How To Reduce Your Debtor Days
As the UK continues to be gripped by the current economic turmoil, the expected recovery is taking longer to materialise than most predicted. During these uncertain times cashflow becomes ever more vital for all businesses.
The government sees SME entrepreneurs in the private sector as key to the recovery, but clearly many businesses underestimate the length of time it takes to receive payment from their customers. 2013 has already been a tricky start for a lot of businesses, as we have seen many high profile retailers fail, many have suffered from low seasonal sales and the poor weather has only made things worse. All of this takes its toll on cashflow, especially for small businesses, and we want to highlight some simple steps that can help to ensure your invoices are paid when you expect them to be.
Hitachi Capital Invoice Finance's top tips to reduce your debtor days:
- Know the entity you are dealing with. Many businesses operate under a trading style, but if you know the exact name of the company you are trading with it will save time later if you have to enforce payment.
- Always credit check customers at the start of the trading relationship and review them at regular intervals, especially if they place a large order or request different payment terms.
- Agreeing your payment terms in writing is good business practice and lets customers know when you expect payment, for example, within 30 days! This way you both know where you stand.
- Ensure your invoice contains all of the vital information to allow it to be paid without your customer having to refer back to you. Always quote your customer's Purchase Order Number, your Vendor Number if you have been given one, and make sure the description is as detailed as possible. Ensure any back up documentation, such as timesheets or proof of delivery, is sent with the invoice.
- Don't give customers any grounds to dispute your invoices. Sometimes disputes do happen and can be used as a sneaky delaying tactic. Make sure your Terms and Conditions make clear the products and services description and if they fall short the customer should notify you straight away.
- Chase debts. Receiving cash is not an automatic process that always follows delivery or completion of a job or project. An early call to check the invoice has been received and will be paid on time can head off time-delaying, stalling tactics.
- Stop supplying very slow or non-paying customers. Their late/non-payment eats into your margins - are you still making a profit from this customer?
Use of some or all of these tips can help you receive payments from your customers in a timely manner.
You can also consider alternative finance options, such as invoice finance. There are lots of available options out there, not just your regular bank loan or credit card resource. Depending on your business, an alternative solution may be a better option.
Head of Operations
Hitachi Capital Invoice Finance