“Of course not”, I hear you cry but just take a minute to consider this and have a look at your debtors ledger.
Positive cash flow is an essential part of any successful business so how much have you got locked up in debtors? It is an easy position to slip into as no one wants to upset a good customer and collection of outstanding invoices can be a sensitive issue that needs to be handled with tact. That difficult conversation can often be put off but here are 4 good reasons to pick up the phone and start helping your own business rather than your customer’s:-
- Each overdue £ is possibly resulting in bank charges and interest if you are utilising an overdraft facility which increases the costs for your business and ties up some of your credit lines with lenders.
- Each £ that is overdue and remains unpaid is another £ that you cannot currently invest in your own business to generate future growth and profits.
- The longer a debt remains unpaid increases the risk of it not being paid at all thus increasing the potential for bad debts. Do you want to be working for nothing?
- If the money is not in your business’ bank account you are not able to use it to extract the profits you have generated.
A clear credit policy is a must. Putting this in writing and getting your customers’ agreement at the beginning of a commercial relationship will help to avoid problems but, if they do arise, give you a frame of reference against which to get them sorted. Don’t be afraid to undertake a credit check on any new customer.
It is also important to continuously monitor your debtors position and follow up quickly with anyone who is outside of your credit terms. Some cloud accountancy packages, such as Xero, allow you to automate reminders so that emails go out to your debtors as soon as the debt is overdue and thereafter at regular intervals until it has been paid. A handy tool for business owners whose time and energy is much better spent thinking strategically then chasing bad debtors.
Remember the old saying “cash is king” and, at the end of the day, it is your money.
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