]]> http://boostbusiness.co.nz/art/2010/05/11/10-questions-to-ask-yourself-when-working-on-your-nz-business/feed/ 0 http://boostbusiness.co.nz/art/2009/12/23/business-help-wellington/ http://boostbusiness.co.nz/art/2009/12/23/business-help-wellington/#comments Wed, 23 Dec 2009 20:07:50 +0000 Jeff http://boostbusiness.co.nz/art/?p=408 Business Help Wellington

Every day we get tons of enquiries from Wellington Business. We will attempt over time to answer some of the most frequent questions In a series of articles.

One of the more popular questions concerns debt collection and best practice around this. Most small Wellington Businesses have had issues around this at one stage or another. BOOST Business wrote an article about how to stop giving your customers permission to delay paying you which was generally well received however we thought it was time to delve into the topic in a little more detail.

Business Help Wellington

Get paid on time every time
1.    Don’t give them a reason to delay paying you. Your invoice should be accurate, pretty well detailed but easy enough to understand. Include;
a.    Your Company’s contact info, name, address, GST no. Phone, Email, Web and name of the contact person.
b.    Invoice Date
c.    Customers Name and Address
d.    Itemised Description of Goods and Services
e.    Amount due with GST amount
f.    Invoice Terms – See Business Help Wellington article on how to stop giving permission to your customers to delay paying you

Invoicing

2.    The longer you take to send an invoice the longer it will take for you to get paid. Send invoices promptly and religiously every week, fortnight or month. (Daily or on Job completion would be even better)

Stock Turn

3.    Think about the time it takes you to receive the cash for the goods or services you provide. If you order your raw materials in January – and you pay for these on 20th February. Depending on your stock turn or manufacturing process the materials / stock could be in storage for 1 to 90 days. You sell the end product and say wait for 60 days. When you drill down and take the time to realise the impact could be a delay of between 60 – 150 days before you are paid. The ideal for this scenario is to be paid 0 to minus 30 days. Its possible depending on your operational processes. Call BOOST to discuss this – you could end up freeing thousands of dollars – You might even get rid of the overdraft.

Calculate this

4.    Do the following calculations

a.    Calculate your average collection period by dividing your total sales for the previous year by 365. This gives you your average daily sales volume.  (Total Sales / 365 Days = Average Daily Sales Volume)
b.    Then divide your average daily sales volume into your current accounts receivable balance to get the number of days it takes to collect a bill.  (Average Accounts Receivable Collection Period = Average Daily Sales Volume / Current Accounts Receivable Balance)

This is you average accounts receivable period. Answer the following questions

Question 1: Is your average accounts receivable collection period in line with your business terms of trade? If your terms of trade provide your customers with 30 days to pay their bills, then you should expect that your average collection period will be somewhere around 30 days – maybe a little longer. If your average collection period is 60 days then you need to examine other factors that affect billing.

Question 2: Are you billing your customers consistently? Look at your Accounts Receivable Aging Report. Are the outstanding invoices on that report related to products and services sold within the last 45 days, or are they related to products and services you provided three months ago and just got around to billing? Create a procedure to bill customers once a week or each time you have a completed sale.

Question 3: Are you following the above guidelines about invoicing your customers with enough information and on previously agreed terms? Are your customers calling you with questions about your invoice?

Question 4: Are you tracking overdue accounts and taking consistent action to collect past due accounts? Do you have an effective process in place to track when an account comes due, and knowing who has paid their bills and who has not? When a customer’s invoice goes past its due date, is there a procedure in place to follow-up with that customer? Sometimes sending customer statements and making friendly reminder calls is all it takes.

Business Help Wellington – Summary

So our Business Advice for Wellington Business is to answer these four basic questions, implement a few basic procedures you’ll soon be running a fine-tuned collection machine. If you want help putting together an effective proven collection process contact us at BOOST.

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