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Proven strategies for reducing debtor days for you and your clients

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Every business could do with improving their cashflow and where better to start than by reducing late payments? Della Hudson looks at how accountants can help clients - and themselves - by reducing the impact of late payments.

19th Oct 2021
Speaker, Writer and Business Coach Hudson Business Advice AND Minerva Accountants
Columnist
In association with
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Ideally, cashflow improvement starts right at the customer enquiry stage. Credit checking is essential to ensure that you don’t offer credit to non-paying or slow-paying customers. Instead, they can be put onto cash-only accounts and required to pay in advance before work starts or goods are dispatched. Collecting payment by direct debit may reduce late payments, but may not help if the customer is unable to pay at all. Running a simple credit control check before accepting an order could save you a costly mistake.

Sonia Dorais CEO of accounts receivable specialists Chaser said “These days the tools are available for accountants to manage clients’ entire credit control process end to end. 

“This extends from deciding who to grant credit to, to tracking communications, to chasing payment, to collecting payment via portals, to escalating to debt collections, all the way through to reconciling the payment in the client’s accounting system.”

The importance of agreeing on terms and conditions

Sometimes payments are held up for administrative reasons. Terms and conditions should be agreed early on and payment terms need to be clear on all invoices. 

Ensure that you include all necessary documentation, authorisation, and purchase order numbers. This reduces the chances for errors or delays and can mean quicker payments. If possible have a chat with the customer’s accounts department to find out when they make their regular payment runs. 

On larger orders it may be worth a courtesy call before payment is due to ensure that everything is in order, the customer is satisfied with the goods or services, and that they have everything they need to make the payment. This allows you to resolve any discrepancies early.

Send invoices immediately and automate reminders

Prompt invoicing is the start of the payment process. If you or your clients are performing a service at a client’s premises, use phone apps to raise invoices before leaving the site. You can use a card reader to take payment on site too. Use recurring invoices and other automation where possible.

Any credit control process should include early and frequent chasing. Automating this process will save time and does away with the need to rely on someone to send an email. Please ensure that you reconcile the bank frequently so that all payments received are matched to invoices promptly and you don’t chase invoices that have already been paid. 

You can have a series of automated reminders that increase in severity as the debt becomes more overdue. Automating your accounts receivable function will ensure that invoices are chased promptly and consistently to speed up collections across the board.

If simple reminders don’t elicit payment, you may need to consider legal action. Before you resort to that option, try a phone call and a letter as well as getting in touch with the buyer to chase their accounts department. 

For regular buyers, you can put the account on stop and cease selling to them until some or all of the debt is cleared. Unpaid debts mean that you have incurred costs but have not received anything in return. This is worse than not making a sale in the first place; at least you don’t incur costs. 

Do you monitor your debtor days?

You can track the performance of your credit control department, and even your sales team, by measuring the debtor days and percentage of accounts receivable that are overdue.

There has been a trend for automating credit control over the last 18 months as businesses moved onto cloud-based software due to Covid, or in preparation for MTD. Cloud accounting platforms allow businesses to use credit control apps to improve their efficiency further. With many firms in financial difficulty, it has never been more important to stay on top of debt collection promptly and sensitively.

Could you offer accounts receivable services to clients?

Accountants have also been developing new services to offer their clients, including a growing trend for offering outsourced credit control, or virtual finance director services. Credit control and accounts receivable are two areas where accountants can add real value to clients. 

Dorais commented on this trend: “At Chaser, we’ve seen a big increase in accountants offering these types of services. We are seeing this as a common element of the outsourced virtual finance function that many firms provide to clients. With more firms taking a ‘virtual finance provider’ role, it is easier and easier for accountants to spot clients’ account receivables issues and step in by providing credit control services.

“We believe that using the right tools makes accountants’ lives easier as they provide outsourced credit control services, and enables them to track and report on their progress, which clients can easily log into and check progress themselves.”

So, how could tools like this help your clients’ businesses, or could they even help your practice grow, not to mention reducing your own debtor days!

This article was produced in association with Chaser. Chaser is everything you need to collect payments faster. Connect easily to your accounting system to speed up and simplify the process of chasing customers for payments by using automated email reminders or escalating chasing to our collections service. To find out more book a demo or get a free trial.

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