The timely collection of money due to your business is critical to ensuring that it has enough cash to fund its ongoing activities and have some left to plough back for its growth. Are you too busy growing your business that you neglect to manage your debtors? If you are, what are your options when your business has plenty of money in the hands of debtors while it is struggling to meet its financial commitments?
Here are four simple steps to help you manage your debtors:
- Credit Policy: What is the credit policy of your business? What are its terms of trade? Does your business supply goods and provide services without formal arrangements to govern the performance of those activities? Your business will be courting disaster if it cannot prevent or minimise bad debts and trades without clear, written and agreed terms with its customers from the start. Better still, your business must check the creditworthiness of its customers, and have written and signed terms and conditions, before extending credit to its customers.
- Complete Documentation: Beginning from agreements and running through quotations and invoices, details of a sales transaction must be correctly documented for easy reference. With proper records that show amount owed, payment due date and related details, there will be ample information to discourage late payment and expedite payment, failing which collection charges could be applied to overdue accounts.
- Automation Of Account Receivables: There are software solutions to help a small business to manage its credit and thereby reduce the administrative and management chores associated with managing its debts. Such a system will enable the business to keep track of outstanding debts and take prompt action before they start to have a negative impact on cash flow. Such automated account receivable system must also include early invoicing and automatically sending reminder letters and following up with phone calls.
- Marketing And Sales Team As Credit Controllers: The average marketing or sales executive believes that the marketing and selling process begins and ends with recording a sale, and hardly considers collection of proceeds of the sale as part of his or her job. Needless to say, this thinking can be injurious tom the cash flow of the business. The marketing and sales team must cultivate the mindset that no marketing or sale is complete until the monetary value of the product or service is safely deposited in the account of the business. Every marketing or sales executive must play an active role in the effort to recover debts that originate from the marketing and sales activities of the business.
Your business must know its customers who are in arrears. It must monitor its debtor accounts and collect unpaid balances. It must be able to locate its elusive debtors, make contact with them and collect unpaid debts. An effective collections management system will help to turn hard to find and difficult debtors into valuable customers, increase recoveries, reduce costs and keep the business solvent. To strengthen its debt recovery strategies, your business must develop a focused debt collection strategy that helps to maximise its resources