Accountants… Reducing Debtors’ Days Outstanding Will Help Your Clients Survive!
“90% of small business failures are due to poor cashflow” Ms Kate Carnell the Australian Government’s Small Business Ombudsman said recently.
“Australia has the longest debtors days outstanding in the world”. A survey of over 80 countries found that Debtors Days Outstanding in Australia was 26.4 days higher than the normal payment term of 30 days meaning that debtors’ days outstanding on average are 56.4 days.
Where to Start?
Identify your clients that have debtors’ days outstanding in excess of 40 days or:
- had bad debts in excess of $10,000 last year; or
- received a “Preferential Payment Claim” from a liquidator.
Why not have a conversation with your client about the benefits of you undertaking a review of their debtors’ system to ensure that it is working appropriately?
You would commence with:
- Debtors’ Review – utilise the ESS BIZTOOLS’ Questionnaire to undertake a thorough review of all aspects of the credit sales/debtors function being utilised within the business.
- Review the processes for approving a new credit customer relating to:
- application form
- checking references
If approval is given, take the opportunity to issue a “Welcome to New Customer Letter”; the purpose of which is to promote the business but also to confirm the terms of trade, payment dates and key person contacts within your client’s organisation.
The “Welcome to New Customer Letter” should have attached to it your client’s Terms of Trade Agreement and the Retention of Title Agreement. The new customer should be asked to sign these two agreements and return the signed copies to your client before any goods are supplied to the new credit customer.
A determination as to whether the client is going to register the new customer on the Personal Property Securities Register should be considered at this stage. Registration on the PPSR is a significant protection, especially against “preferential payment letters” from liquidators.
Debtors Management Processes
- tax invoices should be prepared and dispatched promptly with the date that this invoice is due for payment clearly stated on the tax invoice.
Debtor Collection Management
- Debtors collection is one of the most frustrating and time-consuming aspects of a debtors management system. A company that we have been working with for some time – IODM – has introduced an outstanding product that is able to be utilised by your clients as well as your accountancy firm.
The “IODM Accounts Receivable Management Hub” is an automated system to improve the collection process that has the effect of reducing debtors’ days outstanding.
Your client can negotiate the timing of a series of SMS messages that are automatically sent to the customer to remind them of the approaching payment date and to follow them up if payment was not made on the due date.
End of month processes:
- Your client’s system should ensure that the Debtors’ Aged Analysis is prepared within 24-hours of the end of the month and is analysed by management.
- The Debtors’ Days Outstanding figure for that month should be calculated and compared to the targeted figure.
- A Debtors’ Reduction Form should be prepared to identify individual customers whose debtors’ balance is exceeding your client’s target so that follow-up approaches can be made to that customer to receive additional payments from that business.
Many small/medium enterprises do not have a written debtors’ systems manual. The team member for debtors’ management will rely on word-of-mouth and various notes that have been written by previous team members responsible for debtors’ management. The ESS BIZTOOLS’ system includes a Debtors Systems’ Manual Template that you can then edit to suit the particular requirements of your client so that your client has a Customised Debtors Systems’ Manual. This will significantly improve the work performance of the person responsible for debtors.
By implementing a Debtors Review Utilising the IODM Accounts Receivable Management Hub and The Customised SME Debtors Systems’ Manual you will have made a significant contribution to ridding Australia of a most unwelcome title – “The Longest Debtors’ Days Outstanding in the World”.
We are presenting a special webinar entitled “Improving Debtors’ Days Outstanding” on Wednesday, 29th March 2017 at 11:30am (AEST) (Q’ld time), 12:30pm (AEDT) with the key presenters being Damian Arena, Managing Director, IODM and Peter Towers, Managing Director, ESS BIZTOOLS. To register for this webinar please (click here).
The ESS BIZTOOLS’ “Debtors Action Plan” will assist you to introduce an outstanding debtors’ management system that your clients will thank you for – because the debtors’ system will contribute to a reduction in debtors’ days outstanding and improve your client’s cashflow. To obtain your copy of the “Debtors Action Plan” please (Click here). Would you like to access last week’s video – “CFO’s Services – Highly Desirable for Accountants to Provide” please (click here).
You can also access “Potential Fee Slippage and New Opportunities Calculator (Click here). Would you like to access last week’s webinars?
- “Understanding Fee Slippage and Identifying New Opportunities” (Click here) and
- “World’s Worst Title for Aussie SMEs” (Click here)
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Episode 102 – Accountants… Reducing Debtors’ Days Outstanding Will Help Your Clients Survive!
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