10 tips to reduce debtor days for small business owners
Understanding and controlling your debtor days is the key to ensure a steady, reliable cash flow which is crucial for the survival of your business – so taking steps to ensure your customers pay promptly should be a priority.
When your clients consistently pay on time, you’ll avoid the dreaded “feast or famine” cycle. You’ll be able to pay your vendors, suppliers, and employees on time – and not least of all, yourself.
Implement these ten tips now to start getting paid without delay.
Provide payment terms up front
Before you start working with any new client, always provide your terms in writing. Clearly state your rates, payment due dates, and policies for late payment – including any fees incurred on balances owing.
If you’re currently preparing your invoices manually, switch over to an accounting system with automated billing and online payment portal. You’ll never forget to invoice a client, and you’ll eliminate errors as you save time. The first time a client is invoiced make sure contact information, payment information and payment portal links on your invoice are clear and complete to avoid delays with processing.
Call your customer immediately when a payment is past due. Ask for the status of the invoice and if there’s anything you can do to speed up payment. Sometimes a simple change, like including a purchase order number on the invoice, can speed up processing.
Net 30 payment terms are fairly standard in business, but there’s nothing stopping you from asking for payment sooner. Some business owners make the payment due at Net 7 or 10 days; others stipulate payment is due upon receipt of invoice.
As part of your terms, specify that if a client’s payment is past due, a weekly fee of 2% will be added to the total until funds are received in full.
Get paid upfront
Collect a partial deposit – or the entire amount in full – before you provide a product or service to your customers.
Forego invoicing altogether by having your customers pay on the spot with mobile debit and/or credit payments.
Stop your supply of products or services until you receive payment. With this tactic, you’ll avoid the accumulation of an even greater loss with a consistently late or non-paying client.
Stay on top of Debtor Days
Monitor your accounts receivable on a weekly basis so you can act fast if a customer hasn’t paid on time. An AR aging report can help you easily track outstanding invoices right in your accounting software – or create an Excel report you can track manually, if you prefer.
Communication is key to success
Perhaps the most important tip for encouraging prompt payment is excellent communication. Educating your clients on your expectations and communicating clearly from the beginning of your client relationship is a key factor in continued success.
When you follow up on a late invoice, explain why it’s important to receive timely payment in order to run your business effectively. Ask when you can expect payment, and agree on a date.
If the money still isn’t forthcoming, offer to negotiate a payment schedule as a next-to-last option – before you have no choice but to contact a collection agency.