We were approached by a client who was experiencing issues with their cash flow; they were concerned that money was going out quicker than it was being received. This scenario can be all too common!
Asking the questions
Identifying the Issue
Following conversations with our client it became apparent that there was no structured process in place for the provision of Credit Control. As a result, their average Aged Debtors was 60+ days, and in some cases 90 days. However, our clients Terms of Business clearly stated that payment terms were 30 days from date of invoice.
Firstly, a simple and instant action point was to implement the accountancy software automated reminders to clients. These were not being utilised but can be effective in giving clients a gentle reminder that an invoice is falling due for payment or has in fact exceeded payment terms. Sometimes this can be enough to generate payment. In addition to the automated reminders, we introduced regular email and telephone contact with all their Aged Debtors. As part of this process, we worked with their customers to identify any problems which were preventing payment, such as difficulties paying or disputed charges. If any of the invoices were identified as disputed, we would work with our client and their customer to get the matter resolved, preventing any further delay in the payment of the invoice. In cases whereby the customer highlighted difficulties paying we worked closely with them to understand their current situation and to agree on account payments on the understanding that the balance would be cleared when their situation improved.
By being consistent with our clients Credit Control process the client was able to benefit from improved cashflow, just one month after we started working with them. After a four-month period we reduced their Aged Debtors from 60 days plus to 45 days and after 6 months their 30 day payment terms were consistently being achieved.