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I’m going to start by pointing out the obvious, it’s been a while since I last blogged. There are countless reasons/excuses that all amount being “busy”, but I’ve decided that is a poor excuse and that the word “busy” no longer exists in my work vocabulary. I simply need to get better with delegating and my own time management, problem solved.
So here we are, all caught up. I wanted to write this because as you may already know, I’m not a fan of chasing receivables, and I want to build and refine our earlier blog 7 tips to stay on top of receivables and talk a lot more about the routine involved in receivables.
Chasing for payment (receivables) is something we do have to help our clients with, so we thought that writing a blog with some receivables management tips would help those that have a hard time coming up with a good system. If you don’t already know why it’s important, here’s a few motivators:
- It impacts your cash flow
- It can indicate if a client is unhappy, generally, happy clients pay so the service ball keeps rolling
- It’s so time-consuming
- Personally, I find chasing money discouraging. Some people love it, but I take unpaid invoices personally, so I’d rather not have to deal with it
And without further adieu, here are 6 tips to help your business manage receivables:
1. Only accept pre-payments – Get rid of receivables altogether! We recently implemented and automated a pre-payment process for a client and it has been very successful. No more chasing money, and invoices are even automatically generated in Xero. The cost of us setting this up as quickly paid for by saving time and increasing their cashflow.
2. Have the same payment due date for everyone – This is something I didn’t realise was just a NZ thing until I left the country. NZ’s system was easily the best. Most organisations have 20 days following month end payment terms. What does this mean? You invoice once a month, send all statements shortly after that, reconcile paid invoices on the 20th, and chase up all unpaid shortly after. There is routine. Overseas, anything is happening on any day, at any point. Having no routine means there is no plan, and no plan is such a drain on resources.
3. Get rid of paper! – This is my mantra in life no matter what you are doing, but with this subject, tracking everything including the original invoice is key to successful receivables. We use Xero so we can even see when an emailed invoice was viewed by the debtor, as well as write notes about any correspondence so everyone knows the status of an invoice. Plus we save of postage of course. This is the way to go.
4. State your system in your terms and conditions – I don’t spend more than 3 months chasing an invoice. It costs businesses a lot of money to constantly follow debtors up, so we have an excellent debt collector who we send overdue accounts to, and the costs are on-charged to the debtor. How can we do this? We include this process in our terms and conditions, and these are approved prior to commencing our service.
5. Have a routine (including emailing statements) – As I’ve already mentioned, a lot of time is wasted if there is no routine, so here is point 2’s routine in more detail:
a. Send the invoice with a payment date of 20th of the month following
b. Send a statement with outstanding invoices listed on the 5th (some may even request confirmation of payment date)
c. Follow up unpaid invoices on the 22nd either via phone or email (remember to take note of the reply
From this point it is up to you how you proceed, but I would recommend spending no longer than 3 months on chasing an invoice, and I would halt any new services to the debtor until they have paid if possible (just be careful with what you are legally allowed to get away with prior to halting any services.)
6. Invest in an accounting program – I’m going to be really blunt here, if you can’t afford Xero, you’re doing it wrong. An accounting program will save you a huge amount of time, and time is money. It will supply you with so many reports, but one of those is a receivables report which helps you stay on top of receivables and to help chase money in a timely manner. If you think that you don’t have enough money for an accounting program, you need to change your thinking.
I should also add that if you are to sign up to Xero get some training in it. We can help with that, there are also lots of online training available, and many local accountants provide training or drop in services. Whatever the cost of the training you’ll most likely make back in saved time because of the tricks you will learn. In addition, I’ve had to clean up a lot of accounting errors for clients due to untrained employees, and it can take weeks to sort it out. Not good.
Ensuring you have great cash flow is a huge part of running a successful business, so I hope the above helps make that happen. Do you have any further tips that could help with managing receivables? Let us know by commenting below, I’d love to know about them. If you are looking for some more helpful business tips on a regular basis, like our Facebook Page. We often post items that could make your business day a bit easier.
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And until next time, keep up the good work!