Historically, debtors are a problem most traditional accountancy practices face.
If not under control, it can have a serious impact on your cash flow, reducing your ability to invest the cash in other areas of your practice e.g. hiring/training staff and marketing.
And while lots of practices today are moving towards upfront billing and monthly direct debits, there still remains the issue of debtors for practices who aren’t yet doing this and don’t feel comfortable doing so at this stage of the game.
Taking this into account, here are 4 easy strategies for reducing your debtors’ days:
1. Automated invoice reminders
Sometimes clients simply forget to pay your invoice (or at least that’s what they say) so one of the ways to reduce your debtors’ days is to automate invoice reminders that go out to them.
This is really easy with technology today, and can be done inside Xero or Quickbooks if you use them for your practice bookkeeping. Another more advanced option is Chaser.
Make sure you edit the standard email templates though and inject a bit of personality. Nobody likes to receive automated emails that sound like automated emails. Here is an example email template one of my clients uses that is carefully disguised as an invoice reminder:
Hi [Contact First Name],
My name is <name of credit control staff> and I work with <name of partner/manager> and the team at <name of practice>.
I just wanted to confirm that you did receive a copy of Invoice [Invoice Number] by email last week?
If you have any queries, or would like to discuss alternative payment options, please feel free contact me on the number below.
2. Offer alternative payment methods
The more options you give your clients to pay, the less excuses they can have for not paying.
Try offering your clients the following options:
- Pay their invoice online (i.e. connect to a payment processor e.g. GoCardless so they can click through from the invoice and pay)
- Pay via bank transfer
- Pay via cheque
- Pay over the telephone (either by using a virtual payment processor or a chip & pin machine in the office)
- Pay whilst in the office (one of my clients Ben, introduced a chip & pin machine in their office and saw a huge uptake in the number of clients paying when they came in for meetings)
Another option to consider is fee funding.
Sometimes for whatever reason, your clients might not have the cash available to pay you right now. So, to avoid letting the debt build up, you can offer fee funding as an option. I would recommend checking out Orchard Funding.
3. Outsource your credit control
The single biggest mistake I see practices making time and time again when it comes to reducing debtors’ days, is that they have the wrong person doing credit control.
Usually, it’s one of the following
- The partner (you should seriously not be doing this)
- Your smiley, friendly, outgoing receptionist (she’s just too nice!)
- Somebody with spare time on their hands (i.e. it never happens)
None of the above will work properly.
In order to make it work, you need somebody with the personality and tenacity of a bulldog, whose sole purpose is to chase your clients for payments.
By outsourcing your credit control, you can have somebody with experience, who is external to your practice (so doesn’t have any relationship ties with your clients) to do the chasing for you.
A number of my clients are currently working with Wendy at CreditChase UK and say very good things.
4. Weekly debtors meeting
One of my number one rules that I share with my clients is that if something isn’t working, turn up the frequency by which you deal with it.
So, what does that mean?
If your debtors are out of control, you need to look at them more frequently.
If you’re only reviewing debtors once a month or once a quarter, this isn’t enough to bring it under control. Turn up the frequency.
Consider having a weekly debtors meeting with either your internal or external credit controller to go through the latest for each debtor.
To find out the agenda of this weekly meeting, check out this article here where one of my clients reduced their debtors by almost £525,000 in just 4 months.
Long term solution
In the long term, the only strategy for completing reducing debtors’ days is to ensure all of your clients are on direct debit.
Not only does this help bring your debtors under control, it also makes things fairer for them because they’ll know exactly how much they pay each month (instead of receiving a bill at the end of the job).
This has been made even easier now with the introduction of proposal software e.g. GoProposal and Practice Ignition whereby you can agree a proposal, let them know the monthly DD amount and then the payments are collected automatically as soon as the proposal is accepted.
If debtors are an issue for your practice, then you need to bring it under control. Ask yourself, how else can the cash currently tied up in debtors be used to further your practice?