Debtors' Days Outstanding under control?

Debtors' management is an enormous problem for a significant number of small/medium enterprise operators.

paidThe Small Business and Family Business Ombudsman indicated last year that Australia had the highest debtors' days' outstanding figure in the world at 56.4 days, thus debtors' management issues are a significant contributor to cash flow management problems confronting small/medium enterprises.

The Australian Prime Minister announced in late 2017 that he had instructed all Australian government departments to pay bills owing to SMEs within twenty calendar days of the date of the invoice.

This is great news for the small/medium enterprise community – especially for those that have dealings with Federal government departments. 

Hopefully, State and Territory governments and big business will follow the initiative of the Federal government.

However, another significant problem that many small/medium enterprises have is that they have not implemented appropriate debtors' management systems nor do they regularly calculate their own "debtors' days outstanding".

A Debtors' Management System would include written policy manual for all aspects of debtors' management for an individual business outlining procedures as follows:

  1. Checking credit applications
  2. Approving of a credit limit and terms of trade for a new customer
  3. Sending confirmation letters to new customers including Terms of Trade Agreement and Retention of Title Agreement
  4. Prompt follow-up with new customers to receive the signed Terms of Trade Agreement and Retention of Title Agreement back from new customers before any goods are provided
  5. Decision making as to whether a new customer is to be registered on the Personal Property Securities Register and, if a decision is made to register a customer on the Personal Property Securities Register, is the registration process being completed within the very short time allowed by the legislation?
  6. Ensuring that tax invoices are sent promptly to customers and that the due date for payment is clearly identified on the tax invoice
  7. End of a month prompt preparation of Debtors' Aged Analysis and, if Debtors' Statements are still being sent to customers, that emphasis is being given to ensuring that the Debtors
  8. Distribution of Statements no later than 48 hours after the end of the month
  9. Calculating the debtors' days' outstanding figure at the end of the month and the figure is treated as a key performance indicator and is circulated to all personnel involved in sales and debt collection

This type of system will contribute to a reduction in debtors' days outstanding in virtually every type of business.

If you would like to explore the introduction or revision of systems to reduce debtors' days outstanding in your business, please contact Collins Hume on 02 6686 3000.

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