Following on from the last edition we continue to focus on cash flow, specifically collection
A large part of keeping cash flow under control is managing your debtors. In these challenging times businesses will generally take as much time as possible to pay their accounts, after all, why pay interest on an overdraft facility when they can use your cash for free?
Good debtor management starts with a very simple calculation to measure 'debtor days'. By dividing the month end balance of your debtors by your average daily trading, you get a simple measure that you can monitor on an on-going basis. If the number of days goes up, you know that people are taking longer to pay you, prompting to you to investigate why. If the number of days goes down, you know that you're becoming more efficient at collecting your debtors.
As a simple example, let's say a business is turning over $10,000 per day and has a month end debtors balance of $600,000. This would equate to having 60 days trading revenue tied up in receivables. If, over time, you could get this down to say 45 days, the business would have another $150,000 in the bank account rather than tied up in debtors.
So how do businesses get people to pay on time? Here are a few practical points that may help:
As with all things in business, a bit of common sense and compassion also goes a long way and while not ideal sometimes you may have to bend your own rules on collections when a good client or customer is struggling and needs a bit more time than usual to pay. As long as your customers are communicating with you, being honest and making the payments that they have committed to, then be prepared to cut them some slack occasionally to preserve good relationships. However, the moment those commitments are broken or communication stops, it's time to move quickly to secure payment.
One advantage of Xero is that it has lots of add-ons for specific applications.
Below are some Xero add-ons that can help you keep on top of your debtors:
Simple, set & forget credit control for small businesses. Stop wasting your valuable time and money chasing debtors, take control of your cash today.
Streamlines the process of sending overdue invoice reminders to your debtors to help you receive payments faster.
This differs from Debtor Daddy in that you log in in and click "send messages" after you have reconciled your invoices whereas Debtor Daddy automatically sends them at a set time each day.
Debt collection on-line at the click of a button from your Xero accounts. Overdue accounts recovered by your own professional recovery officer.
If you want more information about any of these add-ons please
This e-mail address is being protected from spambots. You need JavaScript enabled to view it
.
Disclaimer: Accplus Offer this newsletter to help you think about issues that may affect your business. Please contact us if you would like specific advice or assistance. As the information given is general in nature Accplus Ltd does not give any warrenties as to the applicibility to your situation or to the accurateness of the information given.