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Cash tips for the struggling business owner: Debtors & Pareto principle

Updated: Nov 12, 2020



By Michael O'Donnell

9 November 2020


Are you a business owner and receiving calls directly from suppliers about non-payment of their invoices? Have you been particularly cash conscious and have held back on reinvestment while you struggle to protect your payroll and other obligations? Then you need support on your cash and working capital management.


This article looks at one contributor to the problem: Debtor collection.


Initial issue:

A business was not collecting its debtors; too much cash was tied up in the 90+ day buckets; cash flow stresses; business owner was receiving complaint phone calls and emails.


Solution:

Pareto 80:20 principle: That 80% of a business’ cash is owed by 20% of its clients.


We took the system-generated Aged Debtor listing and exported it into Excel where we ranked the clients in order of size and age, cross-referencing it to the assigned Client Relationship Manager (CRM).


We distributed a company-wide Friday Flash report, which was distributed internally to all CRMs and the Business Owners. That afternoon the CRM made contact with each of their clients to discuss operations, new business opportunities and the overdue invoices. It was a warm and friendly chat rather than a colder credit control call.


Rather than collecting low-hanging fruit, management focus was on the Worst 20 clients until they were resolved. The following week, there'd be a new worst 20, and so it continued. Last weeks figures were also shown as comparatives.


Statements for material accounts were sent out on a monthly basis, ensuring that the client had sufficient opportunity to dispute, or otherwise pay up.


Effect:

Cash collections improved within a fortnight. Cash stresses lifted within a month. We minimised complaint emails to managing director from our own suppliers. He had a more pleasant inbox and voice-mail and was generally less stressed and snappy. Business became more cash-flush enabling a business expansion plan.


Action for you:

If you are a business owner and receiving calls directly from suppliers about non-payment of their invoices, or have been particularly cash conscious as you struggle to protect your payroll etc, then you need support on your cash and working capital management.


Give me a call.


Michael



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W: www.inctrl.ie

E: michael@inctrl.ie



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