Debtors are people or businesses who owe you money. Proper management of your debtors will help you get paid faster and prevent bad debts. Prompt collection of debtors' accounts will also help you maintain a healthy cash flow.
Giving your customer an invoice or bill after they have supplied a product or service is a way of offering credit, since you have to wait for the payment. By giving your customers time to pay for goods or services already delivered, you are making it easier for them to make purchases. This will increase sales, but will reduce the cash flow critical to your business.
Managing debtors is often referred to as credit management, and includes:
- collecting debts on time
- setting credit limits and payment terms
- making credit applications and credit checks
- enforcing a clear credit policy
- considering debtor finance.
Debt management also involves keeping debtor records — this is a legal tax requirement. There are also laws governing how you are allowed to follow up debts with your customers.
This guide explains how to manage debtors for your business.