{"id":17062,"date":"2022-09-15T10:49:12","date_gmt":"2022-09-14T22:49:12","guid":{"rendered":"https:\/\/nzsda.org.nz\/?p=17062"},"modified":"2022-09-15T10:49:12","modified_gmt":"2022-09-14T22:49:12","slug":"tips-to-reduce-your-debtor-days","status":"publish","type":"post","link":"https:\/\/nzsda.org.nz\/index.php\/2022\/09\/15\/tips-to-reduce-your-debtor-days\/","title":{"rendered":"Tips to Reduce Your Debtor Days"},"content":{"rendered":"
Cashflow is the lifeblood of your business and is often the most common cause of stress for most business owners.\u00a0 What is cashflow?
\n<\/strong>
\nCashflow is the ongoing process of ensuring that the business has the available cash (or \u2018liquid\u2019 cash) needed to operate. This provides the money needed to trade, to pay suppliers, to cover wages or to buy raw materials etc.\u00a0 Establishing how long it takes you to get paid is the first step, but how can you measure this?\u00a0 The simple answer is in Debtor days.\u00a0 <\/strong>
\n
\nDebtor days<\/strong> measure how long your customers take to pay you. You should measure this monthly after you\u2019ve completed your invoicing and your reconciliations for the month.\u00a0 Find out here how to calculate in a simple way.<\/div>\n

Calculate Debtor Days by:\u00a0\u00a0 current debtors owing\/annual sales * 365.<\/p>\n

For example, if you have annual sales of $900,000 and debtors owing of $130,000, your debtor days are 53 ($130,000 \/ $900,000 * 365).<\/p>\n

In this example, if your payment terms specify payment within 14 days, then you are likely to have a cashflow problem because you\u2019ve already paid your team to do the work, and\/or paid your suppliers for the materials \u2013 both examples of cash going out of your business.<\/p>\n

If we can reduce debtor days from 53 to say 40 (still well beyond your payment terms of 14 days), you\u2019d have over $32,000 more cash in your bank account.<\/p>\n

Reducing your debtor days will immediately free up cash.
\nFollow these Tips to Reduce your Debtor Days<\/strong><\/p>\n

1. Payment Terms<\/strong>
\nReview your payment terms and terms of trade. This will depend on the type of business you run but moving customers who currently pay on 20th of the month following to 14 days after receiving the invoice will make a real positive difference to your cashflow.<\/p>\n

2. Format your Statements<\/strong>
\nHave statements with only two columns. One for current and one for overdue. Columns showing 60, 90, 120 days create the perception that it\u2019s acceptable for your customers to pay you in this extended timeframe.<\/p>\n

3. Ask for a Deposit<\/strong>
\nAsk for a deposit before you start work. If you have cash going out of your business in the form of salary\/wages or contractors, and payments to suppliers for materials and other inputs that will be used on the job, then a deposit can cover some or all of the net cost of these.<\/p>\n

4. Work in progress<\/strong>
\nKeeping work in progress moving through the pipeline (minimising your order to delivery timeframe) will help you get paid faster.<\/p>\n

5. Invoice as you go<\/strong>
\nIf you do have jobs that take some time, or you have work in progress that is halted due to supplier or shipping constraints, consider invoicing progressively throughout the job to keep cash flowing. You\u2019ll also be able to see early on if you\u2019re not getting paid.<\/p>\n

6. Stay on top of debtors<\/strong>
\nGet on the phone early to your overdue debtors. If your debtors have cashflow challenges of their own, it\u2019s often the squeaky wheel that gets the oil (gets paid).<\/p>\n

7. Outsource debt collection<\/strong>
\nTo maximise your time in your business, consider using an outsourced debt collector, or at least a different member of your team to follow up payments.<\/p>\n

8. Stop work for non-payers<\/strong>
\nDon\u2019t keep working for customers who don\u2019t pay their invoices.<\/p>\n

9. Discounts for upfront payment<\/strong>
\nAlthough we are not a big fan of discounts, you could offer a discount for an upfront payment. ie.\u00a0 offer a lump sum up front payment at a rate that is lower than the sum of a series of monthly payments.<\/p>\n

10. Payment options<\/strong>
\nMake it easy for your customers to pay you – credit card, direct debit or automatic payment. Or consider e-invoicing – the digital exchange of invoice information directly between buyers\u2019 and suppliers\u2019 financial systems, even if these systems are different.<\/p>\n","protected":false},"excerpt":{"rendered":"

Cashflow is the lifeblood of your business and is often the most common cause of stress for most business owners.\u00a0 What is cashflow? Cashflow is the ongoing process of ensuring that the business has the available cash (or \u2018liquid\u2019 cash) needed to operate. This provides the money needed to trade, to pay suppliers, to cover […]<\/p>\n","protected":false},"author":3,"featured_media":17063,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[8],"tags":[],"class_list":["post-17062","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-industry-updates"],"_links":{"self":[{"href":"https:\/\/nzsda.org.nz\/index.php\/wp-json\/wp\/v2\/posts\/17062","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/nzsda.org.nz\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/nzsda.org.nz\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/nzsda.org.nz\/index.php\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/nzsda.org.nz\/index.php\/wp-json\/wp\/v2\/comments?post=17062"}],"version-history":[{"count":0,"href":"https:\/\/nzsda.org.nz\/index.php\/wp-json\/wp\/v2\/posts\/17062\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/nzsda.org.nz\/index.php\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/nzsda.org.nz\/index.php\/wp-json\/wp\/v2\/media?parent=17062"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/nzsda.org.nz\/index.php\/wp-json\/wp\/v2\/categories?post=17062"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/nzsda.org.nz\/index.php\/wp-json\/wp\/v2\/tags?post=17062"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}