Communication important in managing debtors
Like any relationship, timely communication between creditors and debtors goes a long way to avoiding trouble. One of those tools for small businesses is the financial web.
The financial web describes the growing electronic connectivity between small business, accountants and financial Institutions, particularly when coupled with Cloud computing.
According to Xero, the continued expansion of the financial web will help small businesses make smarter decisions, improve cashflow, get paid faster and access capital quickly.
At the same time, traditional practices still go a long way to helping small business stay on top of debtor management.
If you don’t have large reserves of cash, you may want to reduce your terms to 10 days or seven days. You should also:
- Be up front. Explain ‘how we do it here’.
- Quantify fees in advance.
- Bill regularly.
- Bill as near as possible to the conclusion of work segments.
- Where practical, present the account to the customer.
- Provide payment options.
- Consider fixed fees.
- Follow up debts systematically and often.
- Explain the value of the work.
- Build a relationship and show your value.
In the case of debt collection costs, the Fair Trading Act requires you to disclose your terms of trade to customers at the time credit is given.
Your terms of trade must include provision for the recovery of collection fees. Make sure your terms of trade are clearly identified on your website, invoices and statements.