I'm making a profit but I have no cash in the bank .... help!!! (part 2/6)
John Woolnough
Chartered Accountant - Transformation - CASC & Gift Aid - Football Club Owner/Chairman - Football Coach - Charity Trustee
In a previous article we introduced the idea of #business owners being confused about the link between #profit and #cash due to the fact they are only looking at their Profit and Loss account and not understanding their Balance Sheet.
The next point we highlighted in the previous article of our six article series was:
Understand your Debtors Ledger
Your Debtors Ledger may also be called Aged Debtors/Accounts Receivables/Trade Debtors. It doesn't matter the name, they all represent the same thing - a summary of sales that you have made and where payment has not yet been received from your customers.
If you are invoicing customers and not receiving payments in a timely fashion then your profits are not turning into cash.
So, if you are short of cash, this is often the fastest way to see the pounds hitting your bank account.
Start chasing up those customers that haven’t paid you within your terms of trade. Look at the amounts that are outstanding the longest, or those with the highest value, and spend 30 minutes every morning calling the customers and asking for payment.
TIP: Try and find out what the value of your Debtor Days is – this figure represents the average time it takes a customer to pay you. Compare that with your terms of trade – are your debtor days close to your terms of trade, or are they longer than your terms of trade? The shorter your debtor days, the more regularly money is hitting your bank account, increasing the availability of cash that can be utilised. If you’re not sure how to find this figure, contact your #bookkeeper or #accountant, who can show you how to calculate this key metric.
Modern Cloud Accounting Software such as #Xero allow you to simplify and speed up invoicing and collection of monies.
Here's how:
- Clients will often wait till the due date to preserve a higher bank balance; so the sooner you invoice, the faster you’ll get paid.
- Mobile apps put invoicing in your pocket so, wherever you are, you can send an invoice the moment the job’s complete.
- Add payment options and a ‘Pay Now’ button to your Xero invoices so customers can make a card payment online in next to no time.
- Customise automatic invoice reminders in Xero and schedule them to be sent at the perfect times, before and/or after the invoice due date.
- Stay on top of paperwork in a couple of clicks, even while you’re on the move.
TIP: If you are not using a Cloud Accounting Solution such as Xero or are daunted by the prospect, find a Xero Certified Chartered Accountant who can guide you through the software and make your life easier.
Marketing Consultant & Halpin Consulting Fellow (retired), Polymath. Not seeking work.
6 年In 13 years I've had three bad debts. All relatively small. The way to minimise bad debts is to agree on payment terms before starting to do business together... And I don't mean a footnote in your quote, I mean a discussion on what each side expects of the other. Certainly invoicing quickly helps a huge amount as, if you don't invoice me promptly you've signalled that you are in no hurry to be paid! I also chase any invoice that hadn't been acknowledged as received. A day before due date I call any client where there might be an issue eg new clients... To check all is well. When I present my quote my terms are 14 days... But if during discussions they ask for 30 days I’ll happily extend to that. But I will NOT agree over 30 days. If they really want more than 30 days there has to be a prepayment and the price also goes up! It amazes me that people are prepared to work and then not get paid on time.