Debt Recovery

When a customer buys from you on credit, the cash they have yet to pay you is an outstanding debt. Until you get the cash for the sale, you've made what could be called a donation to your customer's business. Therefore, managing your customers debts to you, i.e. your debtors, is important. By using efficient debtor collection procedures you'll have a better chance of being paid on time.

Efficient debtor collection procedures include:

• credit controls
• payment terms
• managing customer relationships

The Managing Debtors checklist (below) has more detail.

	Checklist - Managing Debtors (PDF 47Kb)
	This Checklist can be used to compare your existing procedures for collecting outstanding amounts from your customer and help identify possible improvements.

Tips for improving debtor collections

Try the following to increase your cash flow:

• send out invoices as soon as work is completed, not at the end of the week or month
• provide incentives to pay early such as discounts (but see how they affect your profit margin)
• make it easy to pay - direct credit arrangements, EFTPOS, credit card, online payment
• where your sales staff get a commission, pay it on the amounts you end up collecting, rather than on total sales amount the staff made
• run regular reports to see when payments are due – know as the 'aged debtors report'
• identify slow paying customers and contact them early to discuss any problems - faulty goods, poor service, unable to pay etc
• make arrangements for non-paying customers – work out payment plan with them to clear the debt
• monitor non-paying customers and keep in regular contact
• don't supply a customer until all their debts are cleared
• send letters of demand for long outstanding debts
• if necessary, use a professional debt collector 
• consider 'sacking' a customer if they are unreliable with payment

Remember a good customer is a paying customer.  If you are not getting the cash from your customer, your business is funding their business as well as your own.