Debtor days is a term used to account for the average number of days taken by a company to be paid for products or services it has sold. A business should aim to achieve a low number of debtor days, as a high figure could indicate problems. By improving the credit control process, there will be a number of benefits to the company, including reducing the cost of collecting outstanding debts, improved cashflow and reduced debtor days.
1. Managing your clients will help to create a positive relationship from the very start. As you gain new clients, contact them to provide information about settlement terms, delivery methods, prices and other details about your products and services. Make sure that all customer details held are correct so that you can be sure that invoices are delivered correctly.
2. Be aware of the credit rating and financial health of clients to reduce the likelihood of not being paid. Rather than just routine checking of credit scores, outsource to a professional accounting and financial service which will alert you to any potential risks or changes to a client’s credit rating which could result in non-payment.
3. Don’t wait until an invoice becomes due before issuing a reminder. Rather than having to chase debts with harsh words, issue a friendly reminder that payment will become due in a set number of days.
4. Keep records of each client’s credit limit, how much they credit they have remaining and those who have exceeded their limit. Produce a regular report on credit to determine which customers regularly settle their debts and those who take more credit, falling behind with their payments.
5. Offer firm but generous settlement terms so that customers are aware that prompt payment is required, but possibly with an incentive like an early payment discount. For those who pay late, especially those who pay late on a regular basis, consider charging interest on outstanding debts, to encourage prompt payment.
6. For persistent offenders, refuse credit terms so that they have to pay upfront or on delivery for goods. This should also apply to large companies which may abuse your credit terms to improve their own cashflow.
7. Make it simple for customers to pay you by setting up a system which accepts debit and credit cards, cash, cheques, direct debits and standing orders for those who are regular customers.
To find out more about how small changes can improve your cashflow, use our cashflow improvement calculator today.