Effective debtor management

Effective debtor management pays off

Debtors are your customers. It is important to have a good relationship with them. But poorly paying customers cause stress and financial trouble. A tight credit control policy pays off. How do you manage your debtors? This article explains about calculating a collection period, debtor financing, and payment terms.

A debtor is a customer or client who has received an invoice from you, but has not yet paid. Debtors (accounts receivable) fall under assets on your balance sheet. The debtor’s counterpart is a creditor. A creditor is a company, institution, or person whose invoice you still need to pay. On your balance sheet, creditors are listed under debts: liabilities.

Debtor management

Debtor management, or credit control, is everything you do to get your clients and customers to pay their invoice as soon as possible. For the cash flow of your company, it is important to keep the item ‘debtors’ on your balance sheet as low as possible compared to your turnover. You then have more money available to pay your costs. Debtor risk is the risk of your debtor not paying their bill (on time).

Debtor management literally means managing your debtors. Good debtor management helps you to get your money (on time) and thus directly affects your cash flow. Debtor management starts before you enter into an agreement with your customer and ends when the invoice is paid.

Ensure that your clients and customers pay on time

The following tips will help you ensure that your clients and/or customers pay on time:

• Credit check your clients and customers - Check the creditworthiness and payment behavior of potential clients in advance.
• Agree on a payment term - Agree on the?payment term?in advance. The payment term is the period within which the total amount of the invoice must be paid. A payment term of 30 days is common for companies.
• Consider payments in advance - If your customer pays in advance, your risk is almost zero.?
• Claim retention of title - A retention of title means that you remain the owner of the products delivered until the customer has paid. If the customer does not pay, you can reclaim the products. You must claim a retention of title in your general terms and conditions.
• Timely invoicing - Make agreements with your customer about the invoice:
• Send payment reminders - Send a first reminder 2 days after the payment deadline.?After that, contact the customer by telephone to clarify any uncertainties concerning the invoice.?
• Agree on a payment schedule - One option is to propose a payment schedule to your client or customer.
• Statutory interest - If your client fails to pay or pays late, you may charge statutory interest. Statutory interest is calculated over the period in which your client fails to pay after the payment deadline has past.
• Legal Action - You have done everything to make sure your client or customer pays, but it has not worked. It is time to take legal action.?

#Debtorsmanagement #Cashflow #Accounting_Made_Simple #Businesssupport