How to spring clean your sales ledger

29/03/2018

Now that the clocks have gone forward and we start to look ahead to the summer, we’ve reached that time of year that the proverbial ‘spring clean’ moves higher on our list of priorities.

Yet this process needn’t only happen at home. There are in fact several aspects of everyday business that may have been left to collect dust in the last few months as other priorities have taken precedence, and could therefore do with a quick clean.

Your sales ledger is one of them. It is one of a business’s most important assets, providing essential information about the invoices owed and therefore offering incredible insight into your business’s performance.

Whilst it should be constantly reviewed, it requires dedicated time and resource to keep on top of it and many businesses find themselves unintentionally neglecting it.

If this sounds like your business, then here are 10 ways to use spring as a prompt to give it a deep clean.

1. Update cash flow forecasts

To be as accurate as possible your cash flow forecasts need to be updated every time an invoice exceeds terms. So, when you review your sales ledger make sure your financial forecasting is updated to reflect your findings. This will allow you to spot any potential cash flow shortages before they happen.

2. Implement plans for cash flow gaps

Should you anticipate a cash flow shortfall, it’s vital that you do something to protect your business from the potential dangers as soon as possible. You could negotiate an extension to your credit terms with suppliers, for instance, request earlier payment from another customer with an early settlement discount, or perhaps approach your bank to request an extension of the business overdraft or for a short-term cash flow loan.

Going forward you might want to consider a more long-term solution such as invoice finance. Invoice finance removes the cash flow gap between a sale and payment by releasing up to 90% of your sales ledger value just 24 hours after invoices are raised. This provides the necessary working capital to pay suppliers on time and meet your other commitments.

3. Identify proportion of invoices unpaid beyond agreed terms

By showing which invoices have and haven’t been paid, the sales ledger provides an instant overview of the success of your company’s credit management processes. Should a high proportion of invoices be unpaid beyond the agreed terms, it could be time to focus on how to improve this aspect of your business and consider new strategies to implement.

4. Improve processes

If your review has identified room for improvement it’s vital that you take action to improve your credit management processes before the issue gets out of hand. Are you offering credit to those who can’t afford to pay? Consider more thorough checks before offering credit. Are your invoices getting lost in the post? Consider e-invoicing. Are you receiving lots of invoice disputes? Consider reviewing your invoicing process to look for common mistakes.

5. Target your older debts

Statistically, the longer an invoice goes unpaid the harder it is to collect the money. So, stop letting your unpaid invoices gather dust and start the action needed to get them paid. If you’re ongoing efforts haven’t worked or you simply don’t have the time or resource to dedicate to chasing them in-house, you may benefit from bringing in a debt collection agency.

6. Update technology

With research suggesting that slow internal processes and a lack of automation are the real cause of late payments it could be time to consider investing in new and improved software to save time and improve productivity.

7. Vet your customers

Many businesses fail to credit check their new and existing customers. This could mean you are offering credit to businesses that cannot afford to pay you. For this reason it is wise to keep a watchful eye on your customers throughout your relationship to ensure that they don’t experience a change in circumstances that could pose a danger to your cash flow.

8. Get rid of repeat offenders

If your sales ledger review reveals some customers are persistently poor payers you should look at ways to either improve their behaviour or limit the risks to your business going forward. You could implement a stop list and withhold services until payment has been received or take full or partial payment upfront. Whilst ending a customer relationship is arguably a last resort, you should ask yourself what a customer is worth if they continuously pay late or not at all.

9. Improve your skills

When was the last time you or your staff took part in some training? Reviewing your sales ledger will often highlight key areas that can be improved. So, attending a course can develop these skills, boost productivity and open your mind to new opportunities.

10. Hire help

Especially for smaller businesses, finding the time to constantly keep on top of your sales ledger can seem impossible. With core business tasks to focus on you won’t want to take time away from the day-to-day running of your company. But, help is at hand. It is possible to outsource all or part of your credit control function so that you can concentrate on your business whilst your sales ledger is in safe hands.

For more information on how we can help you to optimise your sales ledger, call our team on 0800 9774848 or email collections@hiltonbaird.co.uk.