Managing cashflow

Good cashflow is the lifeblood of every business, yet many owners feel uncomfortable about chasing the money they’re owed. Roger Mendelson, CEO of Prushka Fast Debt Recovery, suggests practical, easy-to-implement ways to ensure you’re paid on time.

Practical ways to improve your cashflow

Cashflow can make or break a small business, yet the task of managing cashflow often slips to the bottom of the pile. The owners of small- and medium-sized businesses are notoriously busy, and pursuing debt – one of the key tasks of efficient cashflow management – is a job that many actively dislike.

Business owners also worry that chasing the money they’re owed will jeopardise their relationships with their customers. ‘This can make them overly cautious,’ says Mendelson. ‘In general, customers respect a business that behaves in a professional way.’

The right person for the job

Mendelson strongly recommends making one person responsible for the task of managing credit. ‘This shouldn’t be foisted on anyone. The person you choose should really want the job,’ he says.

‘It needs to be someone who enjoys the challenge of winning people over, is good on the phone, communicates well and can be friendly but firm. And it should never be the principal of the business as it’s easy for them to get too personally involved.’

Cashflow can make or break a small business.

Credit managers need time to do the job properly, the appropriate authority to enforce credit control policies and the right tools to monitor the debtors’ ledger and progress of collection efforts.

‘This doesn’t have to be a complex process,’ says Mendelson. ‘One of the easiest ways is to have a system for tracking the outstanding debts each month as a percentage of the total over 30, 60 and 90 days. The aim, of course, is to reduce the figure for anything over 90 days.’

Fast follow-up

The follow-up process should begin with a phone call the day after the account falls due.

‘If there’s a problem you really need to know about it at this stage so that you can take steps to resolve a genuine issue,’ says Mendelson. ‘Or, in the worst-case scenario, you’ve found out that that they either haven’t got the money or just don’t want to pay.’

If a customer can’t afford to pay the full amount, or wants to defer payment, negotiate a deal. ‘This must be confirmed in writing and it needs to include defined dates and amounts, not just “I’ll pay a bit when I can”,’ says Mendelson.

He recommends that clients do not receive more than two statements. ‘Each step you take needs to be harsher than the one preceding and your customers need to understand that you’ll take action if the debt is in default,’ he continues.

‘Your trading terms should include a provision that, if the matter does get referred to a collection agency or law firm, the full cost of collection will be added to the debt.’

There may come a point where outsourcing is the most sensible option. ‘You lose credibility if a debt stays in-house for too long and a professional is also more likely to get results without going to court,’ says Mendelson. ‘But, for most SMEs, having the appropriate policies and procedures in place will be all it takes to maintain both good cashflow and good relationships with their customers.’

Kelly Richardson, NAB – NAB Business View:

Sticking to the rules

You may be ready to start enthusiastically chasing your debts but you have to make sure you don’t fall foul of the regulators.

Australia has very strict debt-collection standards, created by the Australian Competition & Consumer Commission (ACCC) and the Australian Securities & Investments Commission (ASIC), to protect both businesses and individuals.

You need to be aware of the guidelines to make sure you don’t open yourself up to charges of harassment.

The guidelines, which can be viewed on the ACCC and ASIC websites, cover the following:

  • how you can pursue a debt
  • rules for contacting your debtors
  • consumer protection laws you should be aware of concerning harassment and misrepresentation
  • your privacy obligations
  • your recordkeeping

The guidelines are very detailed around contacting your debtors, including the following:

  • providing your debtor with information about their account
  • requesting payment from your debtor
  • outlining consequences of nonpayment such as legal options and the suspension of services to your debtor
  • offering your debtor flexible repayment arrangements
  • reviewing existing arrangements with your debtor to understand why they haven’t worked
  • checking if your debtor has changed address

Most importantly, you must not use embarrassment or intimidation in the process of attempting to recover your debt.