Debtor Days are of paramount importance to the success of any company, and they’re a highly effective way to measure the health of your enterprise. Debtor days is a commonly-used term to measure how long your customers are taking to pay you on average. But to understand how you can reduce debtor days, we must first understand them in more detail.
Debtor Days - The Detail
Debtor days refers to the number of days customers are given to pay their debts. The length of this period of time is chosen by each business, but if the debtor days are lower, the business is likely to have a stronger cash flow. And businesses are less likely to have to rely on credit themselves, from their own suppliers. This relates to an important economic principle; the time value of money (TVM).
TVM states that the money in your company’s bank account today is worth more than the money in the same account tomorrow. TVM recognises the interest that money accrues when it’s invested in your business account. Cash, which you have, can be used to make more cash. However if your cash is lost in unpaid invoices, it’s worth less, since it can’t accrue interest and it can’t be reinvested into your business. The greater your debtor days, the longer your customers have to pill their bills, of course. But in reality this can be detrimental. Your business will have its own bills, debts and expenses which need to be paid, and the result is your cash is tied up, or you’re placed in a challenging position in regards to credit control.
How to Reduce Your Debtor Days
The most effective way to manage your credit control is to automate the process using credit control software, such as Lateral. Lateral can chase invoices for you, issuing automated payment reminders and it is compatible with your accounting software. With software automatically monitoring and enforcing credit control procedures on your behalf, your debtor days can be seamlessly and significantly reduced.
Secondly, focus on the content of your communication, particularly if it is automated via credit control software. Be clear and concise about the terms of payment. Make the payment date clear and prominent on the invoice you send. A third tactic to reduce debtor days is to introduce early payment incentives and easily accessible payment options. This is the way to make sure your debts will be collected on time, every time.
Artificial Intelligence and Machine Learning — We Can Help!
Leading cloud-based credit control software is powered by Artificial Intelligence (AI), and it can serve to significantly reduce your debtor days. Machine Learning (a subset of AI) is applied within the software to identify credit risks more quickly and more accurately. Developments in machine learning and deep learning have empowered the team at Lateral to build their high-performance credit default risk prediction tool. This is another vitally important advancement in our pursuit of reducing your debtor days.
Managing your debtor days is absolutely vital. Which is why businesses of all sizes are looking to automation technology to maintain their strength and stability. Get in touch with Lateral today, and let us help you get paid on time.