Business Advisory

Get Paid Faster

Get Paid Faster

It goes without saying that a business needs cash flow to keep operating.  If too many customers forget, delay or refuse to pay, your business could end up in serious trouble!

Debt collection is an aspect of cash flow management where a lot of businesses underperform.  However, it doesn’t have to be difficult.  If you have the right person for the job and develop a workable protocol, the process of debt collection can be made easier and it will have a positive effect on your cash flow.

Employing the right person

Admittedly, the term ‘debt collector’ has a negative connotation.  It conjures up images of harassment and fear!  Not only that, many business owners might assume that because collecting money comes under the umbrella of finance or accounts, then their bookkeeper should be an expert and enjoy chasing up outstanding bills!  That’s not always the case.

The responsibility of collecting money (known as ‘accounts receivable’) is likely to be suited to someone who is good with people – friendly and confident.  They should be well-organised, have good time management skills and be able to keep handy records of customers’ habits and tendencies when it comes to paying their bills.  

Measuring effectiveness

Generating a report showing outstanding debts broken down into 30, 60 and 90 days columns won’t show the average accounts receivable days, that is, how many days it takes on average for customers to pay their invoices.  Businesses operating on payment terms of 30 days may not realise that in reality customers take much longer on average to pay their bills.

Working out the average accounts receivable days provides a useful indicator for your debt collector to measure their effectiveness, and can be calculated using this formula:

Accounts Receivable / Revenue x Time

For example, a business might have generated revenue of $95,000 for the first quarter of the year.  The outstanding invoices, or accounts receivable, on record for that period total $65,000.  Therefore, the days in accounts receivable are calculated as follows:  

$65,000/$95,000 x 90 days

Monitoring this indicator from one quarter to the next, or over a 12 month period, will show whether debt collection efforts are improving, remaining the same or ineffective.  These results are helpful both to the person responsible for collecting debts and the business owner.

YOUR ACTION PLAN
  • Designate a well-organised and amiable employee to be in charge of debt collecting.  Together develop a protocol for collecting debts and use the indicator to measure progress and performance.
  • Schedule time in your calendar to review outstanding debts regularly!

 

3 x Debtor Collection scripts to cut, paste and send to your overdue debtors

20 October 2015

 

«ContactAddressee»

«PostalAddress»

«PostalCity» «PostalRegion» «PostalPostcode»

Hello «ContactSalutation»

Friendly Reminder - Overdue Invoice

This is a friendly reminder in relation to the overdue amount on your account for [$Amount].

We would appreciate your prompt attention to this matter and ask that you please arrange payment of your account as soon as possible.

Enclosed is a statement for your reference. Payment options are listed at the bottom of your statement.

If you have made the payment required within the last few days, please disregard this notice.

We look forward to hearing from you soon.

 

Kind regards

 

[Debtor Champion]

[YOUR BUSINESS NAME]

 

 

20 October 2015

 

«ContactAddressee»

«PostalAddress»

«PostalCity» «PostalRegion» «PostalPostcode»

 

Hello «ContactSalutation»

Urgent Attention – Overdue Invoice

We wrote to you on [Date] advising that your account of $[Amount] has been overdue since [Date].

We would appreciate your urgent attention to the payment of this account as it now exceeds our usual payment terms of 14 days.

Enclosed is a statement for your reference. Payment options are listed at the bottom of your statement.

If you have made the payment required within the last few days, please disregard this notice.

 

Kind regards

 

[Debtor Champion]

[YOUR BUSINESS NAME]

 

 

20 October 2015

 

«ContactAddressee»

«PostalAddress»

«PostalCity» «PostalRegion» «PostalPostcode»

Hello «ContactSalutation»

Final Notice – Immediate Payment Required

We have contacted you on numerous occasions requesting payment for the following outstanding debts:

  • [Entity Name] – Invoice Number [Number] - $[Amount]
  • [Entity Name] – Invoice Number [Number] - $[Amount]

Total Amount Payable: $[Amount]

It is unfortunate that you have not paid our Invoices on time, and you have not even proposed a payment arrangement with us.

Your lack of action has now resulted in us having to make a business decision. Unless payment in full is received no later than 7 days from the date of this letter, we will be engaging our Lawyers to commence immediate debt recovery procedures.

We have been more than accommodating in our previous requests, and therefore will be making no further extensions beyond this timeframe.

Enclosed are statements for your reference for each entity. Payment options are listed at the bottom of the statements.

 

Regards

 

[Debtor Champion]

[YOUR BUSINESS NAME]