Controlling your credit
Microsoft's Andrew Munro on raising and sending invoices
This month, bCentral columnist Andrew Munro of Microsoft takes a look at a clich� and a couple of worthy adages.
They say that 'cashflow is king'. Without a doubt, this is true - the greatest business plans in the world will fall apart if you can't pay your bills. But, what's your part in that? Remember two things:
Few of us are lucky enough to deal solely in cash. Instead we need to raise invoices and wait for the funds to come through. Too often though, I've seen businesses that only raise invoices when they get around to it, or worse still, when they need the cash themselves. You are not a bank.
�Wrap up the week's work with a glass of wine�
Yes, I know it's tedious and boring. It's not the exciting cut-and-thrust of your business. But the job's not over until the paperwork's done. So, set a regular time devoted solely to raising and sending invoices. How about Friday afternoon or evening?
What better way to wrap up the week's work than an hour with a glass of wine just summarising what you're owed from the week? And while you're at it, have another glass and send out statements for all the accounts who still owe you money. Now, I know this is really tedious but some customers only pay when they receive a statement.
It's your money
So don't be afraid to ask for it. From the outset, make sure that your customers understand your credit terms. Include them clearly as part of any contract paperwork you supply. Make sure the terms are clear on every invoice and statement you issue. And then, enforce them. Send reminder letters and make phone calls. Ensure you keep a record and get crisp promises from people so that, when you phone again, you can say "but you told me on the 20th that I'd have the cheque by the 25th".
Offering credit is expensive. It's a cost of business and part of the reason why your prices are what they are. Make sure your (difficult) customers understand that. Don't be abusive, but be assertive in ensuring that customers pay on time. And if they don't, be clear about the consequences; halt any further work and, if necessary threaten and then use the Small Claims Court. You can find details on the service here.
Measure your progress
Debtor Days is a standard formula to give the average time it takes for customers to pay. Take the total amount owed to you by customers (your sales or credit ledger) and divide that by your average daily sales. The result is the size of your ledger in days' sales. Track this regularly and ensure it stays within your expectations.
For example, if you offer a strict 30 days' credit, then you might decide that, allowing for the inevitable exceptions, that a Debtor Days of 45 is acceptable. Track the figure each month (some accounting packages will do this for automatically) to ensure that you are managing the credit you offer; to ensure that you are in control of your money.
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