One of the biggest areas of risk for business is debtors
Recently, the Australian Small Business Ombudsman called debtors management problems for small and medium business "the silent killer of modern business”.
And, according to a Dun & Bradstreet report, the average debtors days outstanding in New Zealand is 34.9 days with businesses spending at least 12 days per annum chasing debtors.
Debtors is a major risk area because it flows into problems associated with cash flow within a business.
The questions regarding debtor management are:
- Do you know what the debtors days outstanding are for your business?
- Have you reviewed your debtors’ systems?
- Do you have a formal process for a new customer to open a debtors’ account, or do you just grant credit to whoever walks in?
- Do you have a system for checking references?
- Once you have assessed the credit worthiness of a new customer, do you issue a “welcome to new customer” letter, which highlights the business’ terms of trade and contains a Retention of Title agreement?
- Is the Retention of Title Agreement and the Terms of Trade Agreement signed by the new customer and returned to your business before any sales are made?
- Do you calculate debtors days’ outstanding at the end of each month?
- Do you know how to do the calculation?
- Does your accounting or bookkeeping team review debtors at least once a year, preferably more often, if they are preparing financial reports during the year?
- Could you be using a digital system to follow up outstanding debtors, to improve the cash flow of your business?