Accountancy magazine has undertaken research published in the July 2011 edition showing that slow-paying customers and demanding suppliers are heavily impacting the cashflow of small to medium sized enterprises. The survey found that debtor days had increased by around 14 days compared to six months ago. Debtor days are basically a measure of how long customers take to pay, in other words, how much credit customers are getting by failing to make prompt payments. The report also focusses on the wasted management time taken in chasing debts, with small businesses now spending up to half a day a week chasing slow payers.
So what can we do about it? At the VA conference 2011 where Igave a talk on cashflow with Darren Glanville of Xero.com, I advised the following steps specific to VAs but applicable to many businesses. But what are your suggestions? Please add your comments at the end of the blog so we can all benefit from a rosier cashflow for our businesses:
1. Wherever possible ask your customers to pay you in advance, thus reducing your exposure completely to late payment.
2. Make sure you agree terms in advance with your customer, so that they preferably sign up to your payment terms.
3. Invoice as soon as possible after completion of a job or certain stage in a job. Don’t just wait until the end of the month or the job to send out invoices.
4. Reduce your payment terms as far as possible. There’s no need to set a standard 30 days, if you don’t have to. Try for 7 day payment terms, keeping your invoice to the top of the pile.
5. Get positive feedback from your customer straight after completion of a job so that they have no cause to delay payment to you.
If you would like any advice in this area or any other areas of accounting or tax, please contact me on 01767 260282 or amy@tayloraccountancy.net, www.tayloraccountancy.net.
Amy Taylor Accountancy takes every care in preparing material to ensure that the content is accurate and up to date. However no responsibility for loss to any person acting or refraining from acting as a result of this material can be accepted by Amy Taylor Accountancy. You should always ask your accountant to give you specific advice which is tailored to your personal and business circumstances and properly implemented.
July 3, 2011 at 6:14 pm |
As a long term credit manager and now advising independently, I wouldnt disagree with those suggestions in principle (except number one which is a difficult area and should only be tackled in certain client relationships), but surprised you havent mentioned the most important element. A good credit controller
Many accountants and sales people are quite poor at credit control and a specialist is often vital. Someone who can build good relationships with clients whilst being firm and possessing the necessary commercial judgement, can make a huge difference.
If you cant justify a full or part time controller, then I would definately suggest outsourcing to an independent professional
July 3, 2011 at 6:17 pm |
I would also suggest that when negotiating payment terms, do not assume that simply by stating 7 (which is too short frankly…I would aim 14) days rather than 30 will deliver. The debtor has to but into these terms and be sure to commit. you have to have the understanding, otherwise it will be simply a case “whatever and what are you going to do about it”