Measure your collection results. You can calculate your DSO to help.


Credit Management Advice \| Legislation & Interest Calculator \| Ask a Question \| Sign up to the Code \| Benefits of Paying on Time \| News \| Site map \| Search

Credit Management Advice > Collect cash

Choose from a link below to jump to that subject
Get close to your Customer	Have a clear Account Display
Make your Credit Terms very clear	Achieve adequate Collection Coverage
Open New Accounts Properly	Set Targets and Priorities
Issue Effective Invoices Rapidly	Effective use of accounting systems to help manage late payment
Using the internet for collection	Use Third Parties sooner rather than later
Cheques and Cheque Clearing	Measure Collection Results

Effective use of accounting systems to help manage late payment

Having appropriate financing and an accounting system in place can often be the difference between success and failure of a business.

The wrong type/mix of finance will result in a mis matched balance sheet with strain being placed on the business. Lack of control of working capital can expose the business to unnecessary and avoidable risks. It is vital companies control this requirement and use accounting systems to help predict when shortfalls may occur. One of the risks is late payment both when paying (reputation risk and future cashflow) and receiving (cashflow).

(Working capital = Inventory days + receivable days - payable days)

The list below highlights areas when the accounting system can help highlight late payment and its impact:-

General
Revise your cashflow to monitor the effect of late payment. What impact does this have on future working capital requirements? Use the planning/cashflow/projection software to highlight the work in progress and to avoid losing control of the business Use planning/cashflow/projection software to highlight and stop overtrading and/or unprofitable trading

Paying
1. Use aged creditors to highlight when your creditors need paying
2. Record any interest paid on late payment to monitor the cost
3. Keep a record of creditor days
4. Keep track of key suppliers (maintain relationship, speed of supply and
prices) - this impacts on inventory, creditors, (working capital)

Receiving
1. Use aged debtors to highlight when money may be received
2. Record any interest received
3. Set credit limits and review these for any late payers
4. Keep a record of debtor days
5. Flag any overdue debtor and put a stop on the account
6. Keep track of key debtors/customers (review trading patterns)
7. Investigate any unpaid invoice from a batch or any dispute quickly

Measure Collection Results

The DSO result – Click here to calculate your DSO
The cash collected during the month versus the Cash Target set
An Aged Debt Analysis, showing largest accounts first.

Send a one page Debtors Summary at month end, comparing actual results with previous month and with any budgets made, to all managers and directors for action on major problems and trends.

This is a good prompt for talking to key customers about their payment dates.

If you improve the Debtors asset gradually, month after month, the faster cash soon shows in a healthier balance sheet.

A useful calculation is to compare the cost of the resources needed against the benefits of the extra cash being produced.

See the Quick step guide for a step by step approach to these procedures.

Accessibility

IMPORTANT NOTICE
We have taken all reasonable care in sourcing and presenting the information contained on this web site
but no responsibility is accepted for any financial or other loss or damage that may result from its use.

Designed and maintained by Fontasia.