Author: Greg Taylor

Business Finance: Chase invoices for Christmas cashflow - 5 tips for managing debtors

In his regular business banking column our CFO Greg Taylor says focussing on debtors is a pre-Christmas task for every small business. He shares 5 tips for managing debtors.

As many small businesses start winding up for Christmas it is important to get your debtors under control. That means collecting payments from all the people that owe you money.

You should have them under control all the time but if things have slipped spend some time now addressing the issue.

You should minimise debtors because you have already paid for materials, wages and rent to produce the goods or services sold.  Reducing your debtors can reduce your overdraft and associated interest charges. With Christmas coming, you may also need the cashflow!

The most recent trade payments analysis by Dun & Bradstreet (October 2013) shows Australian businesses are failing to pay their bills on time more often than not, with 60 per cent of invoices settled beyond the standard 30-day payment period. Businesses paid their bills in an average of 53 days during the third quarter of 2013; more than three weeks beyond standard terms. According to D&B, while payment times have improved marginally compared to the previous quarter, they are a day slower than during the same period last year, indicating that tight economic circumstances mean many businesses are delaying payments.

Large companies have been the slowest to pay their bills during the past quarter, with those employing more than 500 staff taking an average of 56 days. Small businesses employing fewer than five staff paid their invoices at the national average of 53 days during the third quarter, while the fastest paying companies were those employing between 50 and 199 people.

D&B's most recent Business Expectations Survey also found that 41 per cent of companies had a customer or supplier that became insolvent or was otherwise unable to pay them during 2013.

Here are five tips from our business banking team to help you stay on top of debtors.

1. Review the payment terms you offer and make them clear on your invoices. Consider seven or 14 day terms instead of 30 days.  Some businesses don’t release goods until full or at least part payment is received.

2. Offering a discount for early payment may be worthwhile if the discount is less than the interest you are paying on your overdraft.

3. Offer options for payment that make you ‘easier to do business with. EFTPOS, B Pay and direct debit can allow you to get your money earlier, without waiting for cheques to clear.

4. Send invoices promptly. Waiting until end of the month adds up to 30 days on top of your payment terms.

5. Review your debtors regularly. Most accounting software packages allow you to produce a list organised by when payment is due. Or sort your invoices by their due date to spot any past their due date. Contact overdue debtors promptly. Issue a statement or reminder as soon as an invoice is overdue. Be firm but polite.