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How To Manage Debtors
Debtors can be a major source of stress for any business. It can cause a serious strain on cash flow, hurt your credit score and in worst cases, lead to bankruptcy. As a business owner, it is essential to find ways to manage your debtors effectively.
Know Your Customers
The first step to managing debtors is to know the people you are dealing with. Do some research on each customer to get an idea of their credit history, existing debts, and payment habits. Also, be sure to review their credit score to determine the level of risk. With this information, you can adjust your payment terms, or choose not to extend credit at all, to minimize the risk of being left with a large outstanding balance.
Create a Payment Policy
Creating a payment policy is an essential step to managing your debtors. Set clear payment terms and make sure that each customer understands them. You can also offer discounts for early payments or set penalties for late payments. Having a payment policy in place will help customers understand their obligations and motivate them to pay on time.
Send Invoices Quickly
Send out invoices as soon as possible. The longer you wait, the less likely the customer will remember what the invoice is for. Include a detailed description of the goods or services, along with payment terms, payment options and due dates in the invoice. Consider using an online invoicing system to automate this process and reduce your accounting workload.
Track Payments and Follow-Up
Use a system to keep track of payments from each customer. This will help you identify late payments, follow up with customers, and track abuses. Send reminders as soon as a payment becomes overdue, and consider reaching out to the customers who are regularly late, to offer support or alternative payment plans.
Stay Professional
Despite your best efforts, some customers may end up defaulting on their debts. It's important to stay professional and not let it turn into a personal issue. Utilize the help of debt collection agencies or lawyers, but be sure to stay polite, calm, and factual in all interactions with customers. Avoid threatening, harassing or abusing any customer at all times.
Conclusion
Managing debtors effectively can be a difficult task, but it's important to stay organized and professional throughout the process. By knowing your customers, creating a payment policy, sending invoices quickly, tracking payments and following up, and staying professional, you can greatly reduce your risk of financial loss and successfully manage your debtors.
