Debtors and receiving payments

Five steps to get paid promptly

Cash flow is the lifeblood of every business, so it’s important to review your payment procedures regularly to make sure you’re set up for success. These five steps will help you strengthen your cash flow and eliminate many debt problems before they occur.

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Strengthen your cash flow

When it comes to the task of chasing debtors for money owed to your business, prevention is far better than cure. In other words, do everything possible first to make sure that your invoices are paid on time, and you’ll eliminate many problems later on.




Step 1. Follow sound procedures

To get good results, follow sound procedures. Establishing clear rules, systems and procedures at the start is the best way to avoid problems later.


Accept credit card payments

Try to get payment quickly, either with the goods or on completion of the work. Accepting credit cards is a way of allowing your customers to opt for a credit option while leaving the risk with the bank. 


Be choosy in offering credit

Don’t feel pressured to offer lines of credit to new customers. Many debtor problems arise because credit has been unwisely extended to unsuitable individuals or businesses. One way to mitigate this risk is by asking customers to complete a credit check form.



Check creditworthiness

Where circumstances dictate that you should provide credit, the customer should complete a standard credit application form.

If you don't have such a form, ask one of your suppliers if you can use their form as a guide, or search for a template online. Ask your lawyer and your accountant to review the form you choose. They will likely be able to suggest improvements.

The form should also include your terms of trade. Key points to consider:

  • A provision for interest payments on overdue amounts
  • A provision to add collection costs on accounts you have to refer for debt collection
  • If you sell uniquely identifiable products, a reservation of title clause
  • A personal guarantee from a director – if you're dealing with a limited liability company, and if you're offering a significant level of credit.

If the customer refuses any of these, it's your business decision whether to take the risk of supplying on credit. If in any doubt, ask a credit agency for a credit check on a prospective business or person. 

Step 2. Create efficient systems

Without an efficient system for invoicing customers or clients, and for following up on slow payers, a business is heading for debt collection problems.


Be efficient and prompt at invoicing

The sooner you invoice customers, the sooner you can get paid – so complete invoices as sales are made and send them promptly.



Use e-commerce 

If you can, email invoices to customers. Emailed invoices also save on postage and stationery and make sending reminders fast and easy. There are automated invoicing systems available that can simplify this process. 


Set shorter terms

Change your payment terms for new customers to: ‘Terms: payment within seven days’ and you are well on the way to improving your cash flow. 


Eliminate statements

End of month statements simply sum up what the customer owes. This extra administrative step costs time and money, so eliminate it if you can.

Step 3. Get on to problems early

Follow up unpaid invoices promptly 

The longer you leave an unpaid invoice, the less likely your chances of getting paid.


Stick to your terms of payment 

If people have accepted your credit terms, then you have a right to expect payment on time, and you are entitled to contact them if this does not happen.

Most people are honest and will pay on time. But for the late payers it’s important to get on top of the problem early. 


Cut off credit if necessary

Adopt a consistent ‘stop credit’ policy of refusing to supply customers who are seriously overdue and have not responded to your follow-up, e.g. 60 days overdue.

Ask the customer to settle the outstanding debt first before you supply more goods and service.

Step 4. Set debt reduction targets

Check the average 'age' of your debtors regularly and set reduction targets. For example, if the average age of your debtors’ ledger is 55 days, set a target of reducing this to 40 days. 

Ask your accountant or ANZ Business Specialist for help if you’re uncertain how to work out the average age of your debtors.

The faster you collect debt, the better your cash flow situation will be. 


Step 5. Avoid these common traps

Finally, be aware of these traps for the unwary.


Large orders

You may be delighted to get that large order, but what happens if you commit significant resources to fulfilling it and payment is delayed – or you end up not getting paid at all?

If possible, ask for a deposit or arrange for progress payments – these steps will improve your cash flow and reduce your exposure.


Single customer

It's better to spread your risk over many smaller customers or clients than be dependent on one large customer for your business.


Being targeted as a new business

If you are a new business, be aware that you could be a target for people who have exhausted their credit (and credibility) elsewhere.

Limit your risk by following the procedures outlined in this guide. If your business is dependent on one customer (or just a few customers), make customer diversification a top priority.

Joining networks such as your local industry group, chamber of commerce, or the Employers and Manufacturers Association can help you keep in touch with what's happening in the business community.   

The importance of cash flow

Cash flow is the lifeblood of every business – whether you’re contracting, self-employed or running a successful small business. In this video you’ll learn how to set up a cash flow forecast, how to forecast sales and outgoings, and get tips on how to improve your cash flow.

Contact an ANZ Business Specialist

Our specialists understand your kind of business and the challenges you face as a business owner. We can help you figure out how to make your business grow and succeed.

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