January is the perfect time to finally get on top of the challenges of managing your debtors. If your customers are paying you late, and your cash flow is suffering because of it, it’s time to face your bad debt reality. The good news? You can reverse bad debt with decisive action.
You might need a debt detox if your business is suffering from any of the following symptoms:
- Days Sales Outstanding is growing – your business takes too long to collect its accounts receivable.
- Your staff waste too much time chasing unpaid invoices.
- The stress of overdue debt is keeping you up at night.
- Your customer relationships are strained by late payment problems.
Keeping track of who owes you money and then getting them to pay up can seem overwhelming. Where do you even begin? The typical downtime in January is a great opportunity to start to fix your debtor management problem with a deep cleanse. Here are 10 steps you can start today:
1. Admit you have a problem
This might sound trite, but often, a business will allocate its cash flow problems to sales, inventory, pricing, competitors, the economy (or anything else) before it admits the real issue lies in credit control. However, reducing total overdue debt and speeding up your average collection time will inject much-needed operating capital into the business. Increasing sales is great, but until you get paid, nothing improves.
2. Flush out your biggest debtors
Map your accounts receivable so you get a clear picture of the percentage of invoices that are overdue, by how long, and how much is owing to your business. Your accountant can do this for you, or ezyCollect can do this in seconds. You should be able to quickly pinpoint your largest and longest overdue accounts. That’s your starting point.
3. Appoint a debt collection agency
While you may think of this as an endpoint in debt collection, if your overdue accounts are overwhelming you, start by sending your largest and longest overdue debts to a debt collection agency. Let the experts deal efficiently with the debts that will give you the largest returns when a collection is made. (In ezyCollect, referral of debts to a debt collector is done with the click of a button.)
4. Set accounts receivable goals
There’s lots of measurable data you can mine from your balance sheet and profit and loss statement alone. Ask your accountant to do some modelling on basic data like your Days Sales Outstanding and Accounts Receivable Turnover Ratio. What’s the impact on cash flow if these improve? Set some measurable goals and share these with your team. For example, a goal may be to halve the number of overdue accounts within 40 days. (Read how Feral Brewing achieved this goal.)
5. Update your customer details
Chasing a payment is almost impossible if you don’t know how to contact your debtors or who to speak with (your sales team may have the most current information). Your accounting software should be your source of truth. Start with your oldest debtors (the longer a debt ages, the chance of making a collection reduces). While you’re updating your customer contact records, note the last known action taken to chase payment (e.g. phone call to Managing Director with promise to pay mid-February). By updating your database, you keep the whole team on the same page when it comes to customer communications.
6. Refresh your credit policy
Your credit policy may no longer reflect the needs of your business or how you want to allocate credit to customers and manage debtors. Do you now want to accept credit card payments, or offer payment plans or incentives for early payment? Update your policy to make sure it achieves the aims of
(1) getting paid promptly and
(2) maintaining a great relationship with your customers.
7. Send a bulk email to overdue credit customers
Use the opportunity of the New Year to genuinely reach out to your customers and wish them success in the upcoming year. Let them know of any updates to your credit policy and any follow-up action they should expect in the coming weeks e.g. ‘Sam from accounts will be in touch to discuss your payments plan.’ Emails like this serve as reminders and often prompt action. (Sending a bulk email to selected customers is a simple process in ezyCollect.)
8. Enact a predetermined communications plan
Every credit customer should have a personalised communication plan that is triggered on Day 1 of an invoice being overdue. Now that you have updated your customer contact details, choose the channels you will use for reminders (e.g. email, SMS, phone) and document the escalating plan of action. What communication will your customer receive on Day 1, Da y 6, Day 10?

9. Install an online payment gateway
Your reminders are going out as per your communications plan—now make it easy for debtors to pay you. If your customer can’t easily transact with you online, expect more delays. ezyCollect users can install a payment gateway quickly using one of our preferred partners.
10. Tighten your controls on credit customers
You’ve put the time and effort in to clean up your overdue debts, now don’t let them get out of control again! Risk management strategies such as getting credit reports before offering trade terms to new customers, and monitoring your customers’ credit activities are long-term investments in protecting your cash flow – and peace of mind.
Refreshing your accounts receivable with a debt detox is a great start to the New Year, and puts you back in the driver’s seat of credit control.
Only ezyCollect gives you an end-to-end solution to revolutionise team efficiency and customer experience from invoice-to-payment.
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