Professional Systems - guide lines

How to control customer debt

The importance of controlling debt.

Controlling client debt is crucial for all businesses. It is especially important if you bill for services; such as construction, trades. Some businesses, such as retail, may be prepared to take the risk of client debt if they think the returns, such as more loyal customers, is worth the effort.

Be aware. Allowing client credit has risks, and it requires effort not required in a purely cash, or electronic (online) business. Look carefully at how any software package helps to support managing it.

Ask yourself the following questions:

1. Are you prepared to provide credit to any customers? If you are then which ones?

  • Regular customers, distance customers, online customers?
  • Purchases over a certain level?
  • Providing credit is a very good way of improving customer loyalty. It also comes with risks. Namely that the customer does not pay. Or pays late.
  • Customer credit therefore needs to be managed.

2. How much time are you prepared to spend managing client debt? It is not sufficient to issue invoices and then wait until the customer pays. How easy have you made it for them to pay? Do your invoices give the customer the option of paying by direct debit into your bank account?

3. Do you understand the importance of, and information included in, an aged debtors analysis? Also client balances or work in progress reports. These reports are crucial in understanding how much customers owe you, and how good they are as payers. You may need to switch certain customers from invoicing to cash only purchases should they be either late, or irregular payers.

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The Professional series provides many options when producing invoices. Including payment slips and emailing invoices and statements direct to your customers.

Let's have a look at the aged debtors analysis.

This provides good information about who owes you money, and how long they have owed it for. Generally they are set up so that debt is broken into 30, 60, 90 and longer periods. If you have a lot of debt that is older than 60 days your debtors control needs to be tightened up. For the report to work correctly make sure you regularly enter payments, and any credits or writeoffs required. Other wise the report is misleading.

Professionals Business Accounts provides the facility to access client invoices and payments directly from the online debtors analysis form. This helps to ease your control of credit and ensures that you can check a client's credit situation without the need to keep running reports and jumping around all over the place.

A required complement to the aged debtors analysis is the client statement. This should be able to be run as a report, and to send to the relevant customer. It should include all invoices and any payments (at least the total) that have been made. If the balance is not zero you need to send it to your customer as soon as possible. The longer it takes to send it, the less likely that the customer is going to pay. And if you had to order inventory to make up an order the invoice is for, the longer you are out of pocket. In addition, your debt recovery service will want to know that you have already made serious attempts to recover the amount owed. And, let's face it, using a debt recovery service means that you have probably lost a customer.

For more detailed information you may need to run a client's balances (sometimes also called a work-in-progress) report. This report should include all invoices, payments, and any credits/debits and writeoffs. You should pay careful attention to the credits and writeoffs. if you are regularly issuing these then there is something badly wrong with your debtor's control procedures. Look closely at your pricing. Is it clear, up front, exactly how much the customer is to pay, and for what? Do your invoices allow adequate time for payment. For example the 20th of the month following the invoice. Is that clearly stated on the invoice?

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Now let's have a look at the invoice.

The invoice should be clearly laid out. It should include the phrase "Tax invoice" if you are registered for G.S.T. The date the invoice is due to be paid by must be clearly visible - the top of the invoice is the best position as it is more likely to be seen. Whether the invoice is inclusive, or exclusive, of G.S.T. needs to be shown. Either at the top of the unit price, or total amount, and at the bottom beside the amount due. Your software needs to be able to be set up for either of these.

Does the invoice allow you to specify who it is for, and the reason it is being sent? This is particulary important when you are dealing with businesses where the person authorising the expense is not the same person who deals with accounts payable.

Your software needs to include a facility to add specific individuals (contacts) to the invoice - for example the person who authorised it in the first place. You may need to include a purchase order number in cases like this as well.

As you can see, getting the content of the invoice correct is important. Being able to include key names, descriptions, orders and dates can make a major difference between getting paid on time, or late. Or worst of all, not at all. Many people spend a lot of time on the appearance of the invoice and forget the crucial information. In that case the appearance counts for nothing. Often the invoice is the first, formal, contact a business will have with you. Getting the contents right is much more important than having a pretty invoice that lacks certain key information. Or is confusing.

Now, what about followup?

Followup must be timely and professional. You must be able to produce an accurate statement, or reprint the invoice should it be requested. Any discrepancies between the original invoice and your followup document will quickly be spotted and result in further delays in payment.

Waiting a long time for followup "Because you don't want to appear pushy" is the same as saying "I'm in no hurry for payment". As a rule of thumb followup should occur within a week or fortnight of the invoice's due date. Sometimes people just forget. So it is useful to have software that provides you with easy access to information about the customer's debt situation. For example the Professional Series Customer Operations Centre. The harder it is to produce a consolidated report of this information, the less often it will be used. And the more likely your debtors balance will blow up out of control.

Can you email invoices and statements to your customers? Doing so saves time and postage costs. But not all customers have email, or will provide you with their email address. So you need to be flexible here. Have you trained your staff to ask for email addresses when setting up customer records? Most software should allow you to record this.

Debtors control requires a high level of committment by those responsible. Good software should support and facilitate that effort.

To purchase any of the Professionals series.