We have previously talked about how to account for bad debt, but what about the ways you can manage your debtors to avoid things turning bad, so to speak, in the first place?
Much of your debtor management comes into play when you or your bookkeeper is doing your books.
How frequently you do your books depends on the size of your business. For sole traders or partnerships that aren’t registered for GST and have no payroll, it’s likely you would only do your books once a month, however, for larger businesses, weekly payroll and the various other reporting obligations would necessitate the books to be taken care of on a weekly basis.
But it’s usually only when you’re doing your books that you would manage your debtors as well, which is fine for larger organisations performing their bookkeeping on a weekly basis, but what about the smaller guys who rely on the income from their debtors to stay afloat?
As a small business, every bill matters, particularly every unpaid bill. So while you may only do your books on a monthly basis, you can’t afford to leave your accounts for too long or risk seriously damaging your cash flow.
This is where your debtor management processes come in. By keeping an eye on your customers to ensure they’re keeping up with their minimum payments and how often they pay more than the minimum or the whole balance, you’ll be able to spot any problem-areas, like late payers or customers who simply cannot manage the amount of credit you’ve extended to them.
By keeping tabs on your accounts like this, you’ll be able to determine what customers you can reward for paying on time, by increasing their credit limits, or decreasing the credit limits on those customers having trouble paying.
This will ensure you keep your cash flow, well, flowing, so that when it comes time to do you books, you shouldn’t have any nasty surprises!
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