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trade finance, invoice finance, profitability

6 ways to reduce your creditor / debtor days 

Improve the difference between paying creditors and being paid by debtors.

Paul Surtees Jul 29, 2016

Debtor days are the amount of time cash is collected from your debtors. Creditor days are how quickly your business pays your suppliers. 

If your business has long creditor and debtor days, it will have an impact on your working capital position. 

To help your business improve your working capital position, here are 6 ways to reduce your creditor/debtor days: 
 

1. Negotiate better payment terms with your suppliers

While reducing debtor days is important, it's equally essential to optimise your creditor days. Negotiating favourable payment terms with your suppliers can provide your business with breathing room and can improve your cashflow.  Request extended payment periods or explore options for early payment discounts.

A good business credit score will enable you to negotiate better payment terms with your suppliers. In doing so, you more closely match when you will be paid by your clients with your supplier terms.

To improve your business credit score, get started with Capitalise for Business today.

 

2. Establish Clear Credit Terms and Policies

Clearly defined credit terms are essential to manage trade debtors effectively. Ensure that your customers are aware of the payment terms, including due dates and consequences for late payments. Regularly communicate these terms and policies to avoid any misunderstandings or disputes. By setting clear expectations, you can encourage timely payments and reduce your trade debtor days.

 

3. Offer discounts for early repayment

To discourage your customers paying late, you could offer discounts for paying early. A small discount to customers who pay their invoice within a time frame will incentivise them to pay early, which helps you get paid faster and reduce the number of debtor days. 

 

4. Change payment terms

Businesses early in their lifecycle are often flexible on their payment terms, But over time, this can lead to headaches with working capital as your supplier/client payment terms stretch.  

A good strategy is to implement shorter payment terms to all new clients you onboard. Once you are confident with the shorter payment terms, you can revisit old clients and change the terms with them as well. This can be an effective way to dave off days of your client payment terms. 

You should also assess whether you are offering too long payment terms to customers. 
Credit checking your customers will help you understand how much credit to offer them. By checking their business credit profiles, you will be able to see whether they typically pay others on time or not, so you can set realistic payment terms. 

To start credit checking customers, sign up to Capitalise for Business today.

 

5. Automate credit control and set up chasers 

The single largest reason for a late paid invoice is the customer saying they haven't received it, so automating your invoices is a great way to ensure you get paid by trade debtors. 
Setting up automatic chasers will also help to encourage customers to pay on time. 

There are a number of automated invoice software you could use to reduce your creditor days and debtor days, such as: Xero, Sage and QuickBooks

 

6.  External credit control 

An external credit control provider will have the expertise and time to effectively secure on time payments from your customers. If you’re struggling to find the time to credit control internally, an external provider could be a good solution for your business.

Tip: Some invoice finance lenders offer invoice factoring, where the lender will assume the credit control process for you. 

Connect with one of the team to find invoice finance for your business.

 

Updated: 05/06/2023.

 

 

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