 Knowing 'who owes you' is not as important as knowing 'when it was owed'. It is sufficient to know how much is owed to you in terms of a monthly period. Basically, the idea is to reduce the amounts in categories 2, 3 and 4 (see below), and also to ensure that the percentage of 2, 3 and 4 does not increase from one month to the next in any one category. i.e. if category number 3 (currently showing 4.5%) increased to 6% the following month, you have failed to collect as much revenue in the 31 - 60 day category as you did last month. This slide is also the first sign of a longer term problem: if you do not work hard to reduce this important area you may be looking at legal remedies, or even write off - and that means spending money to get money. Category number 1 is for the most recent full month, and if you allow 30 days credit this should add up to all of your sales for the past month. Category number 2 is for all those invoices that are now 31 - 60 days after the invoice date. These are the most recent 'debtors' if you give 30 days to pay.
Category number 3 have not paid you after 60 days from the invoice date.
Category number 4 have not paid you for 3 months since the invoice date. | | Day Category
| Amount in Category
| % | 1
| 0 - 30 Days
| 380,000
| 67.5 | 2
| 31 - 60 Days*
| 147,000
| 26 | 3
| 61 - 90 Days
| 25,000
| 4.5 | 4
| 91 + Days
| 12,500
| 2 | | | Total Amount Outstanding
| £564,500
| 100% |
The 'sum': 380,000 / 564,500 x 100 = 67.5% * Below, 30 - 60 Day Analysis (from the above details) Name
| Tel. No.
| Invoice No.
| Invoice Date
| Goods/ Service
| Amount
| Brown Co.
| 02468 1357913
| 00000098
| 18/10/00
| Code 3
| 16000
| Smith
| 01234 5678900
| 11111198
| 22/09/00
| Code 1
| 40000
| Jones Bros.
| 04321 1234567
| 22222298
| 20/10/00
| Code 2
| 23000
| Allen
| 04321 9876543
| 33333398
| 15/10/00
| Code 1
| 15000
| White Co.
| 01234 6789012
| 44444498
| 03/10/00
| Code 1
| 13000
| | | | | | | £147000
|
An alternative to the above is to list all debtors by amount, regardless of age. This method is acceptable with small numbers of debtors. However, with large numbers the 'plan of attack' should be to target specific areas to achieve your company targets. If you need a high cash flow, concentrating on 0-30 days should provide this. If you see a rising trend of debtors in the 31 - 60 day area: you can deploy your most effective person to recover company targets in this area. You can also 'mix and match' by prioritizing the debtor ledger, as follows:
Aged Debt Analysis by Priority Priority 1
| 0 - 30 Day
| Over £1000.00
| Priority 2
| 31 - 90 Day
| Over £2000.00
| Priority 3
| 0 - 30 Day
| Under £1000.00
| Priority 4
| 31 - 90 Day
| Under £2000.00
| Priority 5
| 91+ Day
| All
|
Action for Recovering Debt You should raise a debtor list every week. Look at telephone collection for all the large accounts (large, is what you consider large) and send letters to all that remain. In my, humble, opinion you should never send two letters without telephoning the customer to find out why no payment has been received. Alternatively, a debt recovery service can be consulted to help recover debts owed to your business. Click the link above for more information. Anyway, a telephone call is cheaper than a letter, a lot less bother/administration and gets you real information. It is what you do with that information that makes telephoning the customer a more powerful tool.
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