Good cash flow is essential in business. Many business owners assume that sales and cash flow go hand in hand. The more sales, the more cash flow. Right? Unfortunately for many businesses, this is not the case.
For good cash flow, it is vital to effectively manage debtors. As a business owner, if managing debtors is not your area of expertise or an area you simply don’t have time to stay on top of, engaging the services of a bookkeeper is highly recommended.
It is important to understand that every business is different therefore when it comes to managing debtors, a one size fits all approach is not always best. Read below to learn 4 tips for effectively managing debtors in your business including:
- Invoice customers promptly
- Ensure invoices are accurate and easy to read
- Don’t delay following up debtors and sending overdue statements
- Credit facility and credit limits
Invoice customers promptly
The sooner a customer is issued an invoice, the sooner you can be paid. Depending on your business, either issue invoices on completion of the service or when the good is received or issue invoices weekly, fortnightly or monthly. A customer may have put money aside to cover the cost and if there is a delay in them receiving your invoice, this money may get consumed on other business expenses.
Ensure invoices are accurate and easy to read
Accuracy is a must when invoicing. Incorrect particulars or pricing on an invoice will only delay payment. An invoice should clearly state that it is an invoice plus clearly outline all the required information including the total amount due, when payment is due by and how to make payment.
For sales of less than $1000, a tax invoice must clearly display the following seven details:
- That the document is intended to be a tax invoice
- The seller’s identity (such as the business name or the seller’s name)
- The seller’s Australian business number (ABN)
- The date of issue of the invoice
- A brief description of the items sold, including the quantity (if applicable) and the price
- The GST amount (if any) payable – this can be shown separately or, if the GST amount is exactly one-eleventh of the total price, such as a statement which says ‘Total price includes GST’
- The extent to which each sale on the invoice is a taxable sale
For sales of more than $1000, GST should be included in each line item and the invoice should also include the wording ‘Total price includes GST’. This is to clearly identify the sale as being fully taxable.
Don’t delay following up debtors and sending overdue statements
Effective follow up and communication with debtors can greatly impact cash flow. The longer you allow an invoice to remain unpaid, the further from the front of mind to a debtor you can become. Send overdue statements regularly and follow up with a phone call requesting prompt payment. Continue regular communication and issuing reminders until payment is made.
Credit facility and credit limits
Many businesses offer a 7 days, 14 days or 30 days credit facility to customers while other businesses offer different credit facilities to different customers accordingly. Either way, it’s vital customers are aware of the payment terms. Many businesses also ask for pre-payment on purchases or choose to have a credit limit in place. If a customer goes over their credit limit, you can ask for payment of a previous account or payment upfront. The aim is to have credit facility and credit limits in place to ensure steady cash flow during the month.
FREED UP Accounting & Bookkeeping Solutions have the experience and expertise to manage debtors for your business.
Proudly servicing Perth and regional areas of Western Australia, our team at FREED UP Accounting & Bookkeeping Solutions are experts in providing bookkeeping services to small businesses.
Our Freed Up bookkeepers are required to fulfill four standards – education, experience, testing and training with a minimum of 5 years’ experience, registered BAS Agent or working towards registration, a Certificate IV in Finance Bookkeeping and successfully completed the Pure Bookkeeping Skills Assessment.
Call our team today on 0438 977 767.
Disclaimer: The information in this article is general information only.