In business, your main income will be from yours customers, but this only materializes into cash when they actually pay up! Until the customer pays, you are financing their business.
Businesses are better off to keep its bad debts and the level of accounts receivable (debtors) to a minimum by having a good credit control procedures. It is recommended that businesses always check the creditworthiness of their customers, either through a banker’s reference or by using a credit rating agency. Businesses with bad credit rating should be on cash on delivery terms.
Businesses should also monitor the time taken by their customers to pay. The longer the customers take to pay, the higher chance that the debt will turn bad. Encourage customers to pay sooner by offering early payment discounts or payment by installments.
Do not be afraid of taking legal action to recover debts. Often, the threat of legal action against a financially unsound customer will make them pay up quickly as they do not want their other creditors to be aware of their financial situation because this may lead them stop supplying goods on credit.
Aged debtors reporting is a simple report summarizing the amounts owed by customers and analyzed into time taken by each customer takes to pay. With this report, you can see at a glance which customers are taking ages to pay.
An example of aged debtors report
Ref
|
Customers
|
Total
|
current
|
1 Month
|
2 Month
|
3 Month
|
Older
|
| B1 |
Bestever Limited |
£1718
|
£963
|
£755
|
-
|
-
|
-
|
|
W1
|
Williams 2009 Limited
|
£104
|
-
|
-
|
-
|
-
|
£104
|
| ' |
Total
|
£1822
|
£963
|
£755
|
-
|
-
|
£ 104
|
Canterbury Accountancy - Providing free resources for small businesses and companies.
