Can Direct Debit Collections Assist Cash Flow?

A lot of businesses give credit in 1 way or another

, typically by supplying goods or services and providing an invoice for payment later. The time in between the issuance of the invoice and collection of amounts due is usually anything among 14 days and many years based on the product being sold.

It's essential to ensure that the flow of money through the enterprise is healthy; you may want to settle balances with suppliers before you're able to bring in your revenue on sales which means that a gap in cash flow needs to be financed for a brief period of time. Most firms overcome this situation by holding cash in reserve or by obtaining a line of credit with their bank, usually with some form of an overdraft.

But what happens when a customer does not settle their invoice on time? For many small and medium enterprises (SMEs), this has the potential to spell disaster; specially where there's difficulty in extending credit through the bank or where a 'buffer' reserve of money is unavailable.

With quite a few firms seeing longer delays with the settlement of invoices, SME owners require to help keep a steady hand on the rudder in relation to cash flow. There are several methods to help maintain a good money throughput in your organization:

1. Raise invoices quickly

As soon as you have provided your goods or services, raise an invoice promptly and send it to your customer. This means that the customer is immediately aware that the invoice must be paid and if the customer operates a monthly settlement cycle, the invoice need to be included in the next payment run.

2. Communicate

Chasing payments shouldn't be taboo; if your enterprise is owed income, don't be afraid to mention outstanding invoices when conducting your company negotiations, particularly where payments are due or have already passed their due date. Where invoices have come to be overdue, make a concerted effort to make contact with your customer to actively chase payments. Regular statements of account also can enable you to highlight overdue amounts.

3. Amend payment terms accordingly

Begin to reduce the time allowed for payment if need be; reducing terms from 30 days to 14 days can assist, or in particular circumstances look to acquire payment upfront or on delivery.

One issue that many SMEs fail to take into account is the payment techniques on offer. Direct Debits can support money flow in lots of circumstances: when receiving an invoice, the client is made aware that payment will definitely be requested and taken automatically from their bank account on a stated date and you therefore know when the funds will arrive into the organization. Where transactions have already been unsuccessful, for example as a result of insufficient funds in the bank account concerned, a report is available the following day showing the transactions that failed. This offers you the opportunity to take proper action to chase your customers for payment sooner.

Accepting Direct Debit as a form of payment needn't be as pricey as your bank will normally make out. You can find many BACS Authorized Bureaux who've in in the last few years, invested heavily in their systems infrastructure, information and physical security and internal processes which indicates that you simply don't need to make a sizeable initial capital outlay and can benefit from the economies of scale offered by applying a third party Direct Debit Management Organization.

Direct Debit Collection organizations will also use their expertise to help choose whether or not Direct Debit is the right solution for your organization and which product option is appropriate for you; and needless to say, by outsourcing the payment collection function, you will be in a position to focus on what matters the most - developing your company.

by: Viv Halom

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