Last week I wrote about checking your unpaid bills, your creditors, to see if the bills outstanding are accurate or whether there are old unpaid bills which could be duplicates or could require credit notes.
This week I am going to cover debtors - the customers who owe you. Whilst all business owners think they are on top of their unpaid invoices and know exactly who owes them and how much they are owed, often the accounts tell a different story.
There are different ways of keeping a record of the invoices you have sent to your customers and when they are paid. Accounts software will keep track of this for you but if you don't keep the accounts up to date daily or weekly you can't rely on the information to be accurate so you might want to keep a record outside of your software.
This could take various forms:
If you like paper you could print off every invoice and put it into an "Unpaid" folder, then when you check your bank each day you can remove all the invoices which were paid the previous day and write the date paid on them. If they are part paid put the date and the amount paid and return them to the "Unpaid" folder. Unpaid invoices could be stored in alphabetical order so you can easily find them when you see the payment in the bank. When they are paid and you have removed them from Unpaid file them in a Paid folder in either alphabetical order or number order with the oldest at the back to save you turning over lots of pages to file the newer ones behind the older ones.
This system will enable you to see at a glance who owes you and how old those debts are just by taking a look at your Unpaid folder.
If you don't want to waste paper you can save your invoices to an "Unpaid" folder on your computer and move them to a "Paid" folder once they are paid. You may not be able to add the paid date to the invoice but you could, if it was useful, add the paid date to the file name. It is important if you are storing invoices electronically that you name them in a way which will enable you to easily find them. That is likely to be with the invoice number, the name of the customer and the date.
Your Accounts Software
If you use accounts software such as Xero to raise and send your invoices, the invoices will show as unpaid until you have added the payment to the invoice. This is the most efficient way of keeping track of your debtors - when you see the payment come into the bank add the payment to the invoice. This will work also if you use a CRM system for keeping track of your customers and raising invoices - you will be able to add the receipt of monies to the invoice and although neither the invoice nor the receipt will show up in your accounts (unless it links directly with your accounts software) you will see in your customer management system whether the customer owes you anything and if so, how much, before you accept another order from them.
Ensuring you keep up to date with exactly who owes you on a frequent basis is the key to maintaining the cash flow in your business. Letting an unpaid invoice continue past the due date is allowing your customer to retain cash in their bank when you need it in yours. Not reminding your customer that they have an invoices or invoices outstanding sends the message that you don't need them to pay promptly. And allowing several months to pass before chasing up an invoice could be embarrassing, especially if it happens more than once. It shows that you are not organised.
Put all your unpaid invoices into a place where you can easily look at them - either paper file or electronically - and set yourself a reminder to look through them every day or once a week. File those that are paid and chase those that are overdue. Check your accounts software if this is your preferred method.
A little time spent frequently will be much more effective than feeling you have a large chore to undertake monthly or quarterly when you realise you are running short of funds to pay your suppliers or your VAT bill.
Cash is King - make sure it is in your bank account when it should be and not propping up your customers cash flow.
Send your invoices promptly when they are due so the you don't forget. There is nothing worse for business owners who keep their accounts up to date on a monthly basis to receive an invoice one, two, three or six months after work has been completed. Charges need to be invoiced in the month in which they are incurred. This could be at the end of a piece of work or job, part way through (an interim) invoice, or any other term agreed with your customer. Remember it helps to keep your cash flowing and won't annoy your customer when it is late.