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Ways to Collect Your Practice's Debtors Cash Sooner

Know your Cash Collection Options!

Research shows that slow debtor cash collection is a 'top issue' for most Accounting Practices.

My views on speeding up cash collection reflect many years of in-depth involvement in speeding up cash collection for small, medium and large businesses. It's no different for Accounting Practices.

Yet there are many Practices still doing cash collection from a debtors trial balance and having difficult phone conversations with Clients about invoices not received by them or payments 'in the post'. Notes about the discussion made on scraps of paper or manual entry into a spreadsheet take extra time and can be lost - all involving manual operations, inadequate or out of date information, time-consuming, and error-prone.

Some send out email or SMS reminders to Clients. They may or may not include PayNow facilities to encourage 'there and then' payment upon receipt of the reminder. Practices tell us they quite often are not sending these to the right person. They also do not know if the reminder was delivered to and 'opened' and 'read' by the recipient.

The manual follow-up of invoices that remain unpaid after one or more reminders is time-consuming and error-prone. Staff charged with collecting a specified amount of cash to pay a bunch of bills or meet payroll tend to focus on the known good payers to meet their collection target. It's 'fire-fighting', not a systematic approach. In the meantime, the other invoices that remain outstanding become older and older, and harder to collect.

Practices can also use third-party provided Invoice Funding. That brings money to the Practice soon after the issue of an invoice. The Client pays off the debt in instalments. This kind of funding is only available for Clients that are 'good payers'. The Practice itself remains liable to the funder of the invoice debt until the Client has fully paid the debt. The Practice bears the cost of interest or fees for providing the early payment on an invoice to the Practice.

Invoice Funding is best suited to seasonal and similar situations where to Client has a temporary cashflow issue. It's similar to an overdraft; however, the security is the Practice's Partner(s) formal undertaking to make good any Client's default on the Client's invoice payment obligations instead of an overdraft based on charges over 'bricks and mortar' assets of a Practice or its Directors.

Note also that none of this helps the Practice collect on the invoices that remain outstanding outside an Invoice Funding arrangement.

The 'best practice' solution approach to all this is to provide the Practice with automation to eliminate manual operations and to streamline workflow in all aspects of collecting cash.

The business requirement is a flexible and comprehensive Reminder facility that suits all size Practices. It has a schedule to send reminders out as per your Practice's policy on issuing one or more reminders (or 'no reminder' in case of specified Client or Client Group invoices). It reports on reminders 'not opened' and 'not read'. It has Pay Now embedded in the Reminder notice to encourage straightforward payment to be made 'there and then'. The Practice has a choice of Payment Gateways to process payments made.

This must work in with the Practice's preferred Invoice Funder. The debtor management system keeps a close watch on Client instalment payments to make sure they are on time as per the Funding arrangement. It handles the receipting of those payments.

For the invoices that remain unpaid despite reminders, and not covered under Invoice Funding, there must be automated support to identify all invoices outstanding beyond a nominated number of Debtor Days, e.g. '60 Days and over'.

Automated workflow as part of the 'Promises to Pay' function supports the making of more effective collection calls to Clients who exceed the Practice's Debtor Days target. The 'Promises to Pay' function enables the Practice to set a Debtor Days number, e.g. 50 days to instantly list all invoices unpaid for 50 days or over, ready to make Promises to Pay calls.

Regular follow up improves payment and paves the way to keep reducing the target Debtor Days number and thereby to deliver the cash owed to the Practice's back sooner into working capital.

The 'Promise to Pay' function must record and share payment promise details made by the Client with them via an instant email/SMS message. On the promised date, if the Client fails to make the payment, the Client and their invoice(s) details appear on that day's 'Promise to Pay' list for a further follow-up call and recording of a new promise.

Nothing can fall between the cracks and every reminder, and written conversation note is in one place. And all the invoice and follow up information is available in your Internet browser or tablet/mobile screen anywhere 24/7.

Finally, there must be an up to date rolling Cashflow Projection for 12 months or 52 weeks in advance 'at the press of a button'. Very suitable for Boards and Banks!

The 'Comparison Chart' below gives a quick overview of the above. In the end, it also

comments on 'Payback' on the investment made for each system in the Comparison Chart.

Next post, we'll look at 'Payback' in more detail.


Peter Vroom

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