New Zealand businesses take on average two months to pay debts.
Rising interest rates can extend this period - some banks and accountants actually suggest their clients should pay late.
Here are some suggestions on how your business can jump the payment queue without upsetting your customers.
Many of usare not aware we have a 2 per cent bad debt risk the moment we give credit.
Risk then increases rapidly:
* At 60 days it is 15 per cent.
* At 90 days there is more than a 1-in-4 chance of losing your money.
* If the debt exceeds 180 days the chance of not being paid is about 50 per cent.
* After that you are at serious risk of never seeing your money.
Good debtor management is vital to avoid this. You can do it by training your debtors to pay on time, which is easy if you use assertive, non-aggressive credit control.
Things you can do to strengthen your position:
* Assess risk.
* Shorten payment times.
* Be rigorous with collections.
* Build reminder dates into your systems.
* Look at contracting out your receivables. It can be cheaper and more effective.
To improve cashflow and lower your risk of bad debt or going broke:
* Insist that all customers sign account application forms, including your terms of trade, before giving credit.
* Check credit references before granting credit.
* If payment is late, contact the tardy within three days.
* Get a payment commitment from them - can you pay today?
* Avoid confrontations. Be non-aggressive but assertive.
* Debt collection is costly. Even if it works, it destroys customer relationships forever. Apply good-practice debtor management, get training or contract it out.
* Keep debtor records and your invoicing up to date.
If your business has few staff you can ask your spouse to do credit control. If it works then fine, but don't undermine your spouse by giving more credit to someone who is being chased for money.
If using your spouse is not an option, then can you or your colleagues do it yourselves?
No more than 5 per cent of debtors should be at 60 or 90 days. Ideally none should.
* Robin Rainbow is managing director of Accounts Receivable Solutions. Phone (09) 292-9057, email info@credit-co.com
