How Management Of Debtor Payments Means Success Or Failure
You start a business with the hope of great success and profitability right?
You provide a service or produce goods which you deliver on time, resulting in a happy customer. So why do so many companies feel uncomfortable about chasing payment?
I was amazed to read some statistics in an article posted on smart company (http://www.smartcompany.com.au/cashflow/20110331-entrepreneurs-reveal-their-cashflow-commandments.html). Apparently managing debtors is a serious concern for Australian businesses, a staggering 80% of businesses that fail in this country do so because of negative cash flow. In 2010 alone more than 10,000 aussie businesses shut down – that’s up 23% on the previous year.
Riddle me this. If you are scared to chase payment, scared you’ll rustle some feathers with existing and future clients, and then no money is coming in. Do you expect your business to last the end of the year?
It seems SMEs are so excited or in a hurry to sign on a new client that they may overlook their new debtors history or rush through the payment terms. This can be detrimental to the business. You have heard me say it over and over. Cash flow cash flow cash flow! Without it you’re a dead duck.
One part of this article I particularly like is the mantra they suggest you keep on your wall and repeat everyday with a smile “When I have provided the goods or services on time, I am entitled to be paid on time.”
Sound advice I think. We are all in the business to get paid and make money. Don’t build up your bank of debtors.
While we are on the cash flow topic, here’s a list of reasons why businesses face cash flow problems. Have a read and perhaps identify some of the things you may be doing that are resulting in cash flow problems.
- Difficulty chasing money from customers. Most customers delay paying invoices as long as they can.
- Bad debt or should I say bed debtors. If you have a few customers that file for bankruptcy you can at first ride it off as an expense, build up more than one and it can be detrimental. It’s wise to do extensive credit checks on people you decide to do business with
- Not enough sales or orders – if you’re waiting on receivables but in the meantime not making another sale there is no guarantee of extra money coming in. You need a steady and consistent number of sales.
- Overheads – spending too much on stock, advertising etc. Make sure you monitor your spending. Do you really need that much inventory? And that fancy advertising agency?
- Season of your sales – peak and low times: If you sell more in one particular season to another then there might be a time when sales are particularly low and income is vast – you need to make sure your business is prepared for this time to cover the spike in loss of income.
Repeat after me “When I have provided the goods or services on time, I am entitled to be paid on time.”