5 Reasons You Need To Lower Your Debtor Days

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Now, more than ever, it is essential that businesses are managing their finances effectively. No doubt you’ve started to look at your pricing structure and expenses to ensure you’re equipped to handle the recent global increase in costs. 

Debtor days are often overlooked when it comes to managing cash flow. Late payments have become a fairly accepted practice. It’s not that anybody intends to put financial pressure on you, but for a lot of businesses, paying your bill impacts their bottom line so they’re going to do it in a way that works for them.

But have you looked at how long it takes for you to get your money in your account? When was the last time you reviewed your payment terms? Is it time to reduce your debtor days to get money in your bank quicker?

If that sounds like a job for “later” or “when you’ve got more time”, these reasons to lower your debtor days might change your mind. 

1. You Can Increase Your Cash Flow 

The more money you have to work with, the more strategic you can be with your business’ growth and expansion both now, and in the future. The last time Smart Company reviewed late payments in the construction sector, they cited research that found businesses struggling with cash flow due to late payments grow their revenue up to three times slower than those who get paid on time. They also explained that the later you get paid, the later you’re likely to pay your own bills which not only has a flow on effect for those businesses you deal with, but it also means you miss out on things like early payment discounts or special rates that your suppliers may have for “good” customers. 

2. You Can Invest In Better Tools & Systems For Growth

The right technology in your business is essential but for many businesses, it’s not something they can focus on in their current financial position. Often businesses are making on the fly decisions around technology. They see an offering that would really elevate their business but it has a high upfront setup or subscription fee, so they “make do” with cheaper alternatives that usually lack both features and usability. Not only that, the “smaller” costs of individual licence fees and subscriptions can end up costing more than the original solution. Managing your business money – including getting your money back in your bank where it belongs – means you can make better long term decisions to invest in. 

3. You Can Invest In Your People and Payroll 

As soon as you hire a staff member, your operating expenses increase. If you’re hiring well, it’s usually worth the investment. But it’s also a recurring expense that you need to be able to ensure you can cover. Part of that due diligence includes being able to accurately forecast your revenue, growth and cash flow. It also requires you to be in a position whereby you can properly recruit and onboard your new hire. The Australian HR Institute reminds businesses to consider the non-wage costs around ensuring that you have the space and tools for the new person to do their job. 

Be strategic here – investing in the best software and tools for your business first will ensure that you aren’t paying wages for things that you should be letting technology do for you. 

4. You Can Get More Business 

Marketing has the ability to get new customers, retain your existing customers and ultimately change your business – with a good integrated marketing and communications plan, you are able to either increase your market share, or increase the size of your market by changing how often your customers rely on your products or services. It’s powerful. It is still possible to have a modest marketing budget and see results, but it’s almost impossible to get results if your efforts are haphazardly applied as the money is there. By ensuring you are paid regularly, you can better budget for and spend your own regular business expenses and really get that marketing plan working for you. 

5. You Will Not Be As Stressed

According to Ahead For Business, “unpredictable income, cash flow and delayed payments” are some of the biggest contributing factors to business owners struggling with their mental health. And your own wellbeing is sometimes the most important thing you need to focus on in your business. You make better decisions when you’re in a good state of being and better decisions lead to better growth and results. Imagine getting to switch to thinking about how to spend your business income instead of worrying about when you can pay the mounting bills.

Reducing debtor days makes sense but can create more work for already resource poor businesses. And if you’ve nodded along to any of these tips and realised you need to take better control of your business cash flow, don’t immediately increase your accounts team payroll. 

Have a look at industry specific software and tools that can automate accounting processes like sending overdue reminders or providing financial statements. That way you can set payment terms that work for you and your cash flow needs without having to worry about how to administer them.

If you are ready to see how FeeSynergy Collect can change your business cash flow, book a complimentary demo with the team today. 

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