Initially I showed you how to identify your possible bad debts and how to develop a workable collection strategy on these more difficult accounts to collect. Over the fourteen weeks, using the methods shown, you should now be in a position to calculate the amount collected in this very high risk category. The amount collected here goes straight to your bottom line because by your own admission these would have been write offs if special action was not taken. So you know what your potential bad debt write of was at the start, you know what it is now and you have to make a call on the remainder – is the customer in a position to pay in full, to pay over time, to pay a reduced amount or not in a position to pay at all? Categorise your remaining customers into one of these four sections and take the appropriate action on each one.
You learned how to calculate your debtor days (DSO) correctly, so was there a reduction from the time you started to the end of November? You know the value of a single day’s sale, you know how much you are paying for funding, so calculate the savings here on the basis of the reduction in facilities required due to increased collections.
I hope you are now reporting on what % of your ledger is within terms, with the increased focus you will have a more realistic understanding of what your terms really are and I hope this graph is going upwards for the period. Until you get to 100% there is always more work to do and remember help is available if you don’t have the resources to commit to this vital function – all you have to do is ask.
Have you looked at the options to automate your invoice delivery and storage facilities? This alone can save you up to .80c on every invoice and statement you send out, not to mention the savings on storage costs and the hidden costs in time spent looking for paperwork.
You now know how to credit score your ledger, having a simple but effective system will focus your attention on the high risk, higher balance accounts that will reduce your exposure to the riskier customers.
You have been shown how to set a figure for your bad debt provisions, this should make your reported profits more accurate and combining this with an increased collection effort should mean more profitable sales at every level.
You should have set individual lines of credit for each of your customers, reducing the risk of getting caught at the very end for a higher amount than was previously outstanding – further reducing your exposure to bad debts.
You have a blueprint to decide if you should “go legal” and you now know the most cost effective way to do it, and how to keep legal firms working with the level of urgency you require.
You should be setting up a meeting schedule with your key and high risk customers to make sure they will be with you for at least the next three months. You should also have a greater understanding of the risk associated with doing business with them.
If Credit is important to your business I hope you are getting everyone in your organisation bought into cash collections, and working together as a team to increase sales and collections while keeping all other costs under control, anything less will spell danger for your own business.
I have shared with you ways to reduce your exposure to risk and still remaining commercial in your outlook, you still have to find a way to deliver every order and do it intelligently.
I would love to hear your success stories, even if you only implemented one of the recommendations that made a difference to your business– please let me know how you got on, if you have implemented more than one and are seeing real results, all the better.
If you know you should be doing more but simply don’t have the time or resources please let me know and I can show you where help is available at a reasonable cost. You can contact me on 087 244 7062 or email email@example.com – I look forward to hearing from you.