Never a favourite activity of business owners, collecting outstanding debts, increasingly, is a key factor in business survival. Getting paid on time is optimal, but far too many business owners allow themselves to be exposed to bad payers. But, as the saying goes ‘every cloud has a silver lining’ and the silver lining for accounting and bookkeeping professionals is to leverage their skills and solve this most pressing of problems. It’s an opportunity for the trusted adviser that they understand the business inflows and outflows accordingly and be in a position to offer solutions.
A survey of SMB owners conducted by Bookkeepers Hub (www.bookkeepershub.com.au ) revealed that slow payers is a critical issue for more than a third of respondents. In an open question of the survey, typical responses were:
‘I need an overdraft; am juggling debtors and creditors’
‘I owe the ATO money; am feeling stressed’
‘We have a problem; a real cash crunch.’
The tone of these responses would not surprise bookkeepers, some of whom get ‘enrolled’ to chase down late payers. Most SMBs simply do not have the internal processes or the applications to protect themselves from slow or bad payers and it is almost a given that the business owner has no time to put together a concerted effort to collect outstanding debts in an organised manner.
The older a debt is the greater the chance that it will become a bad debt.
According to Roger Mendelson, who operates Australia’s largest privately-owned debt-recovery firm Prushka, there is an increasing risk that slow payers become bad payers. He says “If an account is 60 days overdue, then the chances of it being paid in 90 days are reduced; there is even less chance of it being paid in 120 days.”
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
Screen the customer
No business owner wants to say ‘no’ to a new client; but screening new clients using a credit reporting agency may save money in the long run. According to Creditor Watch 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.
“There 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 Creditor Watch platform makes it easier for businesses to manage customers more effectively. “On top of credit reports, Creditor Watch will closely monitor customers and send email alerts for important changes that could affect their ability to pay their bills.”
The point is to utilise debt collection tools such letters of demand, which will help improve business cash flow. These tools are invaluable for business owners and managers with no credit management, AR or debt collection experience.
Systems for dealing with debtors
There are fundamental lessons to be learnt by business owners as well as their trusted advisors; and there are applications and tools that can be promoted by the trusted advisors. Simple lessons include:
• Consider a credit report on new customers, giving a good indication of their
• Have clear credit agreements with customers and suppliers; adding in collection costs
• Have a system for keeping a real-time aged debtor ledger
• Incorporate a systematic activity to chase overdue invoices, triggered the day after due date. Ensure that this is a written procedure and stick to it.
A system that is in auto-drive will ensure you don’t miss chasing a payment and it will also train your customers to pay on time.
‘Tools’ such as the Creditor Watch system as well as debt recovery system like that offered by Prushka are, in essence, part and parcel of a contemporary accounts receivable system. Rapid changes in the accounting software ecosystem requires a degree of being in an ‘always learning’ mindset for the bookkeeping professional to enable the opportunity to be seized; hopefully delivering ‘happiness’ to your client.
Disclosure: the above article has sponsorship support from Creditor Watch. Content meets editorial guidelines of the Bookkeepers Hub Editorial Board