Today I want to share with you another story about how to take control of your debtors.
And this goes back to a fairly large client of mine. Their overdraft limit is sitting about £1.2M, and for years they’ve been kind of edging along at this £1.2M.
So their question was “our lock-up is horrendous, our outstanding debtors is enormous, our work in progress – where do we even start?”
Debtors – How to take control
So one point is that you definitely want to have somebody responsible for credit control. This somebody is dedicated to getting on the phone, phoning people, emailing and following-up. And it is really important – the key here is that you have somebody with the right personality.
So just to give this to a member of staff who doesn’t have much to do, with the wrong personality for this kind of work – don’t do it. Find the right personality. We are looking for a bit of a bulldog to do this for you.
The other thing is that, with this person they are going to be using and you’re going to hold them accountable to using the “Who, What, When Triangle”.
So what you do with your credit controller is on a weekly basis (if your debtors are out of control you want to focus this every single week) you’re going to sit with them, and they must bring with them to the meeting a print out of their summary aged debtors report.
Sit down with that, you go to the oldest column first, you decide a material figure, and you run down the oldest column, and for every debtor with this material figure, you ask 3 questions – Who? What? When?
And you’ll want to accept only simple short answers. So the ‘Who’ is “who did you speak to?” – I want the name. The ‘What’ is “what did they say?” And the ‘When’ is “when are we expecting payment, or what’s the next step, or when?”
So for every material data in the oldest column – Who? What? When? That’s it! I don’t want long stories, just ‘Who, What, When’. Then we’re going to the next one, material debtor on the oldest column – ‘Who, What, When’. Next one, and you’ll get through that literally in minutes.
Then from there, the oldest column you go to the next column, which might be 90 days whatever it is. And again, material ones, ‘Who, What, When’, ‘Who, What, When’, ‘Who, What, When’.
This exercise is going to take you 15-20 minutes, and the first time you do it your credit control person will learn from you, they’ll get to understand what you are looking for. Because all that you want is ‘Who, What, When’. Then say, “Hey thanks very much, we’ll have to speak again next week”. And we do have this meeting in weeks’ time. They bring the same updated report, and again you go through the ‘Who, What, When’, ‘Who, What, When’, ‘Who, What, When’.
And what you’ll find is that by week 2, you’ll start having answers, because often when debtors have spiraled out of control, it’s because for some reason we’ve not been on top of our debtors, we’ve not been following-up. So by you asking these questions which literally takes you 15-20 minutes, your credit control person will start being on top of it, and because that person is reaching out to your clients and saying “Who, What, When’, when are you going to pay us?”
What you will find, and I promise you this from experience, is that you’ll have cash in your bank within a matter of 2 weeks.
This client I spoke about earlier where they were sitting at around £1.2M for years with their overdraft limit, within 6 months they actually reduced their overdraft by £500,000. They were in disbelief.
So in summary:
– Make sure you have the right personality doing this job for you
– Use the ‘Who, What, When’ triangle
– Arrange a weekly meeting, and go to the material ones, from the oldest column first.
And you do that within a few weeks, I promise you will have extra cash in your bank, guaranteed.
So one question for you. If you were using this ‘Who, What, When’ system in your practice with your debtors control, what might that do to your cash flow?
Remember, your practice is your business. Go and build yourself an amazing business that serves you, your lifestyle, and your family.
Thanks for watching this video, and if you have any questions, feel free to give me a shout. And if you know anybody else who could benefit from watching this video, please share it with them.
Have yourself a great day, and bye for now.