4 ways to reduce debtor days

Reduce debtor days to improve cash flow

All small businesses will tell you that cash is king. However, it is many businesses’ biggest area of struggle. Customers are reluctant to part with their money, even if it is to pay for your goods and services. This can lead them to take some time to pay their invoices. While longer debtor days might not be a huge issue for multinational corporations, it can be a real source of stress for small businesses. You need to minimise your debtor days as you may find yourself working late hours and chasing up late-paying clients. So what can you do to reduce debtor days? 

Be clear and concise

Be clear about the terms of payment. Is the due date easy to see on the page? Does your invoice state exactly how much payment is required and have you stated the accepted methods of payment? You should also offer options such as “pay now”, “pay by instalments” or “pay on the due date”.

Offer incentives

Offering incentives to pay is a fantastic way to decrease debtor days. Many businesses will offer small discounts for those who pay early and upfront. Offering 5% off for debtors who pay within 2 weeks can help a business get cash in quicker. This type of incentive can also be seen as “added value” within the client relationship. 

Charge fees for late payment

Incentivising customers to pay you on time by charging them a late fee is becoming a norm in business. If you communicate the terms and conditions around late fees clearly, clients will not be surprised if they are charged for late payment. It is also effective to give a warning before charging the late fee. This gives the client an opportunity to respond. 

Embrace technology

The organisation is the key to tracking invoices. Most businesses have their own systems in place for keeping track of payments. With an automated accounts receivable system, you can keep track of the status of each invoice, who has paid and what is outstanding. Setting up alerts at crucial moments in the payment cycle will also help to reduce time spent on administration as they will do the following up for you. By implementing the above strategies, you can reduce debtor days in your business and ensure that you are getting cash in as quickly as possible.

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