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Thread: Settling Your Creditors Bills, Out of Debtors

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    Settling Your Creditors Bills, Out of Debtors

    There is nothing worse than fielding sustained calls from creditors for unpaid bills. Some people have mastered the skill in dealing with creditors, others, detest that familiar number appearing on the phone screen, and reject the call.

    It is a known fact, that most reasonable businesses pay their bills on time, regardless. Some businesses are known to have huge debtors books, but bills are paid immediately.
    They obviously fund their bills out of cash sales, deposits, or previous months settlements. This is admirable. But many small businesses do not have this luxury, and have to find creative ways to fund their creditors.

    Creditors cannot be stalled, forever. They will eventually take action to recoup whatever monies are due to them. You or your business end up with a bad credit report, or worse, court action. Each of us is different and will deal with bills and creditors differently, but panicking and paying every bill, can harm your cash flow.

    Of course certain bills should be paid on time, such as phones, rentals, wages etc. But certain bills that stipulate terms should be paid strictly according those terms.

    Your creditors should be sympathetic to the fact that your business also has debtors. (I know, they not). Stall them until your cash flow improves. Find a balance between your debtors settlement period, and pay your creditors accordingly.

    Every business should generate a debtors age analysis at a certain cut off period. Run a creditors age analysis as well. Compare the two totals. If creditors totals are way above your debtors total, then the business have some serious problems. Ideally, debtors lists should exceed creditors lists, by the ratio 2: 1!

    The next step would be to break down the respective lists into 90, 60 and 30 days.
    Estimate, which debtors on the age analysis, are good debtors, target those “reliable” debtors, they can cover creditors/bills in 90days. As soon as the debtor’’s receipts are processed pay the most urgent creditors.

    If more debtors payments are received, continue to settle creditors in the 60day period. Don’t panic when that current creditor calls. Eliminate, creditors in the 90day, then 60day, and then and 30day period. Collect from debtors in the same sequence. When arranging for payment, always have your creditors, and debtors age analysis and cash book balance available. The cashbook, or bank statement is used for verification of debtor’s deposits. That old excuse, “the cheque is in the mail”, is NOT, a payment, until the check has been received and banked!

    Importantly, this advice would be fruitless, if both sales invoices and bills are not recorded in the accounting system. All relevant documentation should be written up, to ensure that an accurate age analysis can to be produced. A collections and payments file cannot be overlooked. As soon as bills are settled, they stamped and filed away. In the rush to pay, unmarked bills can mistakenly be ‘doubled paid”, and you will not get a refund from your creditor for an over payment, only a “credit”, on your next statement.
    If bills are settled without taking cognizance of cash flow, and late debtors, the business will inevitably run into cash flow problems. Keep your creditors happy at all times, but don’t be their slave.
    Sean Goss We all are scared, but only few are brave.

  2. Thank given for this post:

    Dave A (20-Apr-09), Graeme (20-Apr-09)

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