Did you know that you still have to pay tax on your debtors, even if you haven’t yet collected them?
This is because you pay tax on your sales figures, whether you’ve collected the cash or not.
So, how do you collect your debtors faster?
- Agree on your payment terms at the time of sale.
- Ensure your customer signs your Terms of Trade before you start the job.
- Include a guarantee in your payment terms.
- Invoice as quickly as you can. (Gives your customer the ability to pay you promptly)
- Make sure your invoices include all the details your customer needs in order to make the payment (eg purchase order numbers, payment dates, bank account number etc)
- Ask for a deposit prior to starting the job.
- Change your payment terms to within 7 days of invoice or on delivery.
- Send statements with only two columns – current and OVERDUE.
- Send statements twice a month, first one near the start of the month, then again around the 18th (while still current as a reminder)
- Follow up the day after the due date with a phone call – the longer you leave it, the easier it is for your customer to drop you down the priority list. You can often setup automatic reminders in your accounting software (such as Xero) which is good for when you are busy. Please note that a phone call is a lot more effective.
- Make sure you are talking to the right person – find out who is responsible for the accounts and build a relationship with them.
- Have someone other than the owner be responsible for collection of debtors. (Owners are usually too soft!)
- Document any changes to your standard payment terms in writing.
- Be ready with a solution to clear the debt. Can you start with part payment? Does the next order get part paid up front?
- Use a debt collector sooner rather than later – the longer you leave it, the harder it is to collect.
- Don’t provide credit to customers who’ve been late payers in the past, and don’t offer more credit to customers with outstanding payments.
Reducing the average time frame on payments for your business will help with your overall business health. Start with a straight forward system, clear credit terms and good communication with creditors.
“It’s the squeaky wheel that gets the oil.” – Anon.
If you need help with your Debt Collection we can do this and a wide range of other administration services, just call us on 03 374 9393 to find out more!