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10 Tips to Reduce Debtor Days for Small Business Owners - 13th November 2018

Steady, reliable cash flow is crucial for the survival of any small business - so taking steps to ensure your customers pay promptly should be a key priority.


When your clients consistently pay on time, you'll avoid the dreaded "feast or famine" cycle. You'll be able to pay your vendors, suppliers, and employees on time - and not least of all, yourself.


Implement these ten tips now to start getting paid without delay.


Provide payment terms up front

Before you start working with any new client, always provide your terms in
writing. Clearly state your rates, payment due dates, and policies for late
payment - including any fees incurred on balances owing.

Invoice Immediately

If you're currently preparing your invoices manually, switch over to an accounting system with automated billing. You'll never forget to invoice a client and you'll eliminate errors as you save time. The first time a client is billed make sure the contact information on your invoice is complete to avoid delays with processing.
  

Follow up

Call your customer immediately when a payment is past due. Ask for the status of the invoice and if there's anything you can do to speed up payment. Sometimes a simple change, like including a purchase order number on the invoice, can speed up processing.

Reduce terms

Net 30 payment terms are fairly standard in business, but there's nothing stopping you from asking for payment sooner. Some business owners make payment due at Net 7 or 10; others stipulate payment is due upon receipt of invoice.

Reward early payers

Consider offering customers a 2% discount when they pay their invoice within ten days. In this scenario, a $1000 invoice would be reduced to $980 - not a huge loss for you, but an attractive cash-saving incentive for your customers.


Charge interest

As part of your terms, specify that if a client's payment is past due, a weekly fee of 2% will be addedd onto the total until funds are received in full.


Get paid upfront

Collect a partial deposit - or the entire amount in full - before you provide a product or service to your customers.

Go mobile

Forego invoicing altogether by having your customers pay on the spot with mobile debit and/or credit payments.


Suspend service

Stop your supply of products or services until you receive payment. With this tactic you'll avoid the accumulation of an even greater loss with a consistently late or non-paying client.


Stay on top of AR

Monitor your accounts receivable on a weekly basis so you can act fast if a customer hasn't paid on time. An AR aging report can help you easily track outstanding invoices right in your accounting software - or create an Excel report you can track manually, if you prefer.


Final thoughts

Perhaps the most important tip for encouraging prompt payment is excellent communication.

When you follow up on a late invoice, explain why it's important to receive timely payment in order to run your business effectively. Ask when you can expect payment, and agree on a date.


If the money still isn't forthcoming, offer to negotiate a payment schedule as a next-to-last option - before you have no choice but contact a collection agency.


AV Chartered Accountants - Committed to Your Business Success


Two convenient locations:


WARATAH +61 2 4629 5533  | MAITLAND +61 2 4933 6100

Email: mail@avca.net au

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