Managing your debtors so you get paid on time is critical to your business. Bad debtors get in the way of the important things like paying suppliers, salaries and investing in growth of the business. If you don’t have the cash available for these crucial expenses, then your business could be in trouble.
Unfortunately, you’re not going to get paid as quickly as you’d like unless you focus on making that happen.
Luckily, there are things you can do right now to manage your debtors and get the cash flowing. Here are our 5 Top Tips to avoid debtor issues.
Review your payment terms
- The first question is ‘Do you have payment terms in place’? If not, this is the first step! If there is no due date for payment no one will be in a rush to pay you.
- If you are having an issue with late payers and have 30-day payment terms our suggestion would be to amend this to 7 days. This way if it is not paid within the 7 days you can follow your debtor procedure and possibly get payment before you would have usually with the 30-day payment terms period.
Automatic invoice reminders
An automatic invoice reminder is a feature available on most accounting software platforms. We recommend you switch this feature on to remind people the day after their invoice falls overdue. This serves as a reminder to them and can prevent having to fall back on your debtor procedure.
Have a strict debtor follow up procedure and stick to it!
Ensure you create a strict debtor follow up process. We suggest the following:
- A friendly email reminder when an invoice is 7 days overdue
- A phone call at 14 days overdue with mention that no further services/products will be provided until payment has been received
- A final letter sent via post and email when an invoice is 30 days overdue notifying the debt will be sent to a collection agency within 7 days
Where possible, implement automatics payment systems to collect payment prior services/products being provided
Systems such as Integra Pay, Practice Ignition, Square Up, 2checkout and Stripe can really take a load off when it comes to bad debtors. There are plenty available so the big tip here is to do your research, seek recommendations from similar businesses that use these products and ensure any fees incurred do not surpass the cost of what your debtor follow up process and written off fees were costing you.
Charge a late fee
Charging a late fee is a simple and effective way to encourage your customers to pay on time. Let them know that you charge a fee for late payment – and ensure that you actually charge it! This shows that you’re serious about requiring on-time payment and demonstrates that you have a formal process for managing late payers.
It is inevitable there will always be those painful debtors that do everything to avoid paying and this is an unfortunate part of business. Try to implement as many of the tips covered above and hopefully you will see your debtor issue change into an occasional issue instead of a regular occurrence.