoices.
  • Use technology to facilitate easy, immediate payment. Online software such as Xero allows your customers to simply click a payment link on their invoice and make direct, secure payment online.
  • Be ready to take payment over the phone when and if you need to make a follow up call.

7.      Make keeping on top of your debtors easy

You’re busy right?

The right tools can make managing receivables much easier. That way you can spend less time on chasing payments, and you’re more likely to keep on top of things.

  • Choose software that automates much of the process (turning quotes into jobs and jobs into invoices, sending automated reminders, syncing with customer details) but allows you to tailor the details for a personal approach.
  • Minimise data input by choosing online software that syncs with your bank accounts so you can always see up-to- date information.
  • Make sure your software lets you see information like overdue invoices and who owes you money, at a glance. It should be easy to keep track of what’s paid and what’s not.
  • Your customer details should be only a click away from the invoice information so it’s no effort to re-email or phone the late payer.

Talk to us to help determine the right platform for your business.

8.      Keep calm

Don’t let things become emotional! If a bad debt persists you need to make sure you deal with it legally, ethically and calmly – but still get your money! You can get advice through various government bodies (do a quick search online) or talk to us.

By dealing with your debtors regularly and methodically, using tools designed to make your life easier, and seeking advice to help you do things better, you can get on top of your debtors.

Some of this information has come from Xero’s blog Ten ways to stay out of debt

Talk to us for more advice on managing your debtors and other cash flow concerns.