Jean Roberts

Debtor relations is a key component in your Financial Risk Management Checklist. My suggestion is to treat your relationship with debtors as seriously as you treat your relationship with customers or clients.

1. You need a set of Financial Principles – as an SME owner/manager

• Know the cost of each dollar you have to spend>
• Spend responsibly – you can only spend each dollar once,
• If you spend a dollar on or in your business, that dollar cannot be used for your personal expenses or life-style,
• Money is received, and money is paid out – get used to the ‘money in/money out’ lifestyle,
• Your cash position is important, but you must also know your current financial position – which takes account of forward liabilities, current debts, and money due from any source but not yet received,
• Your third best customer/client is a repeat customer/client,
• Your second best customer/client is one who pays on time and on your terms,
• Your very best customer/client is a repeat customer/client who pays on time and on your terms.

2. You need to have a Debtor Relations system

• Have a Customer/Client Relations system that is based on respect for their needs and interests, confidence in converting enquiries into sales, justified faith in the quality of your product or service, and wisdom in relation to after-sales service,
• Create a specific category for customers/clients who have yet to create a payment history with you – and monitor their payment performance carefully,
• Develop a ‘financial antennae’ to assess payment potential and payment pitfalls,
• Monitor the success of your Debtor Relations system in terms of (a) reduction in bad debts or overdue payments, and (b) increase in payments received within and according to your own terms, and
• Treat your debtors as a source of immediate or early revenue – chase them sensitively, but chase them!

3. Watch for these Financial Risk Factors

• Unwise, unexplained, unnecessary or unplanned change,
• Disagreement, misinterpretation or misbehaviour,
• Failure or delay in meeting your financial obligations on time and in full,
• Inadequate, inappropriate, incorrect or vague information or instruction,
• Non-availability of relevant information, plant, equipment, materials, facilities, tools,
• Failure to protect your own interests,
• Failure to comply with legal, statutory or contractual requirements, duties or obligations,
• Inadequate or inappropriate processes and procedures for financial planning, management, monitoring, and review,
• Lack of appreciation or understanding of immediate, short-term and long-term constraints relating to such factors as finance, time, space, distance, technology and the availability of components, products or information,
• Inexperience, undue haste, emotional stress, internal or external pressures, unwise decisions, insufficient care, bad timing or bad luck.

4. Financial methods should cover safe and responsible procedures

• Direct and monitor your financial performance, adopting appropriate and proven financial methods,
• Manage any type of wastage to avoid excessive or unnecessary costs
• Monitor access to or use of any of your assets or resources to avoid indiscriminate use,
• Allocate specific authority, accountabilities and responsibilities to relevant staff for the acquisition, allocation, management, accounting, administration and monitoring of your finances,
• Effectively manage risk relating to business activities such as investments, loans, credit, insurances, damage control, disaster plan, product liability, industrial issues, environmental issues and the occupational health and safety,
• Ensure security, promptness and efficiency in all financial matters,

5. A simple tracking system can help in designing an appropriate financial procedure for money in and money out

• Identify the separate and total steps currently being followed when a cheque, cash or credit card payment is received… right through to the point of recording the bank or financial institution deposit,
• Similarly, identify the separate and total steps currently followed when placing a verbal or written order, signing a delivery note for goods or services, receiving an invoice for goods or services ordered, drawing a petty cash voucher or giving prior approval for an expense… right through to the point of recording payment or reimbursement,
• Examine the current procedure to see if there are any lapses in responsibility, security or administration where either the money or details of receipt or payment could be at risk,
• Tighten procedures to ensure that such lapses are at best avoided or at worst able to be recognised and remedied immediately.

6. Take advantage of external assistance

Examples include:

• Tertiary research on SME Entrepreneurship – both state, national and international,
• Business Networks,
• Business Mentors,
• Business Enterprise Centres,
• Government Grants for a variety of business activities, assistance, methods, programs, or systems

7. Watch your cashflow!

Any business of any size and shape is dependent on cashflow – if it’s a problem, you could find yourself experiencing these effects:

• an inability to honour your debts,
• an inability to purchase supplies or increase your assets,
• a new diligence to call in all monies due or nearly due,
• an urgent need for immediate pre-paid orders,
• a sense of suspicion about window-faced envelopes or envelopes carrying the logo of your bank in your daily mail,
• a tendency to screen callers on your phone,
• a need to lessen your immediate personal expenses, eg to eat less or less frequently,
• a need to introduce a variety of white lies into your conversation with family, friends, suppliers,
• a definite familiarity with sleepless nights, a heavy heart and an undermining of your business confidence and enjoyment.

None of these can be identified as the cause: they are all effects. They sap your energy and can prevent you from finding and dealing with the cause.

It is vital to identify the cause, as there is only one cause to a crisis: one cause, but often countless effects. Unless and until you address the cause, the effects will magnify. Put your energy and initiative to the cause, and the effects will minimise in nature and effect.

Tools for this Core Business Strategy No. 5 are provided in:

• One Man Show – the smallest of small business
• Competitive Tendering – how to write a competitive tender
• Successful Submission Writing – for business and nonprofit organisations