What is debtor management?
The word says it all: managing your debtors. It is the process of getting your outstanding invoices paid on time. Good debtor management ensures that your invoices get paid faster so that you can keep the cash flow up to standard. The process starts even before you enter into an agreement with your customer. Timely, thorough and consistent action is crucial to avoid future invoice disputes. Besides using the right accounts receivable management software (in this article you will read more about debtor management software).
Why is good debtor management so important?
Good debtor management is so important because it is about your wallet. The better your debtor management, the more money you have at your disposal and the more you can do business. On top of this, it is increasingly difficult to receive business credit from banks and financial institutions, making you increasingly dependent on your cash flow. So good credit management simply increases your chances of growing your business. Poor credit management, on the other hand, limits or eliminates your "playing field" and, in extreme cases, can even lead to bankruptcy.
What are the conditions of good debtor management?
Want to make strides in debtor management? Here are the prerequisites for good debtor management:
- Am working on it daily
- Capture your processes
- Appoint an accounts receivable manager to be responsible for it
- Ensure good communication between the commercial and finance departments
- Management should be fully supported by management
- Create weekly reports
- Use the right tools related to credit information, credit insurance and debt collection
What does a good accounts receivable process look like?
To give a clearer picture of what good debtor management looks like, here is a step-by-step process description for managing your debtors.
- Immediately check prospects' creditworthiness (before spending (too) much time on them)
- Lay down delivery and payment terms properly
- Apply general terms and conditions (include them on quotations, order confirmations and invoices)
- Confirm orders in writing (by e-mail)
- Keep delivery notes
- Put the payment term/due date on the invoice
- Send invoices immediately on delivery
- If the invoice is not paid by the due date: start debtor management immediately (send a payment reminder, short and friendly in tone)
- Payment remains outstanding: make personal contact, call your customer and inquire politely, make a new appointment (if you find it difficult to have this conversation with your trusted contact, ask for the person responsible for accounting)
- Confirm all agreements made by e-mail, ask for agreement and strictly follow these agreements
- Payment still remains outstanding: send a reminder and name the consequences if payment remains outstanding. Include the invoice number and due date. Send the final reminder by e-mail and by registered letter. Keep the confirmation of receipt.
- As a whole, do not send too many e-mails/letters
- Keep the cycle short: send an official notice of default before handing over the collection to an external party
- Report overdue receivables to the credit insurer on time if you are credit insured
- Are there any invoices that unfortunately still need to be written off at the end? Administer this properly: you can reclaim the VAT on these receivables from the tax authorities.
If the continuity of your business is severely affected by an accounts receivable loss then a credit insurance highly recommended.
How to deal with a bill dispute?
If there is a dispute, the person in charge should address and resolve it immediately. Disputes hold up payments. If the dispute concerns only 1 invoice or part of the invoice, try to isolate it from the rest of the claim(s) and ask for a partial payment.
What does good debtor management get you?
If you implement debtor management strictly and consistently, in the way described above, you will find that your buyers start paying faster. This reduces the debtor risk and increases your cash flow. And that, in turn, makes it easier for you to seize new opportunities. In other words: you can do business. And that is what you prefer to do, right?
Should you nevertheless still need additional working capital, excellent accounts receivable management will contribute to your ability to attract financing based on accounts receivable. Another reason to improve your debtor management put in order.
Outsource debtor management
Good debtor management requires quite a lot from you. It may be a consideration to outsource your debtor management. This has many advantages. Read here further on whether or not to outsource.
Want to know more?
Want to know how to get your debtor management right? Contact the specialists at Xolv, we will be happy to advise you!
