In the business world, you deal with debtors and creditors. The debtor is a person or organisation that must pay for delivered products or services. As a creditor, effective and well-organised debtor management is crucial for the company’s survival. A creditor is the person or company that has supplied goods or services to the debtor.
But what exactly is debtor management? Why is it so important and how can you improve it?
What is debtor management?
Debtor management is the management of outstanding invoices. This management consists of activities such as:
- Sending invoices.
- Checking whether customers can pay their bills.
- Sending payment reminders.
- Making arrangements for payment.
- Communicating with customers to ensure payments are received on time.
Debtor management helps companies prevent financial problems. It ensures a good cash flow by making sure customers pay on time.
It starts with sending invoices to customers. It is important to keep a close eye on payment terms so that customers pay on time.
In addition, reminding customers of outstanding payments plays an important role in debtor management. By gently reminding customers of outstanding payments, the likelihood of receiving payments on time increases.
This ensures the company has enough money to keep running smoothly.
Think of friendly reminders to more formal warnings, depending on the situation. Do customers not pay on time? Then you can take steps to enforce payment, such as engaging a collection agency.
The goal of debtor management is always to ensure that outstanding amounts are paid and that the organisation’s finances continue to flow well.
Why is debtor management so important?
A debtor manager is someone who ensures that debtors pay their bills on time. They monitor whether payments are being made and do what is necessary to ensure everything runs smoothly, such as:
- Sending invoices to customers.
- Talking to customers about outstanding payments.
- Sending reminders when payment is almost due, to kindly let customers know that payment is due soon.
- Negotiating payment plans if necessary.
- Assessing how well customers can pay their bills before they buy anything.
- Establishing payment rules (e.g., payment terms and penalties for late payment).
- Reporting and analysing payment behaviour to understand trends and risks.
- Taking steps to get the money if people do not pay.
These tasks help the company manage outstanding payments well and ensure it remains financially healthy.
What is a debtor manager?
A debtor manager is someone who ensures that debtors pay their bills on time. They monitor whether payments are being made and do what is necessary to ensure everything runs smoothly, such as:
- Sending invoices to customers.
- Talking to customers about outstanding payments.
- Sending reminders when payment is almost due, to kindly let customers know that payment is due soon.
- Negotiating payment plans if necessary.
- Assessing how well customers can pay their bills before they buy anything.
- Establishing payment rules (e.g., payment terms and penalties for late payment).
- Reporting and analysing payment behaviour to understand trends and risks.
- Taking steps to get the money if people do not pay.
These tasks help the company manage outstanding payments well and ensure it remains financially healthy.
Learn more about outsourcing your debtor management?
Competencies of a debtor manager
Debtor management is work that requires tasks to be carried out accurately. Analytical skills (thinking smartly and making good decisions) are important to quickly assess situations.
It is also important to have communication skills when dealing with debtors. Think of clear language, active listening, showing understanding (empathy), and patience.
- Clear language: instead of saying “You have not paid yet,” you can say “The payment for invoice 12345 has not been received yet.”
- Active listening: instead of immediately coming up with a solution, you can say “I understand you are having trouble making the payment. Can you tell me what is going on?”
- Showing understanding: instead of saying “You just have to make the payment,” you can say “I understand you are having difficulty making the payment. I would like to help find a solution.”
- Patience: instead of getting angry or irritated if the debtor does not respond immediately, you can say “I understand you are busy. I will contact you later.”
Decisiveness is also an important trait for a company that wants to remain financially healthy. Through a strong approach to debtor management, companies can ensure that customers pay their invoices on time. This ensures the company has the income needed to function.
A debtor manager must act quickly if the payment term has passed or if there is a problem (dispute). It is helpful if they can talk convincingly with those who need to pay, so they understand why it is important to pay immediately. In short, these are the key competencies of a debtor manager:
- Working accurately.
- Communication skills (listening, speaking clearly, and negotiating).
- Decisiveness and persuasiveness.
- Analytical skills.
What tasks does a debtor manager perform?
A debtor manager handles everything related to the debtor management process: prepares invoices, processes them in the accounting system, and sends them to the right debtors. It is also a task to ensure that debtors pay the invoices on time (before the payment term expires). If this is not the case, the debtor manager follows the steps for unpaid invoices and sends a reminder or makes contact.
This can be done by calling the debtor, asking questions, and possibly making an arrangement on how they can pay. These arrangements are then recorded in the administration. If payment is not made after a invoice reminder, a debtor manager sends a reminder. There may also be a conflict over the payment that needs to be resolved.
Tips to improve debtor management
As mentioned, good debtor management is important for the survival of your business. Could your debtor management use a refresh? By following these tips, you can ensure that the management of outstanding payments improves and that there is less chance of late or completely missed payments.
- Record agreements: make clear payment agreements and communicate them clearly to the customer in advance to prevent problems.
- Invoice correctly: tailor your invoicing to your customer’s wishes to make the payment process easier and check that the invoice has been delivered correctly.
- Keep an overview of outstanding invoices: keep track of outstanding invoices to take action on time (before the payment term expires). Payt helps keep track of outstanding invoices by automatically processing, following up, and reminding them.
- Make a plan and follow it: make a plan to get outstanding invoices paid and follow it. This includes sending reminders and making phone contact if necessary.
- Be friendly but clear: communicate clearly (without ambiguity or confusion) about payment agreements. Ask for payment in a friendly manner.
- Engage a collection agency: if payment is not made, it is wise to engage a collection agency. This way, you can receive the money from outstanding invoices sooner than if you have to chase the payment yourself.
How do I measure effective debtor management?
With sensible and effective debtor management, you can improve cash flow. But at what point can you consider your debtor management effective and perhaps more importantly: how can you measure it? Using the following three KPIs, you can easily assess the impact of effective debtor management on your business:
- The average number of days an invoice is paid.
- The average number of days paid late.
- The number of written-off invoices as ‘unpaid’. This should be low.
No debtor department?
Do you want to improve your debtor management but do not have a debtor manager on staff? There is a solution as an excellent alternative to a debtor manager: outsourcing debtor management to Payt’s software. Debtor management is important in several ways. For example, to optimise cash flow and have more working capital available.
Payt’s software takes over debtor management by ensuring that payments from debtors are received as quickly as possible. The debtor management software provides an up-to-date overview of debtors and outstanding invoices. With the efficient software, debtors pay faster, maintaining a good customer relationship and reducing debtor risk.
Learn more about outsourcing debtor management?
Automating debtor management
Keeping track of your debtor administration can take a lot of time and energy when you send many invoices or have many debtors. Fortunately, there are now automated solutions available that can help automate your debtor management. Payt’s software offers various features, such as electronic invoicing and checking the creditworthiness of your debtors.
The software also has integrations with various accounting programmes to make your administration even easier. You do not have to enter all the data manually, as the system does this for you. Furthermore, it is possible to communicate with your debtors per invoice in the software. This way, you can easily find out why the debtor is not paying the outstanding invoice.
Good debtor management is important for the survival of your company. It involves sending clear invoices and monitoring payment terms. If payment is not made, it is helpful to take immediate action and engage a collection agency (when you want to receive payment faster). By using Payt’s automated solutions, you save time and energy and ensure more efficient debtor management.
