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Insight, news and updates from Alliott NZ Chartered Accountants, Auckland New Zealand. The views expressed here are the views of the author and should be discussed in further detail should an article be relevant to your individual circumstances.

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Risk management - debtors

Written by Vanessa Williams on December 5th, 2016.      0 comments

One of the biggest areas of risk for business is debtors

paid-655Recently, the  Australian Small Business Ombudsman called debtors management problems for small and medium business "the silent killer of modern business”.

And, according to a Dun & Bradstreet report, the average debtors days outstanding in New Zealand is 34.9 days with businesses spending at least 12 days per annum chasing debtors.

Debtors is a major risk area because it flows into problems associated with cash flow within a business.

The questions regarding debtor management are:

  • Do you know what the debtors days outstanding are for your business?
  • Have you reviewed your debtors’ systems?
  • Do you have a formal process for a new customer to open a debtors’ account, or do you just grant credit to whoever walks in?
  • Do you have a system for checking references?
  • Once you have assessed the credit worthiness of a new customer, do you issue a “welcome to new customer” letter, which highlights the business’ terms of trade and contains a Retention of Title agreement?
  • Is the Retention of Title Agreement and the Terms of Trade Agreement signed by the new customer and returned to your business before any sales are made? 
  • Do you calculate debtors days’ outstanding at the end of each month?
  • Do you know how to do the calculation?
  • Does your accounting or bookkeeping team review debtors at least once a year, preferably more often, if they are preparing financial reports during the year?
  • Could you be using a digital system to follow up outstanding debtors, to improve the cash flow of your business?

That's a key question: have you thought through the potential cash flow improvements that you could achieve within your business?

This is one way that Alliotts can significantly assist with risk management strategies for businesses who are offering credit. Call us in Auckland on 09 520 9200 to talk through the impact of reducing debtor days and enhancing the flow of cash back into your business.
 

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