As a small business owner, there’s nothing more stressful than chasing overdue invoices. It's time-consuming, frustrating, and can take your focus away from growing your business. But what if you could take control of your cash flow and reduce the stress of waiting on payments?
By establishing a solid debtor management procedure, setting clear expectations with your clients, and using the right tools, you can unlock your cash flow and get paid faster. Let’s dive into the steps that will help you streamline your accounts receivable process and get the payments you deserve on time.
We Asked the Experts: Their Best Advice for Getting Paid Faster
To make sure you’re getting the best advice, we sat down with five industry experts, each with years of experience helping businesses just like yours tackle the headache of overdue payments. We asked them to share their top tips and strategies for improving debtor management and getting cash flowing faster.
From legal protections to tech tools, and even advice on when to bring in the professionals, these experts have seen it all and know exactly what works. Their insights form the foundation of this guide—designed to help you take charge of your accounts receivable and stop stressing about late payments. Whether you’re a seasoned pro or just starting to set up your debtor management systems, these tips are for you.
The Three Freedoms You’ll Gain
Before we dive into the tools and strategies, let’s talk about the three freedoms that good debtor management can unlock for you:
Mind Freedom: No more sleepless nights wondering how to chase overdue payments. With the right processes in place, you can sleep easy, knowing your cash flow is in check.
Money Freedom: Get your invoices paid on time, so you’ve got the cash to grow, pay your staff, and take that holiday you’ve been dreaming about. No more juggling bills because your customers didn’t pay theirs.
Time Freedom: Stop spending hours chasing payments. Implementing automated systems means you get back to doing what you love—running your business and making money while you do it!
These three freedoms are what every business owner dreams of. With the right systems and processes in place, you can stop worrying about cash flow and start focusing on what truly matters.
Our Experience with Debtor Management: A Personal Journey
When I first started My Two Cents Accounting, debtor management wasn’t always as smooth as it is today. Like many small businesses, we were caught in a constant cycle of chasing overdue invoices and spending far too much time on the phone or sending email reminders. It was frustrating and took us away from doing the work we love.
I remember spending sleepless nights wondering when the payments would come through. I even tried sending “gentle” reminders, only to receive delayed responses or silence. Eventually, I realised something had to change. We couldn’t continue running the business effectively while constantly worrying about overdue invoices.
That’s when we decided to overhaul our debtor management procedure. We started by setting clear payment terms, automating reminders, and investing in the right tools. And you know what? The results were transformative. Our average debtor days went from over 60 days to under 21 days—and it felt like a weight had been lifted off our shoulders. Now, we’re not only getting paid faster, but we’re also spending more time focusing on helping our clients thrive.
Step 1: Set Clear Terms and Conditions with Clients
The foundation of any successful debtor management system is clear communication and expectations. Having a solid debtor management procedure starts with clearly defined payment terms that both you and your clients agree to from the outset.
Sian Wingate, a legal expert and founder of TradieTerms, emphasises the importance of having Terms of Trade that include clear payment terms. "When you set out your payment terms clearly from the start, you're protecting both yourself and your client," Sian explains. "Make sure to outline due dates, payment methods, and the consequences of late payments. These terms should be part of every agreement."
Here are a few things you should include:
Payment Due Dates: Specify the exact date the payment is due.
Late Fees: Include penalties for overdue payments to encourage clients to pay on time.
Deposit Requirements: For larger projects, consider asking for a deposit upfront to secure cash flow.
Preferred Payment Methods: Make it easy for clients to pay by offering multiple options (bank transfer, credit card, etc.).
Step 2: Streamline Your Invoicing Process
Once you've established your terms of trade, it’s time to streamline your invoicing process. A well-organised and prompt invoicing system can dramatically reduce the time it takes for clients to pay you.
Tom van Megen, an accounts receivable solutions specialist, advises that businesses should be as quick and efficient as possible when it comes to sending invoices. "The sooner you send an invoice after completing a service or delivering a product, the better," Tom explains. "Invoicing within 24-48 hours shows professionalism and helps clients understand the urgency of your request."
Key tips for improving your invoicing system:
Use Automation: Set up automated invoicing systems to reduce manual effort and ensure you invoice as soon as possible.
Invoice Immediately: Send invoices as soon as you’ve completed the work, so there’s no delay in the process.
Track Due Dates: Use accounting software that tracks due dates, so you’re always aware of when payments are expected.
By being proactive with invoicing, you’re setting the stage for faster payments.
Step 3: Automate Payment Reminders
Once your invoices are out, you need a system in place to follow up on any overdue payments. Many small businesses spend too much time manually chasing clients for payment, but this can be simplified using accounts receivable automation tools.
Ashley Schroder, co-founder of Paidnice, stresses the importance of automation: "Automated reminders take the pressure off you. You don’t have to spend your time emailing or calling clients to remind them—let the system do it for you."
Here’s how you can make automated reminders work for your business:
Set Up Reminder Sequences: Configure automated reminders to be sent out a few days before the due date, on the due date, and then at regular intervals after the payment is overdue.
Offer Easy Payment Methods: Make it as easy as possible for clients to pay by including payment links directly in your reminders.
Maintain Professionalism: Automated reminders should be polite and professional, offering a gentle nudge that respects your client’s time.
Automating these reminders ensures that you’re consistently following up without it taking too much of your time.
Step 4: Debtor Workflow Automation – Detailed Steps
To truly unlock your cash flow, automation is key. Here’s a detailed step-by-step guide on how to automate your debtor management procedure for faster payments:
Select an Accounts Receivable Automation Tool: Choose a software solution that integrates with your accounting system (e.g., Xero) and automates the creation and sending of invoices and reminders. Paidnice is a great tool for this.
Set Up Automatic Invoicing: Configure your system to send invoices immediately after completing a service or delivering goods. This removes any delay in invoicing and helps you stay on top of cash flow.
Establish Reminder Sequences: Schedule automated reminders to be sent out 3 days before the due date, on the due date, and at 7, 14, and 30-day intervals for overdue payments. Customise these reminders to suit your tone and make them polite but firm.
Send Payment Links: Include direct payment links in your reminder emails, so clients can pay immediately with a few clicks. This makes it as easy as possible for clients to pay you.
Review Your Aged Receivables: Use your automation tool to regularly review your aged receivables report, and take action on overdue invoices by either sending more reminders or escalating to collection services.
Step 5: Know When to Call in the Experts
Despite your best efforts, there may come a time when payments simply don’t come through. When this happens, it’s important to know when to escalate the situation and bring in a professional. Shane Crawford, Managing Director of Specialist Collections & Consultants, explains when it’s appropriate to involve debt collectors: "The longer you wait to take action, the harder it will be to collect the debt. If you've sent multiple reminders and have no response, it's time to consider involving experts."
Here’s when you should think about involving a debt collection agency:
When You’ve Exhausted Your Options: After multiple reminders and attempts to communicate with your client, if there’s still no payment, you might need external help.
When the Amount Owed Justifies It: If the overdue payment is significant and it’s impacting your ability to operate, calling in professionals can be worth the investment.
When Client Communication Breaks Down: If your client becomes unresponsive or refuses to communicate, it’s time to involve a professional collection service.
Choosing the Right Debt Collector: Legal Advice
When it’s time to bring in a professional, choosing the right debt collection agency is crucial. Here's some advice on selecting a reputable debt collector:
Check Their Reputation: Ensure they are well-established and have experience dealing with businesses in your industry.
Review Their Legal Process: A good debt collection agency should be able to guide you through the legal processes, including writing demand letters and taking legal action if necessary.
Understand Their Fees: Debt collection services usually charge a fee, either flat-rate or based on a percentage of the collected amount. Make sure you understand the costs and how they align with the value you’re recovering.
Know Your Rights: Ensure that the debt collection agency follows legal and ethical guidelines. In New Zealand, there are laws regulating debt collection practices, and you should choose a provider that adheres to these.
Step 6: Foster Strong Relationships While Getting Paid
While it’s essential to protect your cash flow, it’s equally important to maintain a strong and positive relationship with your clients. Debtor management doesn’t have to be adversarial; in fact, maintaining open lines of communication can go a long way in fostering loyalty.
Here’s how to balance professionalism with maintaining a great relationship:
Be Transparent: Always communicate your payment terms upfront and clearly. If there’s ever a delay on your end, let your client know.
Offer Flexible Payment Options: Some clients may prefer to pay in instalments. If you’re able, offering payment plans can help ease the burden on them and ensure you get paid.
Keep Communication Open: If a client is struggling to make a payment, talk to them about options, such as extended payment deadlines or partial payments. This shows that you care about the relationship while still ensuring you get paid.
By combining professionalism with flexibility, you can build stronger, long-term relationships that benefit both parties.
Conclusion: Master Your Debtor Management Procedure
By implementing these strategies, you can build a solid debtor management procedure that works for your business. Setting clear terms, streamlining invoicing, automating reminders, and knowing when to call in experts are all essential steps to getting paid faster and reducing the stress of overdue payments.
Whether you’re in Mangawhai, Northland, or anywhere else in New Zealand, taking control of your accounts receivable and debtor management will give you the confidence to focus on what matters most—growing your business and keeping your clients happy.
Ready to unlock your cash flow? Get in touch with My Two Cents Accounting to learn how we can help you implement these strategies and keep your business thriving.
