Ten tips to reduce debtor days for small business owners

KESHO

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A steady, dependable cash flow is critical for the survival of any small business, so making sure your customers pay on time should be a top priority. 

You will avoid the dreaded “feast or famine” cycle if your clients consistently pay on time. You will be able to pay your vendors, suppliers, and employees on time, as well as yourself. 

Implement these ten tips right away to start getting paid right away. 

Provide payment terms up front

Always provide your terms in writing before beginning work with a new client. Clearly state your rates, payment due dates, and late payment policies, including any fees incurred on outstanding balances. 

Invoice Immediately

Switch to an accounting system with automated billing if you are currently preparing invoices manually. You’ll never forget to invoice a client again, and you’ll reduce errors while saving time. To avoid processing delays, make sure the contact information on your invoice is complete the first time a client is billed. 

Follow Up

When a payment is overdue, contact your customer right away. Inquire about the status of the invoice and what you can do to expedite payment. A simple change, such as including a purchase order number on the invoice, can sometimes expedite processing. 

Reduce Terms

Net 30 payment terms are standard in business, but nothing prevents you from requesting payment sooner. Some business owners require payment on a Net 7 or 10 basis, while others require payment upon receipt of the invoice. 

Reward Early Payers

Consider giving customers a 2% discount if they pay their invoices within ten days. In this case, a R1000 invoice would be reduced to R980, resulting in a small loss for you but an appealing cash-saving incentive for your customers. 

Charge interest

Include in your terms that if a client’s payment is late, a weekly fee of 2% will be added to the total until the funds are received in full. 

Get paid upfront

Before you provide a product or service to your customers, take a partial deposit – or the entire amount – in full. 

Go mobile

Instead of invoicing, have your customers pay on the spot with mobile debit and/or credit payments. 

Suspend Service

Stop supplying goods or services until you have been paid. With this strategy, you can avoid incurring even more losses from a consistently late or non-paying client. 

Stay on top of AR

Monitor your accounts receivable on a weekly basis so that you can act quickly if a customer fails to pay on time. An AR aging report can help you easily track outstanding invoices in your accounting software, or you can create an Excel report to track manually if you prefer. 

Excellent communication is the most important tip for encouraging prompt payment. When following up on a late invoice, explain why timely payment is critical to running your business effectively.

Ask when you can expect payment and set a deadline. If the money is still not forthcoming, offer to negotiate a payment schedule as the last resort – before contacting a collection agency.

Kesho offers great business advisory services to help you discover and implement more ways you can use to reduce debtor days as a small business, outline terms of payment, and complete your AR report. We also offer great Microsoft 365 subscription packages to transition your business to cloud, with subscriptions to services like  Hubdoc, Xero, Quickbooks and ApprovalMax Kesho simplifies the process of collecting your invoices, accepting purchase orders, and billing simple and efficient. 

Visit www.kesho.co.za for more information.

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