Debtor’s days is one of those challenges that historically most accountants struggle with.
When cash is tied up in outstanding invoices, it’s not readily available for you to use towards growing your accountancy practice.
Reducing your debtor’s days can be a hard task, although with the right system and process, it’s easier to get results than you might think…
In this article, I want to focus on minimising debtors days for your new clients.
In fact, with the system I’m going to share with you below, you can actually end up with negative debtors days…
Minimising Debtors Days For New Clients
When it comes to putting a system in for new clients, this is relatively easy to do because they have no history with you.
They are in the honeymoon phase.
And they’ll follow your guide on ‘This is how it is and this is how we do it.’
With that in mind, some of the systems we want to put into place are as follows:
1. Direct Debit
When a client is not on direct debit, we are essentially leaving it up them to pay us when it suits them.
Then it costs us to pay someone to chase them for their money which is rightfully due, and paying someone to do this task is another way our profitability can be impacted.
Direct debit outweighs standing orders, because with direct debit we have the ability to change the figures (next year’s increased fee, which they’ve agreed to, needs a change on the monthly paid amount).
In addition, where extra work has been completed, we have the ability to take that money as per our agreement with the client.
Direct debit puts you in control.
I would highly recommend a system such as www.gocardless.com.
It is very easy to set up. It costs, at the time of writing, 1% of the transaction fee with the maximum amount being £2 per transaction. Which is fairly inexpensive.
It also integrates with a number of top accounting software including: Xero, Quickbooks, Kashflow and Sage 50.
The idea is that your clients spread their costs over ten or twelve months… and that they will have paid your fee before you actually do the work.
This system will cause you to end up with negative debtors.
2. Upfront Agreements
Most communication and agreements work much better when they are done upfront.
If I want my small children to clean their playroom after they’ve played, I’m guaranteed better results if – before they start playing – we sit down and I get them to agree that once they’ve finished playing, they will tidy up.
I stare them in the eyes and say “Great – now tell me what we’ve agreed to.”
And when they can actually repeat to me, upfront, what they’ve agreed to, then I can be much more certain that they will actually tidy up once they’ve finished.
And the same is true with our clients.
If we can agree with them upfront, before we do any work, exactly how things are going to work, and they agree to it, then the communications are clear and things are agreed in advance.
Because often we don’t agree things upfront and we leave it till later – and usually what we end up with is disgruntled clients/ staff/ partners/ life…
So what this means in the real world is that if we don’t stick to our upfront agreements and our client gets an invoice two months later and then – six months after that, they eventually take out their cheque book to pay you, the following conversation might be going through their head:
(in that tone of voice…)
“For what, exactly?”
“This darned accountant of mine sees my financials and he’s just taking me for a ride. I can’t believe I have to pay this much. What a rip-off! I’m going to call him and get this invoice halved. This is ridiculous!”
And so merrily, yet again, you hit all of our write-off targets.
Well done, you!
The implication of this is that you want an upfront written agreement with your clients on:
- Exactly what you will be doing for them,
- How much it is going to cost them,
- Exactly how and when they will be paying you,
- And for any additional work outside of the scope of your agreement there will be a separate work order for which they need to sign before that work will be done.
This upfront agreement needs to be signed to indicate that they are happy to continue.
Once you have the abovementioned system in place, your cash flow will start improving because for every new client signing up, they’ll be paying you in advance of their work being done.
Profitability will improve because you have a system in place that will take care of scope creep.
What Could You Do With The Cash Injection?
Minimising your debtors days on new clients using the systems above will create a cash injection for your practice.
Ask yourself – how could that cash be used now that it’s sitting in your bank, and not in outstanding debtors?
If you’re looking for some ideas on how to grow your practice, or develop your team, why not book in for a complimentary 20 minute practice growth session with me here.
During this 20 minute call you will:
- Discover the #1 thing that’s stopping youfrom building the practice that you want
- Identify the next best stepthat will move you to the place you want to be
- Leave the session with the confidence of knowing exactly what to doto implement the “Practice Growth Blueprint” (this is the exact system my clients use to increase their profits whilst actually working less in their practice
Book your practice growth session now and take the first steps towards taking control of your practice, making more money and getting your life back.