There is more to business success than simply making a sale or finding a new customer. A critical part of a successful business is good cash flow because getting paid correctly and on time is a key factor in the overall health of your business.
Managing debtors is a challenging task that most businesses face, but it is a necessary one if you want to maintain a healthy cash flow and prevent bad debts from accumulating. Here are five tips to help you manage your debtors effectively.
Establish clear payment terms upfront
The first step in managing your debtors is to establish clear payment terms from the outset that outline your expectations for payment. Be sure to include these on every statement and invoice, and highlight the amount owed and due date. You should also include your bank account details, billing address, late payment fees, and consequences for non-payment. Offering alternative payment methods is another great way to encourage timely payment. Make sure your payment terms are communicated clearly to all customers before purchase and that they are enforced consistently.
Send invoices and reminders as soon as possible
Your customers won’t pay you until you ask to be paid. Send the invoice to the customer at the earliest opportunity upon completion of the work, or when the customer has received the product. If you aren’t receiving payments on time, be proactive. Send reminders before and after payments are due, as customers will have a better response to friendly reminders than they will to harsh demands when payments are late. You may not be paid after the first reminder, because people are busy and sometimes they miss emails.
Often picking up the phone for a chat is the best way to remind a busy customer to make a payment. Plus, giving regular reminders will keep you at the front of their mind, and show them that you will always make repeat contact when payment is late. Most customers will respect your boundaries in this instance, and make you a priority on their payment list to avoid being contacted about it.
Follow up on overdue invoices
For some customers, you will have to be persistent in following up on overdue payments. Send regular reminders, and again, pick up the phone. If invoices remain unpaid, you can offer payment plans if a customer is struggling to pay their debts. You can also make the call to halt your supply of products or services to the customer until their debts are settled. In some cases, you may need to escalate the matter to a debt collector. Whatever you need to do, do it in a timely manner, as aged debts are less likely to be paid the longer they are outstanding.
Review your credit policies regularly
Review your payment terms, credit limits, and credit check processes regularly to ensure you stay on top of your cash flow. Don’t offer credit to just anyone, and do your due diligence on a customer’s credit history before you agree to anything. Set your late payment conditions, including any late payment interest, and be sure to stick to them. Make sure you are not extending credit to customers who are likely to default on their payments and that your policies are aligned with your cash flow requirements.
By establishing clear payment terms, being proactive with overdue payments, and reviewing your company credit policies, you can effectively manage your debtors and maintain a healthy cash flow for your business.