Are your Customers treating you as a bank?

By Stuart 7 years ago1 Comment

Most businesses sell their products and services on credit.  The length of time it takes your customers to pay you, after the issue of your invoice, is called debtor days.

Debtor days are calculated as your trade debtors figure (from either your management accounts or bookkeeping system) divided by the total sales for the same period multiplied by 365, or

Trade Debtors/ Total sales x 365

The figure produced from this calculation will tell you, on average, how long it takes your customers to pay you.  If the figure is greater than your credit terms, you could be acting as a bank for your customers.

When banks lend customers money, they charge interest – you can too!

Since November 1998, Government legislation has been in place which allows businesses the right to charge interest on late payments from customers.  The legislation is called “The Late Payment Legislation” and the interest you can charge is called “statutory interest”.

The Late Payment Legislation website contains some background information and a great statutory interest calculator, which will help you calculate how much your customers owe.

Of course, instead of charging statutory interest, it would be much better if the cash was in your bank account on time!

This is where we can help.  This post covers six key ways to ensure you get paid on time and if you visit our free resources section, you can download our cash management toolkit which should help you round up the money on time, every time!

Categories:
  cash management
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