Business is booming, so why are you in the red? You’ve put the hard graft in, made the right decisions and should be set for a record year but the cash just isn’t flowing. The problem may be that you’re not managing your debtors (receivables) properly. You’re not in this alone, for many small businesses it’s a key area where cash can get tied up.

According to the Australian Bureau of Statistics, there were over 2 million businesses operating in June 2009 however by June 2013 only 62.9% were still around. While reasons for this vary, key problems leading to businesses failing are poor financial control and cash flow planning.

According to Dun & Bradstreet, 60% of invoices in Australia are settled late, beyond the standard 30-day payment period. The average time to pay invoices is 56 days. This is a long time to wait for payments! To avoid being a part of this statistic you need to ensure you have excellent debtor management, and accounting software for small business can help you with this process in several ways.

1. Scheduling invoices

Many businesses lose track of invoices and fail to send them promptly (or even send them at all). Ideally you should send the invoice the day a sale is made. It’s also in your business’ interest to specify payment terms as short as possible.

Every day that you delay means a longer wait for your cash. Accounting software can automate this process for you, taking human error away. Technology won’t ‘forget’ or mistype figures. As soon as the sale goes through it can send an invoice to your debtor.

2. Assess creditworthiness

When you issue an invoice for payment, it means you’ve effectively given someone credit. Like a bank, you’ve lent them the money to buy your products until they manage to repay you. But a bank would take careful stock of its borrowers, considering their purpose in taking a loan, their character and their ability to repay. Dun & Bradstreet found that in 2013 a third of businesses had a supplier or customer who became insolvent or was unable to pay them.

Using accounting software you can assess your customers’ creditworthiness. It lets you access a consolidated view of individual customers, including their purchase history, average payment period and money owed. This helps you make better business decisions: for example you may require payment upfront for future purchases, or issue stricter payment terms.

3. Appear more professional

The quality of your business communications is important, ensuring that debtors take your invoices seriously. A poorly drafted and presented invoice is easier to ignore than something that looks like you mean business. Paper invoices are often lost – if you even remembered to send them – data is often missing or sometimes incorrect, and your customers may miss payment terms.

Accounting software can use stationery to give a professional and customised look to your invoices and statements. Terms can be printed clearly leaving no room for error or confusion.

4. Get an overview

If you want to know where you are at any time, accounting software allows you to get an instant view of the status of payments. Usually, you can run reports to find out which customers owe you money, access payment reminders, and see recent transactions and received payments. Some accounting software provides a dashboard to give you an immediate overview of your current financial status alerting you to any problems or potential problems.

5. Make payments easier

An accounting software package can make it easier for customers to pay your invoices by offering:

  •        Credit card payment capability
  •        Direct debiting options
  •        Payments via a mobile phone.

This speeds up payment considerably compared to waiting for a cheque in the post.

It’s also more reliable – cheques get lost in the post, and there’s no way to prove they were sent in the first place, unless tracked through registered post.

6. Track & chase payments

You should already have an actionable plan for customers who don’t pay on time. This may involve resending the invoice, a call with a ‘friendly reminder’, an offer to take credit card payment over the phone, or issuing a final demand. You should start this plan on the due date. At this stage a call is more appropriate than a letter, in case your customer has just made the payment that same day but the bank hasn’t processed it yet.

Your software can take on much of this role on for you, first issuing a payment reminder ahead of the due date, and issuing an arrears notice if the payment isn’t made on time. It can also remind you that a payment is due that day, and alert you if it hasn’t arrived.

Managing your debtors efficiently is critical. If you fail to do so, your business growth will slow and you could even be looking at business failure. You don’t want all your hard work to go down the tubes, so let technology help you out.

Download our free ebook below to gain more insight into some of the manageable, cost-effective steps you can take to resolve key problems when it comes to accounting and financial management for your business.