Debtors are people or businesses who owe you money. Effective management of your debtors (often referred to as credit management) will help you get paid faster and prevent bad debts. It will also help you maintain a healthy cash flow.
Credit management includes:
- Collecting debts on time
- setting credit limits and payment terms
- making credit applications and credit checks
- enforcing a clear credit policy
1. We educate our customers upon engagement of our services in relation to our approval processes, costs and expectations whilst trading with them
Why is this item important?
It is important that the customer is educated on what to expect from your business in order to minimise future problems if their expectations are not met.
How can I tell if I meet this item?
I can see I am meeting this item in my business if accounts are paid on time and disputes are kept to a minimum. Repeat business is also an indicator of our ability to liaise with our customers.
What do I need to do to meet this item?
I have a process where I regularly check on my accounts receivable ledger to ensure it is kept to a minimum. I also engage with my customers to find out if they require any further information on our processes.
2. We have full knowledge about the individual or company we are giving credit to and can access credit checks when appropriate
This is important in order the minimise the risk of giving credit to customers with unfavourable or poor credit histories and that may not pay your invoice.
I can see I am meeting this item in my business as our bad debts and/or written off accounts are kept to a minimum. Our accounts receivable ledger is also a good measure of this ability.
What I need to do to meet this item. By investing in a membership to a credit reporting bureau, or consulting with a credible credit management firm, I can check relevant details regarding a potential client and their creditworthiness. This allows me to make an informed assessment of an acceptable level of credit to offer.
3. We have updated and clear terms and conditions on our sales contracts which include expectations for customer payment. Our customers are aware of consequences for late or non-payment
This is important as our clients can clearly see that we are running a professional business with clear terms and conditions outlining expectations to ensure best practise.
I can see I am meeting this item in my business by only dealing with other professional businesses with a mutual respect for each other when engaged.
What I need to do to meet this item. Our staff ensures potential customers are aware of these terms and conditions and that they are read and must be signed prior to engagement.
4. We encourage sales on the day and offer various payment options to assist this process. We raise sales invoices promptly after completion of work
This is important as immediate cash payment whenever possible is crucial to ongoing cash flow and minimising the chance of future disputes.
I can see I am meeting this item in my business by reviewing the ‘average days to pay’ on not only individual clients, but on my client base as a whole. The average is kept within a range below the industry standard.
What I need to do to meet this item. I ensure that both our staff and the customer are aware that payment is due on the day and the consequences (eg immediate stop credit) is implemented if required. I do have a number of options available to me in the event that a customer is either slow to pay, disputes the debt or refuses to pay.
5. We are aware of and utilise cloud- based debtor management system to assist with debt collection
This is important as we have up to date technological and cyber-secure systems which provide time saving technology. This in turn, helps to maximise results, turnover & profitability.
I can see I am meeting this item in my business as staff are able to handle large workloads relatively easily. The technology enables seamless accountability and also allows management to quickly & easily access key reports of the day to day activities of staff and clients.
What I need to do to meet this item. I need to ensure I am investing in and are aware of updates to our existing software. I also need to keep abreast of competitors in the marketplace that may have new, updated or better technology available that suits our needs if required.
6. We have a clear process and policy to follow when collecting outstanding or disputed debts. We have a dedicated staff member or team to manage outstanding debts and reporting processes.
This is important as the process works most effectively if the entire collections team are onboard with agreed upon processes. The entire team must also recognise the importance of following procedure. The team manager must also be open to listening to new ideas that could enhance or streamline any processes currently in place. This could also come about through updated or new technology becoming available.
I can see I am meeting this item in my business by the reduction in debtor days and increased cash flow. Communication channels between relevant departments are flowing to identify and rectify problems sooner.
What I need to do to meet this item. I am aware of the need to provide both adequate staffing levels and training for all involved. Some staff may need additional training in effective communication techniques. This could be either through formal training organisations or in-house training sessions.
7. We utilise a professional, full- service debt collection firm when accounts are over 60-90 days (or earlier according to your terms) or to handle dispute resolution.
This is important as we work together to achieve the best outcomes possible. It also makes our customers aware that if they do not communicate their intentions to us, we will automatically place an account with a collection agency after a specified time has lapsed.
I can see I am meeting this item in my business as the accounts I have that are over 90 days past due have all been sent across to our nominated collection agency. This allows my staff to focus on recovery of newer debt.
What I need to do to meet this item. I ensure only a professional agency is engaged with a known history of getting results. They work collaboratively with us and our debtors to achieve results. I ensure the agency I have engaged understands the importance of protecting my brand name.