Effective management of debtors is critical to your business’ survival. You need to manage debtors well so that you can pay salaries, pay suppliers, invest in infrastructure and grow your business. Ask yourself, will it not be a wonderful thing if your customers pay on time, every time? Your answer is probably yes! But it’s unlikely that your customers will pay you as quickly as possible unless you work on making that happen.
The good news is that there are strategies you can employ to manage your debtors and get your money. Right payment terms, sound policies, and high invoices are what will help you.
How to Manage Your Debtors
1. Set Your Payment Terms and Outline Them Up Front
There are no fixed terms for every business. You need to set the payment terms that suit your own business, product or service. Consider whether the following payment terms are right for your business.
- Cash-on-delivery (COD): You can apply this to all the customers that tend to make slow payments.
- Get paid before starting: This is extremely good. Yes, you can request a part payment or deposit when the job begins or at the time an order is made.
- Get paid progressively: This is yet another excellent strategy for you. Ask for payments as the job moves on. This is especially important if you on the course of a long career. This kind of arrangement will also help your customers to manage their cash flow. So, it’s a win/win for the two of you.
- Encourage timeliness: You can offer a discount for customers that pay on time and charge interest on late payments.
As you have set all these payment terms, ensure that you outline them clearly. If there is one thing you should never as you operate your business, it’s that you should never hide your payment terms. Your contracts and quotes should state your payment terms clearly. Provide your payment details on your invoices; this will make it easier for customers to pay you. When you negotiate with potential customers, don’t be afraid to bring these payment terms up. Let them know your terms right from the start.
2. Send Invoices and Reminders Immediately
Always maintain pace with your business activity. The moment the job is completed, or the customer gets the product, send your invoice to the customer.
If you did not get paid as and when due, you need to remind your customers, send them reminders ahead of payments. It’s possible you don’t get a response to your email or get paid after the first reminder. You can call the customers on the phone or chat them up to remind them again. In some cases, that’s all you need to do to get paid.
3. Conditions for Late Payment
You should not offer credit to every customer. Ensure that you do your background checks before you agree to anything. Make sure you outline conditions for late payment clearly to the customers. One way you can manage debtor is to charge interest on payments that are overdue and give a discount for prompt payment.
Another rule of thumb is that you should stick with your conditions. There should be no excuse for handling your payment conditions with levity.
4. Identify Struggling Customers
You are not running a charity organisation; you are into the business to make a profit. Keep an eye on your customers to know if they are going through any financial hardship. The next step is to get the customers to admit that they have a financial problem. After this, you can work a plan together to ensure that you at least get paid. If you are still not getting your money, the best thing to do is to halt supply to such customer. While you can take court action or approach a debt collector, this should be the last thing to do.