Tips for improving cash flow: Diagnosing debtor issues

Outstanding debts are a pressing issue for many accounting and tax professionals, and firms. By identifying and understanding the root causes for debtors, you can take steps to resolve the problem within your accounting practice. Read on to learn practical tips and techniques for improving cash flow, reducing the risk of delinquent accounts, and ultimately increasing your profitability.

To resolve your debtor issues, you must first identify what’s causing these. Some common causes for accounting and tax professionals include:

• Ineffective billing practices.

• Poor communication with clients.

• Unclear payment terms.

Addressing these issues takes a comprehensive approach that involves carefully re-examining each of these factors.

First, take a close look at your current billing practices and identify areas for improvement. Are you guilty of any of the following, for example?

• Inconsistent billing schedules and frequency.

• Not providing detailed invoices or charging for all the services you provide.

• Failing to follow-up on unpaid invoices or not having a robust collections process in place.

• Not using technology to automate billing processes and manage invoices.

If you’ve answered ‘yes’, perhaps it’s time to consider a new revenue model, streamlining your invoicing process, or both.

For Jennie Moore, Ignition’s Partnerships Manager, when diagnosing debtor issues in your firm, the two Cs are key: communication and cadence. “You need to say to yourself, ‘Let's figure out how we got into this mess in the first place. How did we build accounts debtors?’” she says. “How you built debtors is probably by not telling the client that there was additional work or additional scope or not asking the client for a retainer upfront.”

The root cause of the problem, Jennie Moore says, is that accounting and tax professionals are not talking to their clients. “We're all very good at parenting and training dogs, but sometimes we're not good at having that conversation with our clients,” she says. “We’re building debtors by simply not talking.”

In fact, according to Ignition’s State of client engagement in the UK, 74% of accountants and bookkeepers said they have delayed or avoided having an awkward conversation with a client. For many accountants and bookkeepers the fear of losing a client is often stronger than the will to confront or negotiate with a client.

In reality, most times, clients are more than willing to understand what's going on, says Jennie Moore. The solution, she asserts, is better communication and having that conversation upfront. “Think about your mechanic with your vehicle on the lift. He says, ‘We notice your air conditioning pipes are leaking, and you need brakes’. Well, it’s best to know that while it's on the lift rather than finding out when you get the bill later! Knowing the commitment upfront not only helps your firm minimise debtors, but also focuses more on the client relationship.”

But more than just communication is the cadence (the other C) of that communication. ‘Cadence’ refers to the frequency and rhythm of this communication with clients. It’s about setting a regular and consistent pattern for when and how you communicate with them, such as how often you send out updates or have a check-in. A dependable cadence can help build trust and strengthen client relationships. Because, as we’ve seen, an inconsistent or haphazard approach may lead to confusion, missed opportunities (and revenue!), and decreased client satisfaction.

“Ultimately, my tip is so simple,” Jennie Moore says. “Talk to your clients.”

Now that you’ve got communication on the right track, there are some other easy steps you can take to resolve your debtors and improve your cash flow. These include:

• Taking client payment details upfront as part of your proposal: With Ignition, you can request client payment details upfront as well as deposits right from your proposal, reducing the risk of late or non-payments. You can also bill and collect payment automatically, meaning less effort for you and your clients. Find out more in How to move to upfront payments.

• Invoicing promptly: The sooner you invoice your clients, the sooner you get paid! In Ignition, you can invoice clients automatically by connecting Ignition to QuickBooks Online or Xero and even send automated reminders when a bill approaches its due date. By setting up the system to automatically withdraw funds by a specific date, you can eliminate the need to chase payments.

• Establishing clear payment terms: In your engagement letter, include a section detailing your payment terms. When is payment due? How will the client be billed? Ensure there’s no ambiguity; and enable the client to easily make payments once the engagement letter has been signed. Ignition makes this step easy through the app's client billing features.

• Charging for out-of-scope requests: Ignition’s service edits feature makes it easier than ever for you to make changes to agreed services. You can adjust the price, quantity or billing details of your services – even after these have been accepted by your client. Ignition will notify your client of small adjustments to the agreement without the hassle of signing a whole new proposal.

• Regularly engage and re-engage your clients: Engagement letters are the best way to both safeguard your position and cash flow without damaging client relationships, especially when combined with regular invoicing and taking control of payments.

With these straightforward steps, you’ll be maximising your revenue streams in no time.

Want to learn more about how Ignition can help you improve your cash flow and help you achieve a zero debtor practice? Watch our demo today.