By Navigator member Kathryn Crockford, Director, Axis Accounting

This guide outlines five simple procedures that, if followed correctly, have proved to be successful in speeding up the payment of outstanding customer debt.  The ideas can also help to improve your bank balance.

1. Managing your sales invoicing
Regardless of whether you sell goods or services, the way you prepare your sales invoices will dictate how quickly you get paid.

Presentation is the key. Sales Invoices need to be:
*   Addressed clearly, ideally to an individual who is authorising payment
*   Clear as to who has sent the invoice and where and how payment is to be made
*   Clear on what is being charged for
*   Clear about the length of time you allow for payment
*   Accurate, not just with the figures but with spellings also

If your customer has specified a Purchase Order (PO) number or job reference, use it (leave it out and your invoice may not get paid).

Use simple understandable language where possible. Avoid abbreviations and acronyms. They may make sense to you, but it’s not worth risking any confusion which may delay authorisation or payment of the invoice.

In most cases, a neatly typed accurate invoice will be paid faster than one which is handwritten, possibly from a sales invoice tear-out book. It also presents a much more professional image for your business.

2. Managing your sales ledger
Manual systems can be quite adequate when issuing sales invoices and in noting that those invoices have been paid and when. They don’t however allow for the more extensive facilities of an accounts package such as:

* Statement production
* Reports on the invoices unpaid at any given point (Aged Debtors) by customer
* Setting and flagging credit limits

Accounting software also has the advantage of minimising your work load.  This is because the single entry of one item places all relevant details in all relevant areas of the accounts for that one item – allowing verification at a glance that your books are accurate.

However you choose to manage your sales ledger, it is paramount that you keep up-to-date, not just with your sales invoicing but also with the recording of the payments against those invoices (cash allocation).

If you do not know who has paid you, you cannot know who has not paid you and you cannot ensure that all your income comes in on time.

3. Managing customer queries
This is one of the most important areas you can work on to improve your cash flow.

If one of your customers has a query, on even one of several invoices they have received from you, it is likely that they will delay payment of the whole batch until that query is resolved.

It is therefore vital that any queries raised by your customers are looked into and dealt with promptly. If necessary, raise a credit note to correct any error on your part or for items returned.

Make sure that the customer has accepted your resolution of their query. You could also utilise this opportunity to enquire as to when the invoice(s) will be paid.

4. Managing your credit control
Customer relationships are important. Not just in achieving regular sales but also in ensuring that those sales are paid for on time. Obviously, in some smaller businesses you will be dealing with the same person who is ordering from you.

In most cases you will likely deal with an accounts clerk or department. A polite call once a month to check that all your invoices are received and approved is not pushy.

* Get a first name
* Ask for that person by name in future
* Ask them how they are
* Thank them for their help
* Be understanding and helpful if there are problems to resolve

If you have a large client base and it is too time consuming to speak to everyone, make sure you send a statement at the end of every month. Some companies will use the non-arrival of a statement detailing what is outstanding as a reason not to pay.

If necessary, use ‘overdue account’ notices and ‘final notice before legal proceedings’.  The small claims on-line service is remarkably inexpensive to use if someone simply will not pay. In some cases, just the threat of its use will spur someone to think again about refusing to pay.

Encourage payment by BACS. You could have cleared funds in your bank account within a few days, saving a five day wait for a cheque to clear, longer if that cheque is “in the post”.

5. Managing supplier payments
Take advantage of any credit terms on offer rather than paying each bill as it arrives.

Make one or at most two dedicated ‘cheque run’ days each month on which you pay your suppliers. This is a standard procedure in larger companies and means that you can set aside time to keep your suppliers paid up-to-date and improve your time management.

If feasible, advise your suppliers by post, fax or email that you are changing the way you pay your bills. Request their bank details, advise them of your chosen payment days and ask them to supply you with a monthly statement so you can verify each month that their payments are correct.

If you are successful with your credit control on sales, you will have a much clearer view of your available funds.  Planning your payment days accordingly will allow better cash flow and management of your funds.

These suggestions have all been proven to work in improving cash flow.  They are all simple and inexpensive to achieve. If you would like any further advice or assistance with implementing these measures, by all means get in touch to ask questions or ask for a free consultation.

Kathryn Crockford AFA
Axis Accounting & Training Limited

01932 24152
www.axisltd.net