By continuing your visit to this site, you accept the use of cookies. They ensure the proper functioning of our services and display relevant ads. Learn more about cookies and act

Not yet registered? Create a OverBlog!

Create my blog

How to improve a business's average collection period

Speeding up the time it takes to collect outstanding debts can greatly improve a business’s cashflow. Here, we look at some ways to improve it and stay on top of it.

Get it right from the start

Having a proper functioning credit department, even if consists of just one person, is an important element for any successful business, and the job of the credit department should start well before any sale has been made. There are two major reasons why a business might have a poor average collection period. It could be that it’s selling to bad payers in the first place. The other question to ask is, once the sale has been made how vigorous is the business in making sure payment is made when due?

Know who you’re selling to

The first point is important, and with numerous credit reference agencies providing online information about the payment habits of most businesses, the decision of whether to sell on credit or not should made easier. As well as providing payment history data, reports from credit agencies can also include a potential customer’s financial accounts with notes on vital ratios relating to liquidity and solvency. The credit department should take all of these things on board when an order is placed, and only when it’s confident that the transaction is a prudent one, approve the sale. Once approved, it is also important to ensure that the invoice is correct in all its detail. Any slight discrepancy can give a customer an excuse to dispute it and delay payment.

If you don’t ask, you don’t get

Any sale is only profitable when it’s been paid for, and for each week that goes by without payment, the profit margin is reduced. This should be the focus of any credit controller. Most accounting software packages will provide a detailed aged debtor report listing all customers due invoices in terms of age. This report should be the basis of all collection activity with telephone calls made as soon as an invoice becomes overdue. A record of all debt chasing activity should be diarised and any follow-up action rigorously adhered to. If legal action is threatened, then it must happen. The software will also generate customer statements which are a useful reminder of impending due payments. It is important to keep a regular check on the collection period and set targets for bringing it down. By use of a simple average formula called "days sales outstanding", it is possible to spot any deterioration and target resources in that area. Diligent credit research coupled with consistent collection activity, and following up when a customer's promise to pay doesn't materialise should ensure a lowering of the average collection period.

Same category articles HR & enterprise

What's the retirement age for women in the UK?

What's the retirement age for women in the UK?

What may people do not know is that retirement ages in the UK are different for men and women. Those who want to retire will need to know the answer to the question "When can I retire?" as well as how much money they will need in order to retire comfortably.
Where to find employee review forms

Where to find employee review forms

If you own a business, whether it is small or large, you cannot always be watching all your employees. That is why it is important to be able to get some ways to have free staff evaluation forms. This article will inform you as to where online you can find these employee review forms, so that you can print them out, and give them to your advisers.
A guide to conflict resolution in the workplace

A guide to conflict resolution in the workplace

Workplace conflict is a common occurrence, specially in large organisations. Resolving conflicts should be a priority for every manager. If he does not engage in conflict resolution, the problem will spread and have an impact on the whole office. Conflict in the workplace has the potential to drag down productivity and profitability, and here's how you can tackle it.
Resources Global Professionals: The facts

Resources Global Professionals: The facts

Resources Global Professionals was established in 1996 as one of Deloitte & Touche’s (LLP) divisions and went public four years later. The company likes to differentiate it from other consulting firms with its inside-out approach, which was directly in contrast with the outside-in approach used by most firms that also offer consulting services. Reviews online show that most of its employees are fairly happy with the diversity and management style offered by the company. Client companies are likewise pleased with the results that Resources Global Professionals achieve when they are called in.