Guest post by Florian Reinhardt, Satago
The issue of late payments continues to blight the operations of many SMEs, adding complications to cash management and putting considerable strain on working capital. What’s more, the amount of time companies must thereby dedicate to chasing invoice payments (many are forced to spend up to 10 hours per week chasing overdue cash) is a huge misuse of resources, having a detrimental effect on business efficiency.
The severity of the problem is such that it is one of the primary reasons for SME insolvency.
While overdue payments can seem a mammoth task to address, making small changes to your invoicing strategy can, in fact, produce significant results. We’ve put together a step-by-step guide to effective debtor management, detailing how you can improve your days sales outstanding (DSO), and take the hassle out of laborious invoice chasing.
Debtor Management Best Practice
- Invoice ASAP. Payment terms usually only apply after a customer receives an invoice, so ideally they should be raised as soon as a job is complete; the sooner you issue your invoice, the sooner the customer needs to pay up.
- Tracking. Request that customers reference their payments with the invoice number to assist with payment monitoring.
- Accuracy. “Missing information” is one of the most common excuse for late payments, so it is important to take the time to ensure all necessary details are present and correct on the invoice.
- Email chasing. Often a prompt is all that is needed to remind a customer to pay. The most effective reminders strike the right tone and include sufficient information. If your first reminder is ignored, we recommend increasing the severity of your tone in your second reminder and onwards. Importantly, the first email reminder should be sent before an invoice becomes overdue.
- Subject line. This must be actionable, to the point and describe the subject of the email. Believe it or not, starting your subject line with “Remember!” can make a huge difference, as it indicates to the receiver that a course of action is required.
- KYC. Before working with any new customer, effective, thorough analysis of customer credit risk data should be undertaken to help to provide insights into their financial health and whether they will, or are able, to pay you promptly – or at all.
The final component to optimising this strategy is automation, which enables businesses to substantially reduce time spent undertaking repetitive, laborious debtor management tasks. Indeed, new technology capabilities, such as an accounts receivable customer relationship management (CRM) system, are easing the manual burden of invoice chasing. Through such platforms, companies can automatically track outstanding invoices, distribute tailored reminders and statements, and create age debtor reports; allowing you to focus more on the business of running your business.
Such a strategy can produce real results, with users of Satago’s credit control platform, for example, stating that they have been able to cut their DSO by 23 days and their time spent on debtor management by 80%. Certainly, with the right approach and the right tools, SMEs can maximise their chances of being paid on time, reduce the amount effort being spent chasing payments and subsequently be in greater control of their cash flow.
For further details, please see our whitepaper: Credit Control 2.0: The ultimate guide to getting paid faster.