In a study by Camrose Consulting Ltd of 6,000 UK companies with a turnover between £2 million and £17.5 million, 42% were shown to have debtors in excess of 60 days.
As a way of getting to grips with your aged debt, you might like to try the following calculations with your own business:
- Take the value of your trade debtors (or receivables) from the end of last month
- Subtract the value of billings (including VAT) from last month
- Subtract the value of billings (including VAT) from the previous month
If you end up with a figure that is greater than zero, it suggests that you have a number of debtors older than 60 days and that you could improve your cashflow and the health of your business by undertaking some measures to improve credit control.
We find it amazing to work out the value of outstanding debts and to see the time, money & staff companies needed to collect these debts. We have created a credit control calculator that will help businesses to see whether they can benefit from external help.
There are a number of ways that businesses can get on top of their credit control, as well as employing an agency like us. For example:
- It is best to be consistent with debtors and to ensure that you will make them aware when their payments become due and go overdue. They won’t look upon you as a soft touch
- It is possible to chase debts without damaging your relationships with your clients. If you are clear with them, you can ask them for the money that they owe. They owe it & it’s yours, it’s OK.
- You can make them aware of your situation – “I’m a sole trader & I’ve got bills to pay”
- You can ask them if they’d rather stage the payments – this can help customers that are having cashflow problems of their own and ensure you get paid rather than waiting for them to slowly go bust
- You can ask them for a timescale within which they are prepared to pay
- You can add interest clauses into your contracts
- You could offer a discount from the bill for early payments
- You can contact a debt collection agency and ask them to help you collect debts in a sensitive manner – talk to us, we can help!
- You can explore arrangements with factoring companies who will pay you when an invoice is created, allowing you to improve your cashflow
The problem with allowing businesses to have debts outstanding is that, as we have seen, no company is safe as a result of the financial crisis, recession and continuing slow growth in the economy. It is important not to ignore debts and to adopt a consistent approach. This doesn’t have to take huge amounts of time and, with us, it doesn’t have to cost large amounts of money.