1. Know your customer and make sure they are able to pay their bills by getting a credit check on them. This might seem like looking a gift horse in the mouth but a debtor becoming insolvent owing you two to three months’ work will create a big hole in you finances for something which costs £20 or so.
2. Agree payment terms before you supply. If they intend taking 60 or 90 days to pay you should find out before starting the contract and make a positive decision to take the work or not and figure out how you will manage until the debt is paid.
3. Invoice accurately clearly and promptly. Make sure you know to whom and where to send invoices and what detail they must contain. Raise invoices as soon as the work is completed and don’t wait until the end of the month. This can result in the customer processing somebody else’s invoices in front of yours.
4. Don’t be afraid to ask for payment. Telephone shortly after you send your invoice and progress the invoice through the customer’s invoice payment system noting who you speak to and what is said in conversations. Monitor payment performance closely and complain if promises are not kept.
5. Discounts for prompt payment can be worthwhile depending on your need for the payment. The danger is payments slip and they still take the discount, meaning that it is effectively a price reduction.

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* Follow up on all slow payers.
* Deal direct with decision-makers at the customer. Monitor collections and follow up immediately if payment schedules are not met.
* Visit them if payments are not made on time and don’t leave the premises without their commitment.
* Don’t rely on one visit. Maintain follow up if necessary, including regular telephone reminders. Don’t finish the call without obtaining a firm commitment to make a payment. Follow up again if it is not paid on the promised date, or better still, arrange to pick up the cheque.
* Review credit ratings regularly for any changes in buying habits and increasing levels of debt. Long-standing customers can be the greatest credit risk, because no-one thinks to check on them.

Hi

As a small business, you can avoid the worst of these precarious conditions by keeping a tight reign over your debtors book to keep the cash flowing. Charlwood says debt collection strategies will help keep you in the black.

Commercial furniture supplier Smart Seating, which services the aged care and healthcare sectors, is reaping the benefits of implementing a system for controlling debtors. As a result, the company’s current average payment term is well below the average at 36 days. Kurt Jones, director, says he has two key systems in place to manage cash flow–the use of debtor finance and strict control of debtors. “One of our key strategies for credit control is to always chase up overdue accounts on the due date and then on a weekly basis,” he says.

Efficient Systems

Charlwood shares additional tips for managing debtors in a slowing economy:

Check them out. Credit-check all potential customers. Risks must not be underestimated in the enthusiasm of taking on new business. Credit checks can be done quickly and are relatively inexpensive. It is important to establish the correct business title, together with its legal status (i.e., limited company, sole trader etc) before seeking reports from agencies or trade references. Awareness of your customer’s financial health can safeguard against unreliable debtors.

Clearly define credit limits. Always ascertain the expected size and regularity of orders. Use this to address the limits required. Set a specific credit limit for each customer and ensure you stick to it. Never give unlimited credit.

Thanks

These are good tips. Many people are afraid of calling after a few days from sending the invoice and many a times it gets too late to recover your dues.