Debtors’ management is an enormous problem for a significant number of small/medium enterprise operators.
The Small Business and Family Business Ombudsman indicated last year that Australia had the highest debtors’ days’ outstanding figure in the world at 56.4 days, thus debtors’ management issues are a significant contributor to cashflow management problems confronting small/medium enterprises.
The Australian Prime Minister announced in late 2017 that he had instructed all Australian government departments to pay bills owing to SMEs within twenty calendar days of the date of the invoice.
This is great news for the small/medium enterprise community – especially for those SMEs that have dealings with Federal government departments.
Hopefully, State and Territory governments and big business will follow the initiative of the Federal government.
However, another significant problem that many small/medium enterprises have is that they have not implemented appropriate debtors’ management systems nor do they regularly calculate their own “debtors’ days outstanding”.
A Debtors’ Management System would include:
- A written policy manual for all aspects of debtors’ management for an individual business;
- Procedures for checking credit applications;
- Procedures for the approving of a credit limit and terms of trade for a new customer;
- Confirmation letter to be sent to a new customer including Terms of Trade Agreement and Retention of Title Agreement;
- Processes to ensure that there is a prompt follow-up with a new customer to receive the signed Terms of Trade Agreement and Retention of Title Agreement back from the new customer before any goods are provided;
- Procedures for the decision making process as to whether the new customer is to be registered on the Personal Property Securities Register;
- If a decision is made to register a customer on the Personal Property Securities Register, is the registration process being completed within the very short time allowed by the legislation?
- An emphasis on ensuring that tax invoices are sent promptly to customers and that the due date for payment is clearly identified on the tax invoice;
- Processes to ensure that at the end of a month the Debtors’ Aged Analysis is prepared promptly and, if Debtors’ Statements are still being sent to customers, that emphasis is being given to ensuring that the Debtors’ Statements are sent no later than forty-eight-hours after the end of the month;
- The debtors’ days’ outstanding figure is calculated at the end of the month and the figure is treated as a key performance indicator and is circulated to all personnel involved in sales and debt collection.
This type of system will contribute to a reduction in debtors’ days outstanding in virtually every type of business.
Contact us here at Kennedy Barnden if you would like to discuss ways to reduce your debtors’ days outstanding.