Six Simple and Easy Steps to Better Debtor Management

It is imperative to manage your debtors, especially when you’re busy growing your business.

This ensures you have adequate working capital throughout the business’ growth.

Debtor management is a systematic approach to debt recovery. It involves keeping track of the debtor’s progress through a series of steps. 

Debtor management is a method of dealing with debt collection. It is often used when dealing with large amounts of debt or cases where the debtor is having financial difficulty. 

Understand your credit policies and terms of trade

Informal arrangements are often used to supply goods and services by businesses. 

The consequence of this is that disputes are more apt to arise than if there were clear, written terms of trade from the beginning.

A clear set of terms of trade prevents bad debts and minimizes the likelihood of them occurring.

Before offering credit to new customers, conduct thorough checks on their credit history and business references. 

Understand your obligations upfront, ensure that your customers accept each part of your terms in writing (so they know your commitment to collections is severe), and consent to your terms. 

The credit policy needs to be understood by all your staff.

New customers with new payment terms and conditions or customers who wish to increase their credit limit should first implement the new policies. 

Customers who are loyal to you or whom you know and can be expected to stay loyal to you could find it harder to accept new terms.

Monitor your systems and make sure they are up to date

To succeed in debtor management, it’s essential to keep your information up to date. 

With the increasing popularity of software systems to automate tasks, there are many options available for debtor management software. 

You can significantly reduce the pain of administrator and management involving debtor management through the right software solutions.

Monitoring your debtors’ ledger carefully is the best way to minimize issues. 

You’ll be able to notice adverse trends more quickly and act before they have a more substantial impact on your cash flow by keeping close track of the days outstanding.

Moreover, many software solutions such as Payt offer a full spectrum of tools for you to control the situation and ensure payment.

Provide accurate information on official documents

Your invoices are more likely to be paid on time if they include the correct information and you provide your invoices promptly.

Ensure you adhere to your credit and trade terms on all quotations, estimates, invoices, contracts, agreements, purchase orders, and other documents. 

The invoice or statement must clearly state:

• the amount due
• the deadline for payment
• address of billing
• details of your bank account

Additional details about who placed the order can be included, including the purchase order number, contract/account number, and order number. 

You can contact the customer beforehand to confirm what information they require to accelerate payments.

It is a good idea to post a detailed description of your collection charges on your invoices and statements to discourage late payments.

Put in place a vigorous receivable processes

The collection process needs to be well-structured, with custom-built deadlines for various communication stages, such as e-mail, letters, and phone calls. 

Develop a straightforward process and ensure that everyone on your team understands it. 

The following points are essential to remember:

• Due to the fact that late invoices encourage clients to delay payment, you should make sure to invoice as early as possible.
• Automate your reminder letters to arrive every 30 days, 60 days, 90 days, and highlight your terms where they haven’t been met.
• Make sure slow payers are regularly followed upon to encourage prompt payment. Customers will be more likely to schedule payments through you once they know you always contact them if payments are late. If possible, obtain a firm commitment to pay something before finishing a follow-up call. Make sure the payment has been made or arrange a visit if it hasn’t been paid.
• Maintaining your cash flow is imperative in cases of debtor disputes. Ensure you get paid any undisputed amounts until you resolve the matter. 
• It would help if you dealt directly with the decision makers in your customers’ organisations.

Avoid overextending credit and concentration risks

It’s important to review your customers’ credit limits regularly. Look out for signs that indicate that they are experiencing financial difficulties. 

Consider whether the customer has changed their buying habits or is taking on more debt since they may be giving you more business due to other suppliers no longer offering credit facilities. 

The most significant credit risk comes from long-standing customers because nobody thinks to dig deeper into existing clients.

Being overwhelmingly dependent on any one customer carries significant risks, which can outweigh any rewards. 

Keep a close eye on any customers who appear to be expanding rapidly, and be cautious when handling extended credit requests. 

The rapid growth of your client’s business may help your sales, but it can also put pressure on their capability to pay. 

Understand the behavior of potential suppliers or customers and use any available information to determine their financial soundness. One such way is to listen to industry chatter and rumor…this can often be remarkably accurate about a company’s fiscal standing.

Remain firm on your payment terms and cease providing supplies to clients who haven’t settled their accounts. 

When stopping credit, come to an agreement with your customer about past supplies, and make sure you get paid. 

As a matter of fact, you can use their demand for your goods as leverage for speedier payment of your invoices and how they treat you for new supplies. 

Despite the loss of some business, it will lessen the overexposure to bad debt.

Anticipate the possibility for bad debt

Ensure that your terms of trade are legally compliant by contacting your attorneys so that it will not hinder the recovery of debts.

Consider managing the risk and effects of bad debts with credit insurance and debt recovery services. 

Be ready for the possibility of going to court and sending professional demand letters, and threatening legal action.

Making provisions for bad debts and acting swiftly if your debtors exceed your requirements is critical to credit management, which is why you should build them into your annual or ongoing budget.

Cash flow can be seriously affected by bad debts that spiral out of control. 

With these six techniques, you can establish a strong credit relationship with your customers from day one and identify and react quickly to individual risks and dangerous situations in your receivables.

Summary

Collecting a debt can be a time-consuming and challenging task, but you can make the process simpler with these tips.  

For one thing, be sure to understand your rights as a creditor. 

This means that you should understand the laws governing the collection of debts in your state and be aware of the options you have available for collecting your debt. 

For example, you may be able to sue the debtor in court, or you may be able to enlist the assistance of a debt collection attorney.

It is also useful to use software tools to streamline the process and free up time from menial tasks such as automating regular contact with your debtors.