Debtors’ Review
Questions to consider:
• Do you obtain directors’ guarantees before opening a debtor’s account for a company?
• Are debtors’ payment arrangements confirmed in writing?
• Do you monitor the Debtors’ Aged Analysis?
• Do you follow-up debtors with outstanding balances outside your stipulated trading terms?
• Do you refer problem debtors promptly to a debt collection agency?
• Have you considered a debtors’ financing facility to help improve your business’ cashflow?
According to various debt collection agencies, it now takes close to 60 days on average for debtors to settle their accounts with small business. This is a substantial increase on debtors’ days outstanding 12 months ago. All of this highlights that, for businesses to survive in the current economic circumstances, close attention should be given to the management of debtors. If you allow too many of your customers to trade outside your stipulated trading terms, it will quickly erode your profitability in a relatively short period of time. A blow-out in a business’ debtors’ ledger can precipitate financial problems within the business itself.
Gross Profit Review
It’s a good idea to prepare a product matrix identifying the targeted gross profit percentages on the various products that have been purchased for the business. A periodic analysis could then be conducted to calculate the actual gross profit being earned for comparison back to the original target.
Can the gross profit percentage be improved by:-
• purchasing from different suppliers?
• purchasing in larger quantities to reduce freight costs?
• renegotiating freight costs?
• changes to handling procedures to reduce wastage and deterioration of the stock?
Survival in Difficult Times
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This post is part of the “Survival in Difficult Times for SMEs” series.
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Article by Christie Lewis
Christie is Practice Manager at Alan Lewis Accountants . Besides accounting, her passion is for all things small business (and blogging, of course). You can contact Christie directly at christie@lewistaxation.com.au.
Christie has written 799 awesome articles for us at Alan Lewis Accountants – BLOG
Twitter: @christielewis
