How to Reduce Debtor Days Using Sage Accounting
Late payments place unnecessary pressure on cash flow.
A business may be profitable on paper, but that does not help when too much revenue remains tied up in unpaid invoices.
Debtor days measure how long customers take, on average, to pay your business. While some delays are unavoidable, consistently high debtor days often point to gaps in the invoicing and collection process.
The good news is that better use of your Sage accounting system can help you identify overdue accounts sooner, follow up more consistently and improve the speed at which money reaches your bank account.
Start with clear credit terms
Payment expectations should be agreed before work begins or goods are supplied.
Your credit terms should clearly stated in customer agreements:
- When payment is due
- Which payment methods are accepted
- Whether deposits or upfront payments are required
- Who should receive the invoice
- What information the customer requires on the invoice
- What happens when an account becomes overdue
Avoid automatically giving every customer the same credit terms. A new customer, for example, may warrant stricter terms until a reliable payment history has been established.
Ensure the correct terms are recorded against each customer in Sage and appear clearly on quotations, invoices and statements.
Send invoices without delay
Every day between completing the work and issuing the invoice adds another day to the payment cycle.
Establish a process that allows invoices to be raised as soon as goods are delivered, a project milestone is completed or a recurring service becomes billable. If invoicing depends on paperwork or information from another team, clarify who is responsible for supplying it and by when.
Where supported by your Sage solution, quotations, sales orders and recurring transactions can reduce repeated data entry and help invoices move through the process faster.
Before sending an invoice, confirm that it contains:
- The correct customer and billing details
- A valid purchase order number, where required
- A clear description of the goods or services
- The agreed price and VAT treatment
- The payment due date
- Your banking and payment reference details
A small error can cause an invoice to sit unresolved in a customer’s accounts department for weeks.
Review aged balances regularly
An aged debtor report groups outstanding balances according to how long they have been unpaid. Instead of waiting until month-end, review this report at least weekly.
Pay particular attention to:
- Large balances approaching their due dates
- Invoices that have recently become overdue
- Accounts moving into older ageing periods
- Customers whose total exposure exceeds their credit limit
- Unallocated payments or credits
- Disputed invoices
The earlier an overdue amount is identified, the easier it is to address. A polite reminder shortly after the due date is generally more effective than an urgent demand several months later.
Sage solutions offer different levels of debtor reporting and automation, so MRBM can help you identify the reports and functions available in your particular system.
Send statements consistently
Statements give customers a consolidated view of their accounts, but sending them only at month-end may not be enough.
Consider sending statements:
- A few days before payment is due
- Immediately after an account becomes overdue
- At agreed intervals during the collection process
- Whenever a customer requests a copy
Check that statements are going to the correct contact. Your usual customer contact may not be the person responsible for processing payments.
Create a structured collection workflow
Debt collection should not depend on someone remembering which customer to call.
Create a standard process based on the age and value of each debt. For example:
- Before the due date: Send a friendly reminder and confirm that the invoice has been received.
- Shortly after the due date: Follow up by email and ask whether anything is delaying payment.
- Further overdue: Call the customer and record the reason, promised payment date and next action.
- Seriously overdue: Escalate the account internally and review whether further credit should be supplied.
Keep notes of disputes, conversations and payment promises in an agreed location. This prevents duplicated calls and provides continuity when another team member needs to take over.
Track the reasons customers pay late
Late payment is not always caused by an unwilling customer. It may result from:
- Incorrect customer details
- Missing purchase order numbers
- Invoices sent to the wrong person
- Unresolved disputes
- Unallocated receipts
- Unclear payment terms
- Delays in internal approval
- Inconsistent follow-up
Review these patterns periodically. Fixing the underlying cause can be more effective than increasing the number of collection calls.
Turn debtor information into action
Sage can provide visibility over invoices, customer balances and ageing, but reports only create value when they lead to action.
Assign responsibility for reviewing debtors, establish clear escalation rules and measure whether debtor days are improving. Even a modest reduction can release valuable cash back into the business.
Make better use of your Sage debtor information
MRBM can assist with reviewing your Sage setup, debtor reports and invoicing processes to help you gain better control over outstanding accounts.
Get in touch to discuss your Sage accounting requirements.