The older a debt becomes the trickier it can be to collect it, so reducing your debtor days is a great way to reduce bad debts and the need to spend time and effort chasing them.
Here are our Top 10 Tips for reducing debtor days:
Know your customer
Businesses are often more interested in the fact they have gained a new customer / client than thinking about putting processes in place. Credit Applications, Credit Checks, Trade References are all good tools. However, also look at the Directors of the business – have they had several companies over a short period of time that have all been dissolved? Consider placing the company on a monitor for 12 months so it flags up if the company’s credit file changes.
A clear Invoice is a good invoice. Keep the information basic, avoid clutter, and put the important parts in bold, larger letters so they stand out. Include the following:
- Customer company or business name
- Invoice date
- Full product/service description
- Customer order number
- Bank details for payment via Bank Transfer
- Delivery date and methods
- VAT number and VAT applicable
- Payment terms
- Attach Terms and conditions
Initially, take the first 3 order’s payments up front, then run a credit report and ascertain a Credit Limit. However, keep a close eye on the limit as these are subject to frequent changes.
Follow-up after sending invoice
Issue your invoice at the earliest opportunity. Make sure that in between the invoice going, and the due date for payment, you call the company. Make sure they have received the invoice, everything is OK, and ask how and when it will be paid. This is also good customer service.
Debt collection & Legal Action Policy
Have a clear, stringent Debt Collection Policy and basic Terms on the reverse of the invoice.
Early settlement discounts
Be careful with this one, as it will come off your bottom line. However, you may find it useful and successful offering a percentage discount off your invoice if they pay early. i.e 30 day invoice, however receive 5% discount if paid within 14 days.
On stop accounts
This is a useful tool for regular Clients / Customers. Place accounts on stop if invoices remain unpaid after a certain period of time past the due date. This can then cause them problems on re-ordering stock, or wanting to use your service again.
Improve Credit Control Function
BE PROACTIVE – Don’t wait until the invoice is overdue before making contact. As mentioned in point 4, call before the invoice is due. If payment is not received on the due date, don’t leave it a few more days, get straight on the phone. The term ‘whoever shouts the loudest gets paid first’ rings true. Make sure your credit control processes are up to date.
Hire a debt collector or restructure
Similar to point 8, however it sometimes helps putting your Debt Collection Supplier’s name on your final demand. We allow clients to do this and have been told it certainly improves the response. Make it clear what the timescales are before it is passed to them. When a debtor sees a debt collectors name in writing, it feels more real that you are escalating.
Surprises are not always fun! Clients and Customers don’t always keep a track on what product or services they are ordering / have ordered. Get a defined pricing structure, keep the client / customer updated with regular statements. The quote upfront is often overlooked.
Remember: A good customer is a paying customer!