Issue 002 A Debtors' Manual Will Help With Reduction Of Debtors' Days Outstanding
Australia earned a very dubious title a couple of months ago that Australia has the worst debtors' days outstanding in the world. Not a very attractive title to win. I'd rather win the world cup! But we have won the dubious title of having the highest debtors' days outstanding in over 80 countries.
The Australian government's Small Business Family Business Ombudsman, Kate Carnell has described this as the "silent killer of modern business".
She has indicated that she is going to talk to government departments and big businesses about improving their debtors' payments. However, I believe there is another contributing factor to this problem and that is unfortunately, many small/medium enterprises do not have effective debtors' systems in operation. This has occurred because many of you were not able to get appropriate advice at the time when you started business and you didn't know the intricacies of what's involved in appropriate debtors' management. (SME Debtors' System Manual Package)
We have developed a system that we license through accountants and business advisors all over Australia who can deliver an outstanding debtors' review and assist in the implementation of a customised debtors systems' manual to help you reduce your debtors' days outstanding.
Undoubtedly, some of you will have debtors' days outstanding in excess of 56.4 days because that is the average figure, so some SMEs have debtors' days outstanding of 70, 80 or even 90 days. That's a significant impost on the operations of your business. It ties up a lot of cash.
The customised debtors systems' manual will enable the employee in your organisation who is responsible for debtors to be guided by a written system which we think should be reviewed every twelve months to make sure there has been no deviations, however if there has been some improvements made, they should then be documented into the debtors' systems.
Some of the key aspects of the debtors' manual will be:
- A credit application process. What due diligence reviews do you undertake in your organisation for anyone who is seeking a credit account or are you just getting someone else's problems?
- What happens to the private company directors' guarantees that you are undoubtedly receiving? Are they checked and are they appropriately filed? Do you receive all of the directors' guarantees or only one or two from some of the companies and do you notice that some others are missing?
- Do you have proper recognition of the Personal Property Securities Register within your debtors' system? The PPSR applies to a lot of things - stock, motor vehicles, aeroplanes, boats, credit sales and debtors and a range of other business assets. The debtors' system though is going to primarily help you to handle the credit sales and the debtors' problems.
- If you register your customers on the Personal Property Securities Register, you'll have virtually no problem with liquidators who may issue preferential payment claims because registration on the PPSR, in most cases, gives you protection and it’s a lot better than having no registration because then you obviously have no protection against those claims.
- Are your tax invoices prepared promptly and do they include all of the information that your customer has requested that you supply to them?
- How do you monitor your debtors? Have you thought about using an system? We can introduce you to one whereby SMS messages are sent to your customers a few days before a due date to remind them that a payment is due and then, if they don't pay, there is an immediate follow up of further SMS messages alerting your customer that their debt is due.
Businesses that are using this system have indicated that they have a substantial decrease in debtors' days outstanding.
- Do you send a "welcome to new customer" letter? The system includes templates for a welcome letter because this is a golden opportunity for you to send a public relations message to your new customer, but it also enables you to be able to confirm your terms of trade, the debt limit that has been imposed and anything else to do with the service that you're now making available to this new customer.
- The manual includes a template for calculating debtors' days outstanding, because this is a very important key performance indicator that I believe you should be calculating every month to see how you're going. The aim should be to reduce your debtors' days outstanding to somewhere between 30 and 40 days if you are trading on 30 day payment terms. Some of you will be trading on 7 day terms or 14 day terms, therefore your debtors' days outstanding should be substantially lower than 56.4 days.
- The manual includes 30 pages of notes, templates and forms to assist in the management of your debtors.
- You can find out who can help you on this by going to our website - - and clicking on the "Accountant/Advisor" tab and you'll be able to insert your postcode and you'll then be able to read the names and details of accountants/advisors in or around your postcode who are able to offer you a debtors' review system and prepare for you a customised debtors systems' manual for your business.
I'd like to invite you to a free special webinar on Wednesday 15th March 2017 at 12-noon AEST, 1pm AEDT on "debtors' management". (Click here to register for the webinar) How do we get rid of the worst title that Australia has ever had - having the longest debtors' days outstanding period.
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Empowering SMEs Episode 002 - A Debtors' Manual Will Help With Reduction Of Debtors' Days Outstanding
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