How to reduce your debtor amount and days?

CLIENT QUESTION:
My debtors amount and days are growing. What should I do?

OUR ANSWER:
I have seen lots of businesses who make the mistake of focussing on increasing their sales but showing no urgency in collecting their money from customers (debtors). Remember you are in the business of supplying whatever it is you supply and not in the business of lending your money to finance your debtors' businesses.

The first thing that you need to do is change your attitude towards debtors. Your attitude should revolve around the thoughts "Its my business so the debtors should play by my rules" and "The money they are not paying is my money and I should not be afraid or embarrased to ask for it."

Once you have psyched up with the attitude above you should then develop a debtor policy that revolves around:

1. Having a standard number of days in which all invoices should be paid. Do not under the pressure to make more sales increase the standard payment terms. Remember - your business your rules.
2. Tracking your debtors. Keep a track of the invoices and if an invoice has not been paid a day before the due date, give the debtor a courtesy reminder that their invoice is up for payment the following day.
3. Changing the sales terms to cash payment right upfront if a customer has not previously paid on time before.

ANSWERED BY SURESH RAJANI

If you want to move your business in the right direction give Suresh Rajani a call at 08 8372 7837. 

Suresh Rajani is the Business Leader at Tax First - an accounting and business advisory firm located in Wayville, South Australia.