Tool Box
Issue No. 10 - April/May 2003
The Rewards of Getting Paid on Time
by Alan Green
When we start to think about the issue of debt recovery in our businesses, we first need to identify what is causing the problem and how debt recovery fits into the whole capital cycle of your business (known as The Working Capital Cycle).
Which working cycle is applicable to your industry?
- The black circle refers to an entity dealing in stock and carrying debtors (eg manufacturers, retailers)
- The red circle refers to service industries that bill for their time (eg plumbers, electricians, accountants, solicitors, etc)
- The green circle refers to cash & carry organisations (eg supermarkets)
If your Working Capital Cycle looks like the example above, you have an urgent problem that needs addressing.
| The Average Stock turn is | 70 days |
| The Average Debtors turn is | 60 days |
| Total | 130 days |
| The Average Creditor’s repayment cycle is | 60 days |
| MAJOR PROBLEM | 70 days |
Where does the money come from to subsidise your business for 70 days? Either the bank or some other form of funding that you are paying interest on. And does it ever get any better? No, it doesn’t – unless you improve some of the elements in the Working Capital Cycle.
The elements of the Working Capital Cycle that would be causing you concern can come from (depending on your industry) debtors, work in progress (WIP) or stock.
In this article we are going to concentrate on collecting our money from our debtors as quickly as possible.
The 10 steps you need to take are:
- Prepare an invoice and send it to the customer as soon as the service is completed, or the goods are sold. Every day that you delay this process ...
