smart ways to manage your debtors

8 smart ways to manage your debtors for business success

Managing your debtors so you get paid on time 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.

So, wouldn’t it be wonderful if customers paid on time, every time?

Of course! But you’re unlikely to get paid as quickly as you’d like unless you focus on making that happen.

Luckily, there are things you can do right now to manage your debtors and get the cash flowing. Good debtor policies and procedures, the right tools and great invoices can pay real dividends.

1. Consider your payment terms

There’s no single solution for payment terms; it depends on your business, your product or service, and your customers.

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

  • 7, 10 or 14 days

Don’t even suggest that it’s ok to wait a month!

30-day invoices tend to go in the pile for “next month”, which probably means the end of next month. That’s how “30” becomes 60.

  • Cash-on-delivery (COD)

If not for all customers, then perhaps at least for those with a tendency for slow payment.

  • Get paid before starting

Request a deposit or part-payment at the time an order is made, or when a job starts.

  • Get paid progressively

Ask for progressive payments over the course of a longer job.

Your customers will this arrangement as it helps them manage their own cash flow – win/win!

  • Encourage timeliness

Offer a discount for early payment, or charge interest for late payments.

2. State payment terms upfront

Don’t hide your terms in fine print! Getting paid will be easiest if everyone knows the terms from the start.

Make sure that payment terms are clear on:

  • Quotes
  • Contracts
  • Invoices

Be willing to openly discuss your terms with potential customers. Don’t be afraid to bring it up, they will likely be thankful to know where they stand.

3. Get invoice details right

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

  • Check email addresses are correct (or postal if you still use snail-mail … but that’s another conversation we need to have …).
  • Communicate with the right person – the person who pays the bills.
  • Find out what will make your customers’ lives easier and include the information they need to make paying easy. That might be:
    • job numbers
    • customer reference numbers
    • quote numbers
    • custom descriptions
    • cost breakdowns
    • unit prices
  • Your invoicing software should let you edit your invoice template to look just how you need it to.

4. Invoice promptly

Send invoices promptly after you’ve finished the work or provided the goods. What are you waiting for?

5. Provide 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 it easy for people to pay you

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

7. Make debtor management easy with the right tools

You’re busy right?

The right tools can make managing cash flow much easier. And if you spend less time chasing payments, you’re more likely to keep on top of things.

  • Choose software that automates the process, e.g.:
    • Turning quotes into jobs
    • Turning jobs into invoices
    • Sending automated reminders
    • Syncing with customer details
  • But make sure your software allows you to tailor the details for a personal approach.
  • Minimise data input by choosing software that syncs with your bank accounts. This means you always see up-to- date information.
  • Choose software that makes it easy to see what’s paid and what’s not. A good dashboard will tell you at a glance who owes you money and how much.
  • Your customers’ details should be integrated to your invoicing software. Then they’re only a click away from the invoice information so it’s no effort to re-email or phone the late payer.
  • Choose software that tells you whether an invoice has been viewed by your customer (this can be handy for cutting through excuses!)

8. Keep calm

  • Don’t let things become emotional or personal. Deal with bad debts legally, ethically and calmly and don’t be afraid to ask your business adviser for guidance or assistance.
  • Record communications from the start so your recollection remains clear throughout. Records will also help if you get to the stage of formal dispute resolution.

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 will get better at managing your debtors.

Are you ready to improve your debtor management? Talk to a Synectic adviser today to determine your goals and make a plan to get on top of your cash flow.

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

This post was originally posted on 19 Feb 2016, updated 19 Dec 2018