Continuing the series on Winning Strategies for Business Success the focus of this article is Debtor Management-The Process.
The importance of diligent, consistent management of this operational strategy is often overlooked, primarily I believe because effective debtor management often requires confrontation. Unfortunately and particularly in difficult economic times, consistency and adherence to a strict collection policy is vital to the prosperity and success of your business.
Debtor management is the total process of ensuring your business receives prompt payment from every customer it extends credit to.
If your business offers trade terms, it is imperative that those terms are strictly adhered to. If they are not, the consequences can be anything from increased finance costs for your business to its enforced bankruptcy.
A sad fact of modern business is that customers will look for opportunities to delay or not pay an invoice if they are cash strapped. For example some customers make a successful habit of waiting until being pressed for payment before advising you of an omission of information or other error on the invoice.
The remedy is simple however: It is your responsibility as a prudent manager to ensure first and foremost that all relevant order information and the agreed terms of payment are clearly and accurately stated on every invoice your business issues.
One reason I have often been given by business owners for not implementing a stringent debtor management process is that they may upset a customer, lose goodwill and maybe even the business. At best they may loose some competitive business advantage. My advice is “don’t become one of those owners.” Having a large thirty, sixty, ninety day or even longer debtor list will not pay your staff wages, will not pay for raw materials, will not pay your rent, your utilities and other accounts: There is no competitive advantage lost at all by vigorous pursuit of your debtors. Do not be fooled; if your customer doesn’t meet the payment terms agreed with you and has not contacted you with a valid or plausible reason and alternative payment arrangement, you have to be prepared to decline further business.
In ending there is simply no justifiable reason for your business not having and enforcing strict, robust and effective debtor management systems. Remember that cash flow is the lifeblood of your business. In the next article on debtor management we will look at the real cost of prompt payment discounts, ways to avoid giving and tactics your customers may use to abuse them.