Do you have a system for managing your debtors?
Most businesses don’t – in fact, it’s ranked as one of the principal reasons many businesses fail. Controlling debtors is one of the keys to long-term profitability.
We have been helping a number of our clients recently to install systems for managing the debt collection process, from avoiding selling to questionable credit risks, to aggressively and consistently pursuing outstanding invoices. This can include suing them if necessary.
It is vital in this economic climate that you don’t allow late payers to disrupt your cash flow and harm your business’ chance of success.
As part of our continuous effort to support our clients, Please see a copy of “The 11 Point Cash Collection System” below which may help you formalise your cash collection procedures with your customers.
Please feel free to tailor and adapt as you feel is necessary for your business.
If you would like to discuss cash collection procedures further, please call us. Please remember that we are here to help and support you at all times – and we mean that!
If you would like to discuss how we might help you with debtor management systems, let me know. We would be delighted to do an initial systems review at no charge.
The Pre Point-of-Sale Cash Collection System
(Prevention is better than cure)
Effective debt collection policy requires a system that should not be overridden other than by exceptional circumstances – discipline is the key. Not allowing late payments will avoid disrupting your cash flow and will also avoid harming your company's chances of success.
To keep debtors flowing smoothly, many businesses use a series of letters and telephone calls, all designed to ensure customers pay on time, every time. These communications start out friendly enough but progressively they become more serious and insistent as payments become overdue. How you adapt the suggested collections system is up to you – for example, you may be more comfortable telephoning customers, rather than sending letters. The important thing is to have a system – please ask us for some suggested wording, or get us to help directly.
Before you start doing business with anyone, remember the following:
- Invoices are payable immediately It is a common fallacy that invoices are payable after 30 days or “at the end of the month following receipt”. Ensure that your terms of business clearly state that invoices are payable immediately and, as a courtesy, you may wish to accept 30 days credit but that is not documented in your terms of business.
- Check the credit status of your potential customer Use Riskdisk, Experian, Corpfin or some other similar credit checking agency to ensure that your potential customer is not already showing signs of becoming a bed debt for your business. You may also review the last filed accounts at Companies House to double check. McLean Reid can help with all of this, and if it DOES go wrong we can help with recovery procedures.
- Determine the credit limits So that you do not over-expose your business to a potentially large bed debt, determine what level of credit you are willing to give this potential customer and document this into your sales ledger. You may wish to increase this as your customer proves they are paying your invoices promptly.
- Ensure your Terms of Business have been signed by your customer and a copy returned to you.
- All invoices should have your bank sort code and bank account details in the event that your customer wants to transfer money directly, rather than send a cheque.
We can help you to set up your own system, or help to run it; we can supply model wording for letters, telephone collection “scripts” and checklist systems, and if necessary we can help with “heavy” collection tasks such as final demands, Court Actions, Debt Recovery etc.
