Staying on top of your accounts receivables

Collecting overdue accounts can be a significant hassle for SMEs, but the impacts of not staying on top of debtors can be devastating. Danielle Woods, General Manager of receivables management company Dun & Bradstreet, offers the following advice to SMEs to help them reduce the impact of overdue accounts.

Lower your risk of bad debt

Set clear credit policies at the outset of any credit agreement: Be clear about what you expect from the very beginning. Customers will often have their own credit policies, such as paying after 45 days. If it is your policy to only extend credit for 30 days you need to decide whether you want to play by the customers rules or pass on the business.

Get a signed contract: A credit contract does not need to be a complicated document that takes a significant amount of time and resources to prepare. It can be as simple as spelling out what you will provide and when; what the customer must pay and when; how disputes are to be settled; and penalties for late payment.

Always conduct a credit check prior to the extension of credit: Credit checks can save a significant amount of heartache and prevent your business the burden of customers that can't or don't pay on time. By providing you with an overview of the financial health of a prospective customer, a credit check allows you to make an informed decision about the extension of credit.

Ensure you have a sound process to track and collect overdue debts

Issue invoices promptly: You cannot expect your customers to pay promptly if you don't issue their invoices in a timely manner. Make sure you get your invoices are out the door in a speedy fashion.

Monitor your accounts receivables on an ongoing basis: Having a solid process in place to track accounts receivable is vital. This includes monitoring invoices as they head towards the end of the standard 30 day payment term. Keeping a close eye on each and every credit account ensures that you are in a position to chase outstanding debts very quickly following the arrival of the overdue date.

Gradually escalate pressure on your debtors: Issuing a polite reminder as a bill approaches its due date is a smart business practice. Bills can get lost or over-looked; this reminder is a good way to ensure that your bill is front of mind. The pressure you apply should increase as the bill enters overdue territory. 

Be prepared to address individual circumstances: Sometimes customers run into a short-term problem or they have a valid reason for non-payment. In these instances you need to decide how valuable this business is to you and therefore, how far you are willing to extend the customers credit terms. If however this becomes a persistent problem the best option is to end the credit agreement.

Chase overdue accounts immediately

Start the collection process the day after the bill comes due: The longer a debt remains outstanding the less likely it is to ever be paid. If an account was to be paid in 30 days and is not, start chasing the bill on day 31.

Cease the extension of credit on overdue accounts: Although it is tough to do, particularly if you deal with big business, you must stop extending credit to customers with overdue accounts.

Never be afraid to ask for help and don't wait too long to call in the experts: A reputable debt collector can help you to collect your overdue accounts, leaving you to focus on other areas of your business. Don't wait till your account is 120 days overdue to ask for help - the sooner you call the experts the sooner you get paid.

Businesses, particularly small and medium sized enterprises, need to understand that they deserve to be paid on time no matter who their customers are.

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