FAQ – Debt Management Solutions

CPA | Accountant | Business Advisor

Q:  My Receivables are blowing out with more customers taking longer to pay and the timeframe for payment extending.  I am experiencing quite a hit on my cashflow so what can I do to improve the situation?

A: The first thing you need to do is make sure you have terms of trade established with all your customers.  What do I mean by terms of trade?  Terms of Trade should set out on what basis you are selling your goods/services (eg cash on sale, payable within seven days of invoice date, 30 days after end of month) and whether there are discounts for early payment or penalties for late payment.   They should also set out whether the customer will be liable for any costs incurred in attempting to recover amounts owing.

Once you have a policy in place make sure you enforce the terms of trade policy.  Remember it is your money and unless you are a financial institution which lends money  it is not your business to fund customers’ Cashflow.  What you educate customers to do is the way they will respond.  That is, if your terms are seven days and you allow clients twenty-one days before you chase them for payment what are you saying to them about your terms of trade?  Is it seven or fourteen or twenty-one days?  If your customers are educated by your actions (rather than your Terms of Trade) you will have trouble re-educating them as to what you real terms of trade are (but, if you are in this situation, you are going to need to try and change things).

So the day after monies are due (and not paid) send a reminder statement or make a friendly phone call reminding the customer the account is overdue and that you require payment.  If reminding by phone, get a commitment from them and record the commitment in your system.  If this fails follow up with a letter reminding them of their commitment and what the consequences of non-payment is, as per your Terms of Trade.  Unless your client can show some extreme reason why you shouldn’t follow through with the stated consequences – then follow through.  You may end up losing a couple of customers but are they reallythe customers you want in the first place?

Also encourage customers to speak to you in advance if they are having problems with cashflow and payment of accounts.  Remember we all have problems from time to time and most times we can work through them if there is early communication between the parties involved.  Offer a payment plan if this suits your buisness (any money coming in is better than none being chased).

If you need any further help with Debt Management and Cashflow, call me 07 3264 4783 (ask for David Balwin) or drop me an email ( info@balanixsolutions.com.au ) – I’d love to help!