Around eight out of ten Practices MYOB or we meet with tell us that collecting their Cash sooner is their major immediate business pain issue. It's quite common to see a large part of their debtors' outstanding figure at 90 days or even older.

A shortage of Cash puts severe pressure on the Practice in several ways. At times amounts due cannot be paid, including even Partners drawings. Staff waste a lot of expensive time in chasing overdue invoice payments in whatever way seems to work on the day. Typically, the money comes in from Clients who are good payers anyway, and the other outstanding amounts that you don't chase become older and older.

We've not come across a Practice Management system, or the accounting/business systems sold to SME businesses that provide a comprehensive and automated solution to this problem. Some systems send out reminders to chase up overdue invoice amounts but stop at that. Reminders help, but they don’t bring in the harder to collect Debtors. A follow-up phone call system with automated support to manage ‘Promises to Pay’ is also required. And difficult cases need to show up on a Debtors Critical List for concerted follow up between Admin and Partner/Client Manager with the Debtor in order to secure payment.

Sure?

Does the above resonate with you?

MYOB’s AE/AO Practice Management system covers the compliance functions that Practices require. However, it lacks business processes and automation to speed up cash collection.

We'll look at ways to plug this gap without having to throw away your current investment in your Practice Management system and the compliance functions that work well. Instead, we'll show you ways to augment your MYOB AE/AO Practice Management system with seamless Integrated and Automated new ways to improve and speed up Cash Collection.

Improving your cash position is all about reducing your 'Debtor Days' number!

'Debtor Days' is the KPI type measure of the speed of collection of your Cash. Every 'Debtor Day' that your total Debtor figure can be reduced by, e.g., from 56 Debtor Days to 48 Debtor Days, being eight days in this example will release the equivalent of 8 days of your average daily annual sales as extra Cashback into your business.

The release of Cash can reduce your working capital requirements or be available for your other business purposes. Imagine the potential return of Cash if your Practice is currently at 90 Debtor Days or thereabouts!

Automated measuring of Debtor Days and using a reducing number of Debtors Days as a target for your Practice or Client's SME business can, in concert with the right type of Integrated/Automated Cash Collection process, deliver tens or hundreds of thousands of dollars (or more) to the business as freed up working capital.

What many Practices tell us they're looking for is much more than 'reminders'...

They want to make the best use of scarce working capital by aiming for KPI trends as per the Graph.

To achieve and maintain the KPI trends in the Graph including a low number of Debtor and Creditor Days and healthy Cash at Bank over months and years requires a systematic and Integrated/Automated process.

This is made more difficult if you lack formal agreement by Clients to your payment terms and/or some people in the Practice have difficulty in explaining payment terms to Clients.

30 Day terms mean 30 Days, not 60 or 90 or more and that whatever number of days your terms state is the target figure for you Debtor Days number.

This is especially important as the Practice grows and needs more cash to fund providing 30 Days credit (or whatever your number is) to Clients.

Automate manual operations

Prompt sending out of Invoices is essential to start the Cash Collection process off on a sound footing. Older business systems, and MYOB AE/AO, in particular, can be very time-consuming in terms of selecting and sending out Invoices. The current AE/AO system involves much manual time consuming and cost incurring steps.

Integration/Automation between AE/AO and ARL can eliminate many of these steps and save many hours per month and well as at the same time improving Cash Collection.

Invoice Sending should be simple, and the selection and sending should be automated to save time and money.

Automated Reminders. The ability to automatically send one or more in a series of Reminders by email or SMS with the wording appropriate to the timing of the notice, e.g., that 'the invoice is due to be paid today,' or that 'your outstanding invoice amount is now 21 days overdue', etc.

Reminders confirm with the Debtor that you are serious about collecting your outstanding and overdue invoices. It helps create a perception in the customer’s mind that 'we must pay this supplier.'

If you need to do a follow-up call, you can refer to the Reminder(s) that have already been sent to confirm their obligation to pay on time. It builds a track record of Debtor follow-up should formal debt collection action be required in the future.

Pay Now. Every communication with the Debtor is an opportunity to include a Pay Now facility. The facility needs to be ready and straightforward to use the instant the Debtor decides 'I know I have to pay, so let's do it right now.'

For that to happen, the system needs to have full details of what is due to be paid by the Debtor and automatically attach those details to the payment, so the Debtor does not have to waste time finding and keying in transaction payment details, and potentially make mistakes in doing so. Requiring too much detail from the Debtor is likely to lead to an abandoned transaction and lower Pay Now completion rates by your Debtors.

The Practice, at its end, also needs to automatically see all the details of what the Debtor paid attached to the Pay Now payment made by the Debtor to avoid your staff wasting time to investigating which invoices are covered by an amount paid.

A straightforward Pay Now facility has the potential to speed up the collection of many invoices.

Invoice Funding. There needs to be the ability for Debtors to make payments on an 'Invoice Funding' arrangement. Note that under such an agreement, the Practice remains responsible for the debt to be collected. The Practice still needs to collect it debts, but if it can pass on the cost of Invoice Funding in its fee structure, it may be a proposition.

Cerebiz offers a choice of Invoice Funders and Payment Gateways to accommodate a Practice's preferences or its existing lending arrangements.

The payment of an Invoice Funding instalment should not involve the Debtor in having to enter details that the system already holds for the transaction.

‘Promise to Pay’

A proportion of Debtors will not respond to Reminders. They will need to be chased up to get them to 'Promise to Pay'. There needs to be a method and process to this.

A process for this is commonly missing in Practices and SME businesses that rely on staff doing the best they can to make calls they have not been trained to make. Written notes of calls made on pieces of paper or in spreadsheets are time-consuming, prone to error. Updating these types of notes raises the same issues.

Another issue is that once an arbitrary $ collection figure is reached for the month or to meet an objective such as 'payroll on Friday' it's typical for the overdue invoice chasing to slow down or even stop until the next looming cash crisis. Lack of follow up means the overdue invoices not followed up will get older and older leading to a KPI of 60 or 90+ Debtor Days. What is your Debtor Days KPI current target and actual number?

By contrast, an automated Promise to Pay follow-up system goes about things in a systematic way driven by the target Debtor Days (KPI) number as set by management.

The system automatically itemises all invoices that exceed the target number of Debtor so invoices can be quickly and easily followed up. The automated support provides full invoice and payment information for the Debtor at the fingertips of the person who is making the payment follow up call.

The system leads the caller through the 5-step process. Even an untrained person should be able to do it. Having the complete Debtor invoices owing and payments made details at their fingertips puts them in a 'confident about the facts' position in politely but firmly asking for patently overdue payment.

The ability to immediately record the arrangement made, and to share that with the Debtor by email or SMS further adds to the 'we are serious about collecting this cash' perception on both sides.

The collection arrangement agreed is reflected in an automated daily 'Promise to Pay' list for follow up of all promises made for that day. Following up promises to make payment not made on the due day completes a 'closed-loop' process.

Nothing can fall between the cracks! The automated process saves many hours. And many 'harder to collect' dollars are garnered under this proven Promise to Pay process.

How does it compare to the process in your Practice or what your Clients use now?

Automated recording of all contact. All follow-up call information is automatically recorded and available online in the Office as well as on Manager and Partner mobile devices.

Debtors Critical List. This summarises the status of all outstanding invoices and flags those that are critical for timely action.

A proactive and continuous 'team' approach needs to be fully supported by automation in 'hard to collect' Debtor situations. Being able to pursue matters along these lines can help to resolve critical situations and avoid the need for recourse to a formal/legal process which drains even more time and money.

Bank Feeds. The collection process needs to link into automated Bank Feeds to avoid the time and cost to key in payment receipt data, including account details for the payment to be allocated.

Practices report that Bank Feeds save many hours a month.

Integration between systems. All computer systems involved in the process must be connected 24/7 on a network with Integrator software that seamlessly handles two-way synchronisation of data between each of the systems required no less frequently than daily.

Cerebiz has developed such Integrator software including controls over the synchronisation to confirm balancing to the cent between systems and ledgers. Practices tell us that this was difficult and consumed many hours to achieve with manual data keying operations. A few said they were never able to balance.

Debtor Days Trend. As part of performance management, the system must automatically and continuously measure Debtor Days for the Practice and also by Office, Partner, and Manager. We have seen how a high number of Debtor Days leads to a high Lockup figure.

Payback. Driving down the number of Debtors Days to a KPI target for your Practice or Client's SME business can, as described above and using the right type of automated and comprehensive cash collection processes deliver tens or hundreds of thousands of dollars (or more) to the business as freed up working capital.

Do you know your Debtor Days and how much you could free up in your Practice? Does your Client know it for their business?

Click on the link below to access the above Debtor Day and Cash Back Calculator. It will download automatically and open with Excel on a computer that has Excel installed.

Debtor Days Calculator Download

Once you have it open in Excel, enter the Annual Net Revenue for your Practice or a Client’s business in the grey cell of the spreadsheet that currently shows $3,000,000.

Next, enter your or your Client’s current Total Debtor Balance in the grey cell that shows $500,000.

The Debtor Days number is then instantly calculated in the black Debtor Days cell that currently shows 61 days.

Your Potential Extra Cash if you reduce your Debtor Days number by 1, 5, 10, 15, or 30 days will show in the black column.

Does the Extra Cash result make you or your Client want to act to reduce your Debtor Days?

The idea is to start with a realistic reduction target for you Practice over, say, three months and once it's reached keep setting further reduction targets until you are much closer to or even at your agreed terms of trade with your Clients.

Of course, you only get the benefit of cash returned to working capital one time but from a cash flow point of view, it typically pays for the system investment many times over. And the automated system can keep your Practice or Client’s business collecting at or close to agreed terms once you are there.

Note also that the automation used to replace manual processes means reduced cost of Cash Collection which is a benefit every month after it is implemented.

This cash collection process and benefit story can also apply to your Clients

You can use the Cerebiz Cash/Reminder Modules to work on improving the business side of your Accounting/Advisory Practice and provide the same value to Clients as you have enjoyed.

As part of your Business Advisory Services, you can use the same Cerebiz Modules with your Client’s ARL system to work on improving your Client’s business

Your Practice can implement/run this for them, or they can run it themselves under your 'supervision.' A new level of valued Advisory Service!

Payback; Experience shows that for Practices and SME growth businesses the Cerebiz automated systems approach should pay for itself very quickly after initial set up. Moreover, it will continue to repay the investment in it many times over every month after that.