For most businesses, unpaid bills/ open invoices have become a normal occurrence. Sadly, debtor management has become a nuisance for most businesses to an extent, most have decided close shop. Debtor management is a less enjoyable affair for many, but as it may, it needs close and dedicated monitoring.
The question many are asking is, how do we efficiently manage debtors? And how do we manage our debtors without losing them as clients? It is very important for businesses to put in place all the relevant measures to ensure customers meet their end of the bargain, as they operate within the confines of the contract signed. After all, these customers have been provided with a service/ product, and therefore, it is expected that payment for these services should be a natural process.
Tips on debtor management practices that companies can implement in order to reduce their debtors
1. Formulate a debtor management plan;
Everything successful business is anchored on having a well-articulated plan. The design of the plan, and its implementation should be tailored to each business, as businesses may vary depending on a number of factors such as the business operations, the customer relationship with the company and the customer profile.
When formulating the plan, it’s also important to ask/ answer the following questions before getting into a binding a contract;
· What are the company’s terms of credit?
· How should payment reminders be scheduled?
· What actions will be taken for customers who do not pay by the invoice due date?
· How will the workload be distributed among the team?
· How do you handle a customer who wants a payment plan?
2. Scrutinize the invoicing process
It is important to ensure invoices are not sent out too late. The billing terms agreed upon in the engagement letter/ contract should be followed to the later, so that invoices are not sent out too late, or too many at the same the time.
It is important for companies to try and avoid mass invoicing and embrace daily/ on demand invoicing. The process of invoice generation, counter-checking and onward transmission to customers is a time consuming exercise. And this is made worse during follow up, as one is required to reach out to a number of customers. Therefore, since this process will keep on repeating itself, there is a very high likelihood that if not properly handled, it will be overwhelming leading an increase in company debtors.
3. Classify the debtors
When debtors are properly segmented, management of the same becomes easier, as this will provide important insights to be used during decision making. For instance, there are customers who are good payers and very little effort should be put in place while managing them and there are those who are serial defaulters, hence need closer attention, and even more stricter measures should be applied when dealing with them. Tactics such as asking for payment in advance and emphasis on terms of payment on every communication that is sent out.
4. Use automated communication channels
In this fast paced business environment, automation has proved to be a very reliable way of doing business. Automation of communication to customers will not only help in cost reduction for the organization but also yield the much anticipated results using very minimal effort. After debtor classification has been put in place, a communication process specific to a particular group of customers should be formulated
5. Analyze your customer’s financial health
Understanding the financial status of a customer will help an organization to know the probability of that particular person paying and whether the relationship will be beneficial. A company can use all the publicly available information about a company to assess the reputation of a customer they intend to trade with. This way an assessment of the risks associated with a particular client can be done and a decision on whether to proceed with the engagement can be made before hand, while formulating a mitigation strategy of dealing with that particular client should they decide to get into a contract with the client. However, the financial assessment should not only be done for new clients but also on all existing clients, so that, in case a company is going through financial challenges, then they can have sufficient information to make a decision on whether to pull out of the contract or to keep the customer.
6. Formulate trading conditions
It is best to share the terms and conditions (Terms of Reference – TOR) with your clients before signing any contracts so that they are made aware of what is expected of them during the business engagement. This conditions can include issues like, the terms of sale, payment conditions, type of assignment, duration of the contract, exit clause etc.
7. Provide easy payment options
In order to boost its revenue collections, it is important for businesses to give their customers payment options that are easy to use, and offer a variety of options; for instance, it options like M-pesa, cheque, Rtgs etc. At the same time, the organization should ensure the payment details are clearly visible on all the invoices as well as on all the payment reminders sent out to customers.
8. Do a proper allocation of duties?
To avoid duplication of duties or negligence in some areas, the person in charge of the department should ensure proper distribution/ allocation of duties among the team members. In cases where the person raising invoices and the one making payment follow-up is done by different people/ department, then measures should be put in place to ensure all the parties are aware of the process and the different stages of invoicing.
9. Perform regular checks.
The automation of processes should be put in place such that reminders are automatically sent when they fall due. This will ensure alerts are sent out on time to customers, and the people in charge can also take up the initiative to make closer follow-up in case there is no response/ commitment from the client. If implemented and managed correctly, debtors can be maintained at the lowest with very minimal effort.
10. Be flexible
Have a system that can be easily changed to accommodate organizations current and future needs!
Are your debtors still not paying?
Then reach out to us as soon as possible. We have a team of experts who will help your business formulate policies best suited for your business!
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