By Simon Kearsley, CEO, accounting software vendor, bluQube
All businesses understand that ‘cash is king’ and that it is crucial to maintain good credit management to ensure healthy profits. However, in practice this is easier said than done, especially as organisations grow, customers increase and in turn so do the number of debtors. As a result it becomes more difficult to track, chase and capture debt, unless you have the right systems in place to help.
So how do you start to implement a successful debt management programme? Here are a few ways in which you can increase the speed of payments.
Do the same thing at the right time
Part of the reason why debt chasing fails is that there isn’t a structured and consistent method in place. By implementing a strategy that includes regular actions such as sending out reminders or statements at pre-arranged intervals like ‘7 days before a payment is due’ you can avoid outstanding debtors falling through the cracks.
Know your debtors
Whilst it is important to keep up regular contact with debtors you need to be mindful that each may need to be treated differently. For instance, some customers may be on different payment terms to others or there maybe extenuating circumstances that means that a payment will be delayed. One example might be that an invoice is in dispute because a job has not been completed or perhaps there are faulty goods that need to be replaced. It is vital therefore that if multiple staff are involved then they need to be aware of this type of information, so they can apply different rules for collecting a particular debt.
Stop the escalation before it starts
By setting up a tailor made debt management timetable and reviewing debtor lists on a daily basis you can prevent creditors falling into the ‘60 days and over’ category. With automated letters, email reminders and even SMS messages, you can prime the creditor so they are ready to release payment on-time or before an invoice is due. Anyone that works in a finance department will know that it is often the supplier that shouts loudest that gets paid first, especially when cash-flow is tight. If you can make your invoice ‘top of mind’ then it’s more likely to stand out from the rest.
Facilitate payments and go green
Advances in technology can also help facilitate payments. The introduction of paperless accounting can obviously improve your green credentials but it can also help to quicken both the invoicing and tracking process. With the majority of finance systems now, it is possible to create and send electronic invoices and to follow these up with statements and reminders via e-mail. Offering electronic methods of payment, such as direct debits, standing orders or on-line payment provision, can also encourage and make it more convenient for debtors to pay earlier.
Develop a clear audit trail
You may have rung a creditor several times and sent multiple statements, but if it’s simply reliant on you remembering or perhaps a knee-jerk reaction to a request from the sales department, then it’s unlikely to be effective. Making sure you follow up with creditors on a regular basis is key, so make sure there is a central repository where you can hold all information that is pertinent to a particular invoice and debtor. This means that if necessary you can get other staff involved if a payment has been stalled.
Pool your data to a centralised location
Pooling information to a centralised location such as the main accounting system not only ensures that you are acting on the latest information but it also allows the organisation to create a structured credit management strategy. By integrating ALL your systems such as your CRM or Stock means that the latest status is available in real-time and simple reports can be automatically prepared for the finance team or even to other senior management or departments. This can help highlight any potential credit bottlenecks as early as possible and if necessary devolve responsibility to specific personnel.
Upgrade your accounting system
If you are still using the same finance package that you started the business with, then the chances are it is struggling to keep up with the volume of transactions. Using a manual system for chasing debt means that inevitably human error creeps in, invoices are missed and there is no structured way of chasing debt. This can lead to poor cashflow and an unhealthy debtor list. By upgrading to a modern browser-based finance system you have all the functionality to improve debt management such as automated reminders and statements, on-screen dashboards giving you a real-time picture of what’s owed and complete audit trails of all debtor accounts.
In summary, by taking the above steps you can realise the following benefits:
• Reduce time and effort chasing debt
• Increase propensity to pay
• Minimise the number of creditors in Aged Debtor list
• Improve relationships with customers
And most of all enhance your cash flow