It’s all too common story we hear, “there never seems to be enough cash in the business” no matter how well a business is doing “I always seem to be squeezed for cash”, “why am I the one losing sleep when I’m paying people to collect our money”.
Having worked with over 100 customers since 2009 our data shows that 23% of your debtor book is collectable immediately, putting pure cash back into your bank account and all it takes is discipline.
We’ve found many things can contribute to debtor issues, but the main thing is that the cash collection process is not strong or consistent enough. What do we mean by that? Your finance team, or the credit control department don’t consistently follow a defined process with rules.
We’ve worked on a number of projects where we restructured the debt collection process with very quick, sustained results, some cases studies:
Company A, a distribution business in the medical supply sector that had a 7-figure sum in outstanding debtors with an average of 29% of their debtor book >90 days. We heard the usual excuses, “they are good customers, but it’s just hard to get money out of them”, “that customer has been with us since we started, and they have always been that way”. In 12 weeks we reduced > 60-day money by 62%, putting a significant 6 figure sum into the bank in pure cash.
Company B, a distributor into electronic component B2C sector had a substantial 6 figure sum locked in their debtor book. Again, we heard all the usual excuses. Over 2½ months we reduced their >60-day money by more than €100,000, more pure cash into the balance sheet where they could do something with it.
Do It Yourself
It will sound almost too easy, but the process is simple, only it must be done consistently, day-in, day-out:
- Have your collections team collect money every day, every week, all year round
- Put your payment terms on your invoice – so your customers know what your expectation is
- Ask the customer for the money, sounds silly, but you’d be surprised
- If they don’t have the correct invoices, then send them through to them
- Agree a collections schedule to get them back on track and follow it
- Put poor payers on STOP, its amazing the change you’ll is in poor payers
- If it continues, stop doing business with them
….but you know this already, because it makes business sense