07/01/2015 - 15:08

Don’t let your debtors take you down

07/01/2015 - 15:08


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Sales are great but cash flow is king! Business owners need to develop strategies so that mantra is turned into practical outcomes.

Sales are great but cash flow is king! Business owners need to develop strategies so that mantra is turned into practical outcomes.

There have been a number of high profile business failures in recent times caused by the default of key debtors.

You may have issued an invoice and recorded a sale, but how do you ensure the collection of cash? 

A key driver to the success of debtor management is to treat all debtors the same. Believing in some more than others can lead to disappointment and loss as established premium operators can fail just as easily as a new player.

The lesson to be learnt is to have a strict policy in relation to the handling of debtors and enforce it for all customers at all times.

Here are some key steps you can take to ensure your debtors are less likely to take you down.

Detailed trading terms to be accepted by all long term customers

You need to have an established and detailed list of trading terms that need to be accepted by a debtor prior to entering into any credit.

These terms should be compiled by the company and checked by a legal professional.

They should be industry relevant and cover all the salient issues that could face the day to day operations of the business and its debtors.

Positioning of the “Terms and Conditions”

It is fine to have your full terms and conditions on your web site, but you must ensure that you have a signed accepted copy for long term clients.

Always hand or email a copy of the conditions to “one off” customers that utilise any level of credit.

To assume they have read the conditions on the web site may not be admissible in court.

Credit review and acceptance

In the current market it is very important to ensure that an appropriate level of due diligence is carried out on all new credit applications.

Checks of trade references, credit agencies and bankers should be a minimum for all customers.

It is also important to maintain a good flow of industry/market intelligence to ensure you are aware of what is happening that may impact the debtor.

Ongoing credit management

Just because you have a debtor that has been with you for a long period and never missed a payment doesn’t mean they are safe from failure.

It is imperative that 6 monthly or at least annually a review is conducted and credit agencies contacted to ensure that they still represent an acceptable risk.

Diversification of the debtor book

When considering your portfolio of debtors you should ensure that there is a broad spread of debtors and dollar exposures.

There mitigates the risk of one particular debtor causing a massive cash flow issue.    

The Romalpha clause

Many companies utilise this clause within their documentation to ensure that products remain the property of the company until the debtor has paid their account in full.

Although not always easy to enforce, it can give you the power to recover your products in the event of a default.

Speed of response

If a debtor exceeds their trading terms then it is paramount that action commences swiftly to ensure payment.

The cheque’s in the mail or we are getting around to paying just don’t wash. The longer a debtor extends the payment cycle the more warning lights should be going off.

Many people say that they can’t enforce the payment due to the risk of losing the customer. Can you afford to keep them if they don’t pay?

Use of legal professionals and the Small Claims Tribunal

Many businesses are reluctant to enlist the help of a legal professional due to the cost or a concern that the situation may escalate.

I would suggest that failure to seek professional advice may open you up to material downside loss. If you are concerned, seek the best advice you can afford.

There are also options within the Small Claims Tribunal that are cost effective and require very little input to attain at least a legal right to payment in the event of default.

All avenues need to be considered to recover outstanding monies.

By taking the above steps you can ensure that at least you have a good chance of recovering funds from your debtors, ensuring those hard won sales turn into actual cash flow.

Always be proactive and don’t let your debtors take you down.  



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