When I first met Josh, he was the definition of ‘stressed to the eyeballs’…
As the managing partner of a 5-partner firm, he had enough on his plate. But to top it off his outstanding debtors had just hit the £1M mark and he had another £800K tied up in work-in-progress.
He was embarrassed about the situation that he found himself in – running a multi-million pound accountancy practice where some months they were genuinely concerned if they would have enough spare overdraft to cover their staff salaries.
And this is the reality of it…
If you’re not in control of your debtors, then you can find yourself cash-strapped.
And if all of your money is tied up in outstanding invoices then that’s money that’s not being used to…
- Invest in growth
- Find and pay for top talent
- Purchase new systems and technology
- Take more money out of the business yourself
…list goes on.
The long-term fix for this is to transition to a monthly billing and direct debit model. I talk more about how to do that in this article here.
But what about your existing outstanding debtors? How can you bring those down to put some more cash in your bank?
Here’s the 3-step process Josh used to reduce his debtors by £525,000 in just 4 months.
It’s also the same process a number of my smaller blackbelt clients have used to bring in thousands of pounds to their bank accounts within a couple of weeks.
It works no matter what the size of your practice…
1. Choose your dedicated rottweiler
One of the biggest mistakes I see practice owners making when it comes to choosing somebody to start chasing outstanding debtors is choosing the wrong person.
They either choose:
- Their happy, smiley receptionist/admin assistant who happens to have a few hours spare on a Thursday afternoon (who has the wrong personality for this kind of work), or
- They try to do it themselves (and let’s face it, you aren’t going to get around to this are you?)
Picking the right person for this job is crucial.
They need to have a rottweiler personality: persistent, tenacious, friendly but assertive.
And they need to have the capacity and time to do this on a weekly basis – not when they have a spare second.
If there’s nobody in your organisation who fits the bill, I touch briefly on how you can outsource this to a UK based credit controller further down the article.
2. Set up weekly meetings
When things aren’t working, you need to increase the frequency that you look at them.
If you’re sick, you regularly take medicine, several times a day until you start to feel better.
If you’re unfit, you regularly eat healthy meals and exercise until you get fitter.
The same goes with reducing your debtor days…
Looking at this once a month isn’t good enough if you’re serious about bringing it under control. You need to be having weekly meetings with your dedicated rottweiler.
So, what’s the agenda of the meeting?
It’s really simple…
You sit down with your dedicated person and a copy of your aged debtor’s summary. Then, starting with the oldest first, you ask 3 questions for each debtor:
- Who did you last speak to?
- What did they say?
- When are we expecting payment/is the next step happening?
You’re not looking for long, waffley explanations here. Short, sharp, snappy answers are what’s needed. It shouldn’t take longer than 15-20 minutes to go through.
Now the first time you do this, your dedicated person will have little or very few answers. This is fine. By week 2 or 3 they will have a who, what and a when for every single debtor. If they don’t, then you need to ask why.
I guarantee that within 1 week of doing this money will start hitting your bank account. Sometimes clients just need that nudge or reminder to pay up.
3. Deal with unrecoverable debts
There’s always going to be some clients where the debt is unrecoverable.
They might be disputing the fees, or perhaps don’t have the cash to pay. Whatever the reason, it’s up to you as the leader of your practice to make a decision about what happens.
There are a number of options for recovering debts: legal proceedings, debt recovery services, small claims court etc.
There are also a number of invoice funding options for your clients who might not be in a position to pay. I have used Orchard Funding in my practice before.
Ultimately what happens here is a result of you drawing a line in the sand and making a decision.
What else can help?
So aside from my simple 3-step process above, what else can help to bring down outstanding debtor days in your practice?
Here are a couple of options:
1. Invoice reminders
Sometimes clients simply forget to pay. It does happen. Which is where having a system for invoice reminders can come in really handy.
It can be done via some cloud accounting applications e.g. Xero and Quickbooks, however I would recommend that you check out Chaser. Not only can this help you reduce your debtors, you can also add value to your clients and unlock new revenue streams by offering it as a service for your clients.
2. Offer different payment options
The more options you give your clients to pay, the less likely they are to not be able to pay.
Some additional payment options might include:
- Paying online (if you integrate e.g. Xero with GoCardless or Stripe)
- Pay over the phone (if you have a chip & pin machine or virtual payment processor in the office)
- Pay whilst in the office (one of my clients Ben, saw a massive uptake in clients settling invoices when they came in for meetings once he got a card machine for the office)
- Fee funding (which I also talked about earlier on in the article)
3. Outsource your credit control
Most things in business can be outsourced, and credit control is no exception.
There are plenty of experienced, UK based credit controllers who can work for you remotely, part-time, for as little as £20 an hour. A number of my clients work with CreditChase UK.
When are you making the transition?
As I mentioned upfront, the ideal for practices going forwards is to use a monthly billing method with direct debits set up to collect the payments.
Does it work for all clients? Probably not. If you have a number of smaller tax-return only clients, it might not make sense to go through the process of setting up the monthly direct debit when they can quite easily pay you in full.
But for the majority of clients it’s fairer for them and it’s fairer for you.
When are you making the transition?