What is your average number of debtor days? Is it nearer 70 days than 40? Whatever challenges the economy throws at you, it’s good business sense to collect payment from your customers as soon as you can – ideally within a maximum of 45 days. But how can you successfully reduce the time it takes to collect the money you’re owed?
Well as you may expect, the solution doesn’t lie in a simple click of the fingers, or for that matter the click of a mouse in a modern IT system. First, you need to ensure you have a strong Credit Control team and a business culture that thrives not only on hitting revenue figures, but also on collecting cash. Secondly, you need a system that supports the business by providing real-time information which is easy to interrogate, and tools that can automate processes to make everyone's life easier.
Systems, no matter how good, can't change your culture or train your Credit Control team to be strong. But you can implement a modern ERP solution which empowers salespeople, sales operators and credit controllers to make brilliantly informed decisions.
For me, Microsoft Dynamics AX 2012 is one of those modern systems; an ERP solution which has Customer Relationship Management (CRM) at its core. The Customer Activity page shows all the contact (emails, phone calls, meetings) that has occurred between your business and your customer. You can also record all the customer's contact information, preferred names, likes and interests - all good stuff to let the customer know that you know them and you like doing business with them. This will give all users a holistic view of what is going on with the customer.
What else have we got to help get the debtor days down to 45? Here are my top six ideas:
1. Why not change your payment terms from ‘End of Following Month’ to 30 days or 45 days? Now I am not the greatest fan of ‘End of Following Month’ payment terms. Generally customers delay making orders until the start of a month to get the 60 days credit. They also complain when their orders, although despatched on the 31st, are received on the 1st. I see Finance teams all over the country manually generating Sales Invoices to get round this problem. I also see the Sales teams, Warehouse, and Credit Control departments all end up with peaks and troughs of work - this is just not an efficient way of working. A lot of the time these payment terms are set up because the system couldn't cope with blocking Sales Orders once an Invoice becomes overdue. But Dynamics AX 2012 with the HSO Business Platform handles this perfectly, allowing you to use payment terms of 30 days or 45 days to get your Debtor Days down.
2. Timely invoicing encourages timely payment. In AX 2012 all Sales Invoices have due dates, payment plans, and can be emailed, snail mailed, or interfaced to your customer immediately. AX 2012 supports collection via Direct Debits, which is a great way to continue giving the customer payment terms whilst giving you confidence that you will collect the cash.
3. Make sure your chasing process is efficient. AX 2012’s new Collection Management module gives credit controllers real time information on overdue customers. You can see the customer’s contact details, sales history, payment history, CRM activity, appointments, and previous chasing activities. Personalised chase letters or emails can be generated using the new interactive Word Templates to really increase their impact. In my experience the most successful credit controllers are constantly on the phone speaking with their prey. AX2012 supports this process by automatically generating prioritised call lists. Letters get thrown in the bin, but the expectation of a painful phone call often gets people to start paying.
4. Get your sales team to collect the payment when collecting the customer’s next order. The customer is most vulnerable when they want something - it would be a very brave customer to stop their new order on grounds on being asked for payment on their last one. The salesperson can even email them their “lost” Invoices and Statements your Windows Mobile or 3G Laptop. You could enhance this process by changing your Commission structure to be based on payment of an Invoice instead of just the revenue. To support the sales team further add KPI’s, alerts, and activities on to a salesperson’s phone to notify them of important deadlines and events. Remember the maxim - “a sale is not made, until it is paid”.
5. Format your documents for customer convenience. You can use the new document formatting tools in AX 2012 with Reporting Services to make it easier to maintain separate Invoice and Statement formats for different customer groups. And you can add your bank details and Credit Control contact names and numbers to make it as easy as possible for the customer to pay.
6. Support different methods of payment. With a Credit Card Interface, which is compliant with the Payment Card Industry Data Security Standard, you can set up a Credit Card payment gateway with AX 2012. Modern systems can also support a customer portal which shows outstanding invoices and recent statements, and collects Credit Card payments on your website.
OK, so there’s lots of work to do, but what is the benefit? Well, let’s take a £100m turnover business as an example. If you can get your 60 debtor days down to 45 days, then each month you are getting £8.3m of cash 15 days earlier. Taking a 15-day interest rate of 0.1% that means £8.3k of interest per month – and over a year this is £100k in interest alone. Of course this doesn’t include other benefits such as: improved cash flow so you can start taking early settlement discounts with suppliers, reduced bank charges, less moaning from your Bank Manager, and the decrease in work needed to manage cash flow problems.
What do you think? Can you get your Debtor Days to 45? Why not go for 40? Just remember to keep the sales coming in as well.
Please see our Blog site www.erpcraftsmen.com/finance-blog to add your comments and to let Adrian know your thoughts and experiences.
Adrian Blake ACMA