A Sale is not Completed Until You Are Paid

This Requires Good Debtors' Management (Issue 011)

Hello, I’m Peter Towers, Managing Director of ESS Small Business and ESS BIZTOOLS.  Welcome to Empowering SMEs.

Company directors and committee members of organisations have a clear responsibility to protect their company’s/organisation’s assets.  For many companies/organisations, debtors are a large asset.

The “management of debtors” is a key area for directors/committee members to enquire about – to satisfy themselves that appropriate systems have been implemented and that the systems are operating efficiently.  Directors need to enquire about:

  • Is there a written debtors system (if there is no written debtors system – a director should suggest that the managing director appoints an accountant/consultant to prepare a written debtors system that suits the company/organisation’s requirements) which contains appropriate documentation for:
  • credit application form
  • internal processes for checking the credit application
  • ensuring that, if the applicant is a company, directors’ personal guarantees have been received
  • a proper process to approve a new credit customer including credit limit and payment terms
  • dispatch of a “new customer letter” together with
  • Terms of Trade Agreement
  • Retention of Title Agreement
  • a follow-up system to ensure that the signed Terms of Trade Agreement and Retention of Title Agreement are promptly returned by the new customer
  • an internal process to ensure that a decision is made on every customer as to whether that customer should be registered on the Personal Property Securities Register
  • if a decision has been made to register a customer on the Personal Property Securities Register, is that system functioning satisfactorily?
  • Are all appropriate persons within the organisation informed of the new customer that has been approved and the credit limit and payment terms applicable for that customer?
  • Are tax invoices prepared accurately and promptly sent to customers?
  • Do the tax invoices contain the details of the due date for payment?
  • Are debtors’ statements prepared promptly at the end of the trading period?
  • Does the customer receive a communication to advise them of an approaching payment date for an invoice?
  • If payment is not made on the due date, is there a follow-up process implemented within 48-hours?
  • Is a calculation made at the end of each month of the debtors’ days outstanding for the business?
  • Is there a follow-up process within the company/organisation to ensure that direct approach is made to any debtor who has not paid?

Australia has the dubious title of having the “longest debtors days outstanding in the world”.  Unfortunately, long debtors’ days outstanding statistics can lead to significant bad debts for a company/organisation.

Directors/committee members should be closely monitoring the performance of the debtor system within their company/organisation to ensure that the system is operating efficiently and that debtors’ days outstanding is as low as possible.  The monitoring could include key performance indicator reports relating to:

  • amount that debtors owe compared to last month, last year and budget
  • debtors’ days outstanding compared to last month, last year and budget
  • bad debts written off in the previous month as compared to last month, last year and budget
  • cost of not registering a customer on the Personal Property Securities Register – this will probably relate to having to refund money already paid by customers that a liquidator has been able to successfully claim was a “preferential payment” that, in all likelihood, could have been avoided if that customer had been registered on the Personal Property Securities Register.

In the Corporate Governance Network, we have invited Dave Birch, Managing Director of smartAR and FeeLink as the keynote presenter on “Debtors Management and Collection from Debtors”.  

Dave Birch has had considerable experience over a number of years in assisting accountants, lawyers and small/medium enterprise operators in Australia and New Zealand to limit their exposure to problems with debtors.  One of Dave Birch’s quotes  “if you have any debtors that owe multiple creditors money (more money than they have to hand) that’s the perfect client to offer fee funding.  Your firm gets paid in full and your client can enjoy equal monthly payments for up to a year with very little extra cost.  It’s a win- win, leaving you paid in full and then with more funds to pay other creditors”.

The Corporate Governance Network to be presented by ESS Small Business comprises 8 x 90-minute webinar/workshops during 2018/19, commencing on 25th July 2018.  The team for the presentation of the Corporate Governance Network includes other experts in:

  • Experienced public company director (including 10-year period as chairperson of a listed public company)
  • Taxation
  • Government Grants
  • Company Secretary
  • Budgets and Cashflow Forecasts
  • Workplace Health and Safety
  • Workplace Health & Safety
  • Marketing and Sales

Each of these presenters will outline “truth relating to the area in which they are an expert”.  The truth from today is that “a sale is not completed until you have been paid”.  To find out more I invite you to logon to the ESS Small Business website and click on to the Learn More of the Corporate Governance Network.

If you visit the website and select “Library”, you will be able to have a look at some of the articles that have been developed by Dave Birch, under the headings “Cashflow Management” and “Debtors”.  You are invited to participate in a Free Corporate Governance Network Preview webinar on Thursday, 12th July 2018 at 12.30pm AEST.  (Click here to register for this webinar).

If you have any question on any aspect of Debtors’ Management and the collection of monies owed by debtors or the Corporate Governance Network, please do not hesitate to contact Peter – email peter@essbiztools.com.au or telephone 1800 232 088.

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Episode 11 - A Sale is not Completed Until You Are Paid

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A Sale is not Completed Until You Are Paid

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