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Handling Receivables (Debtors)
Cashflow
can be significantly enhanced if the amounts owing to a
business are collected faster. Every business needs to
know.... who owes them money.... how much is owed....
how long it is owing.... for what it is owed.
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Late payments erode profits
and can lead to bad debts.
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Slow
payment has a crippling effect on business, in
particular on small businesses who can least afford it.
If you don't manage debtors, they will begin to
manage your business as you will gradually lose
control due to reduced cashflow and, of course, you
could experience an increased incidence of bad debt. The
following measures will help manage your debtors:
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Have the right mental attitude to the
control of credit and make sure that it gets the
priority it deserves.
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Establish clear credit practices as a
matter of company policy.
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Make sure that these practices are
clearly understood by staff, suppliers and
customers.
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Be professional when accepting new
accounts, and especially larger ones.
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Check out each customer thoroughly
before you offer credit. Use credit agencies, bank
references, industry sources etc.
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Establish credit limits for each
customer... and stick to them.
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Continuously review these limits when
you suspect tough times are coming or if operating
in a volatile sector.
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Keep very close to your larger
customers.
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Invoice promptly and clearly.
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Consider charging penalties on
overdue accounts.
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Consider accepting credit /debit
cards as a payment option.
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Monitor your debtor balances and
ageing schedules, and don't let any debts get too
large or too old.
Recognize
that the longer someone owes you, the greater the chance
you will never get paid. If the average age of your
debtors is getting longer, or is already very long, you
may need to look for the following possible defects:
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weak
credit judgement
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poor
collection procedures
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lax
enforcement of credit terms
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slow
issue of invoices or statements
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errors in
invoices or statements
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customer
dissatisfaction.
Debtors due
over 90 days (unless within agreed credit terms) should
generally demand immediate attention. Look for the
warning signs of a future bad debt. For example.........
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longer
credit terms taken with approval, particularly
for smaller orders
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use of
post-dated checks by debtors who normally settle
within agreed terms |
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evidence
of customers switching to additional suppliers
for the same goods |
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new
customers who are reluctant to give credit
references |
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receiving part payments from debtors.
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Profits only come from paid
sales. |
The act of collecting money
is one which most people dislike for many reasons and
therefore put on the long finger because they convince
themselves there is something more urgent or important
that demand their attention now. There is nothing
more important than getting paid for your product or
service. A customer who does not pay is not a customer.
Here are a few ideas that may help you in collecting
money from debtors:
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Develop
appropriate procedures for handling late
payments. |
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Track
and pursue late payers. |
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Get
external help if your own efforts fail.
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Don't
feel guilty asking for money.... its yours and
you are entitled to it. |
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Make
that call now. And keep asking until you get
some satisfaction. |
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In
difficult circumstances, take what you can now
and agree terms for the remainder. It lessens
the problem. |
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When
asking for your money, be hard on the issue -
but soft on the person. Don't give the
debtor any excuses for not paying. |
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Make it your objective
is to get the money - not to score points or get
even |
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