The ‘books’ are not a glamorous part of business.
But a good system of financial administration that is rigourously followed is vital to the ongoing success of your business. It means bank accounts are reconciled daily, debtors and creditors are paid within the agreed time frames and all other filing and compliance matters are complete.
Our experience shows that there are three ways to improve financial administration:
1. Debtor Management
Active debtor management is keeping an eye on clients who owe you money and endeavouring to make sure that they pay you within the terms of your credit contract with them. If your terms are 30 days, you’re making sure that they’re paying you within 30 days.
The key to cash flow freedom is making sure that you’re paid for what you do. Some clients have their banks to provide them credit. That’s not your job. If you are providing a service and offers terms for that service, you should be paid within those terms.
2. Creditor Management
Having a Creditor Payment System is simply a system that outlines how and when you pay your creditors. Creditors are people that owe you money for services that have been provided to you. They offer you credit terms ranging from, typically, one day to a 30-day period.
It’s about managing the outflows of cash from your business to pay for the things that you need. It can be as simple as a series of policies in place in that makes sure that you pay creditors based on the terms of invoice. Done well, it’s an automated process.
3. Monthly Management Reports
You need monthly management reports to know what’s going on in your business. Sometimes, business owners don’t look at the numbers. They’re too busy delivering service to their customers and clients.
One of the things we often do at KHT is sit down with clients and look at their numbers. We make sure that every month, we’re reviewing monthly management figures, reports and how the business tracked for the month and where it’s going.
Solid financial administration done well keeps your creditors happy, your debtors managed and your financial records in tip top shape. You can also be confident that your management reports will provide timely and accurate information.