How Companies Should Manage Debt
Hi, my name is Adam Stewart, Debt Collection Expert and owner of Debt Recoveries Australia.
I have many financial controllers and credit managers of large companies asking me how to manage debt, when to outsource and how to manage that outsourcing project.
The first issue with debt collection is that few people like to do it, so often, unintentionally; it goes down the priority list and is put off for another day. This is the most common thing I find that financial controllers tend to do. In my opinion, managing debt should be their first priority.
Secondly, making sales and issuing invoices seems to be the main priority of most companies since this is what the shareholders are most interested in, so again, the priority is not where it should be, getting the actual invoices paid and on time.
So here are my 5 top tips on how companies should manage debt:
1. Track the expenses and income.
I have mentioned before, I love systems and processes and this is where good software comes in handy. MYOB, AccountEdge, QuickBooks or Xero are good places to start. Then you can add on some debt collection software, such as Debtor Daddy. These are excellent and robust systems that, at any click once you do your entries, you can get reports in a snap.
Your company needs to keep track of income and expenses so that at any given time a report can be made to the shareholders or to the board of directors.
Every single sale or every time you sell a product or a service, that needs to be tracked and written down. Everything that your company spends money on, such as monthly expenses, needs to be tracked in some sort of system.
2. Stop the bleeding with your expenses.
It seems simple but it must be said, watch the company expenses. As the financial controller/credit manager, sometimes you are the only one that will truly have an over-all picture of exactly where all the company money is being spent.
I believe the accounting department is the true heart and soul of any company. As the representative of the accounting department, it is your responsibility to report to the other departments. Once you have your systems and software in place, now is the time to point out where all the money is going and how it is tracking and changing from quarter to quarter.
3. Separate personal money from company’s money.
If there are a few directors who are actively involved in the company, it’s important to have separate company accounts, including credit cards.
As the financial controller, you need to educate the directors that the company accounts are separate and should be treated as a separate entity and not their personal account to use as they see fit.
4. Get company priorities in order.
As a director myself, I like to meet regularly with my accountant and my financial controller. We set priorities on where the most money is coming from and where the most expenses are going and how we can increase sales and decrease expenses. We have set a plan in place and have regular meetings. You have to have a strategy, particularly for how you are going to manage cash flow and potential bad debt.
5. Get real with company expenses.
Your company will have fixed and variable expenses. However, as I mentioned earlier, if you do not have proper systems and processes in place, then the company may be spending money on essential items, without anyone actually knowing what/why/when/how. Therefore, it is paramount to go through every single expense on the bank statement and ask the question “Is this expense needed to generate sales?” Yes or No. If the answer is no, then get rid of it.
If your company is spending money and it is not contributing to sales, this is simply not good business and it is up to you to point this out to the other departments.
I hope these five tips on how companies should manage debt will help you have an eye-opening experience, create awareness, responsibility, and fun around your finance in your company. Contact me at Debt Recoveries Australia on 1300 799 511. You may also email me at firstname.lastname@example.org or Skype at debtrecoveries.