Business owners know one thing: Cash is king! Without it, the business couldn’t survive. You need cash flow to run and grow a business. How can a business owner know they can meet their payroll or be able to purchase supplies or take care of all the other business activities that require money? Cash flow is the main artery of any business, and it’ an opportunity for the trusted adviser that they understand the inflows and outflows accordingly and be in a position to offer solutions.
Successful business owners understand that managing their debtors and creditors is critical to the cash flow cycle and the key ingredient in ensuring how efficiently their working capital is being put to use. Making their working capital more productive will improve their business immensely – making their business healthier and more viable. How much advantage is available to the business owner when debtors are, not only accelerated in their payment, but also avoid them turn into bad debts? It’s a rhetoric question but one that is timely for accounting and bookkeeping professionals
Do due diligence on the debtor
Colin Porter, CEO of credit bureau CreditorWatch says bad debts are one area which can be disastrous to a business. He says. “Bad debts can make or break a small business.
“You need to make sure you do your due diligence on new customers and ensure you keep a close eye on current customers.”
The current economic climate is causing a record number of companies to fall over; a fact that would not be a surprise to accounting and bookkeeping professionals. Although many bookkeepers would rather keep the heads down and not stand in the line of fire between recalcitrant debtors and agitated business owners, there are resources and services at hand that can assist the business owner in better managing their cash flow.
According to CreditorWatch Commercial Director, Patrick Coghlan, professional intermediaries such as accountants and bookkeepers can play a vital role as advisors to business in a very simple and direct way. He says they should be aware that tools are available. “CreditorWatch makes it easier for business to manage customers more effectively.
“These are tools that the bookkeeper can bring to the business owner.”
Creditor Watch is an Australian credit reporting bureau that has been running for over five years and has over 30,000 clients. Creditor Watch enables businesses of all sizes to access credit reports on any company in Australia to determine what sort of risk they represent to their business. Patrick Coghlan explains that the automated CreditorWatch platform makes it easier for businesses to manage customers more effectively. “On top of credit reports, Creditor Watch will closely monitor their users’ customers and send email alerts for important changes that could affect a debtor’s ability to pay their bills.
“Users can also utilise a range of debt collection tools, including letters of demand, which will help improve company cash flow. These tools are invaluable for business owners and managers with no credit management, AR or debt collection experience.”
Using cloud-based tools
Creditor Watch is one of many partners now integrated with the major accounting software providers such as Xero and MYOB, enabling users to receive automated credit reports, access more in-depth credit reports and to analyse their debtor’s ledger.
There are fundamental lessons to be learnt by business owners as well as their trusted advisors. Colin Porter has a few tips for all business owners and accounts receivable managers.
1. Invest in a credit report on new customers, giving you a good indication of their
credit worthiness.
2. Start off with a manageable credit limit for new customers; increase it overtime as necessary.
3. Actively chase overdue invoices; a sale isn’t a sale until the money hits your bank account.
5. Have a written and formal strategy for collecting payments and stick to it.
Sound ideas are well worth noting for the bookkeeper. You might also add that you or the business owners should diarise invoices, statements and follow up calls. This will ensure you don’t miss chasing a payment and it will also train your customers to pay on time.
The Creditor Watch system as well as debt recovery systems such as Prushka are, in essence, part and parcel of a contemporary accounts receivable system. They are often relegated to the bottom of the to-do list for many business owners, well behind working on sales and the front end of the business. Accounting practices and accounts receivable can be somewhat forgotten.
The bookkeeping profession could do far worse than educating itself on cash flow management essentials and be up to ‘speed’ with providers that can offer cash flow management solutions.