Last week we sent out a post regarding how long your invoices are outstanding or as we call it debtor’s days as an average and the feedback we got back was quite interesting.
This was sparked by a conversation with an accountant who insists his clients can tell him when he asks them the average length between an invoice being issued to it being paid and if that is over 30 days then they must look at their credit management.
People were asking how we work that out? Well, a bit time consuming at first but once you feed in the length of time before each invoice is paid divided by the number of invoices then it is quite easy to work out on a regular basis.
However, the interesting question was who decided that 30 days was an acceptable length of time for an invoice to be outstanding?
It is a great question as I don’t know who originally who set the standard but 30 days is now not the necessarily the norm and what we are seeing is that larger companies are pushing the boundaries initially going to 60 days but that has now been extended to up to 120 days in some cases and in instances the invoicing companies have had no option but to accept the change of terms.
The Federation of Small Businesses quotes that there is approximately £38Billion outstanding to the SME community in the UK. That is a staggering amount and imagine if only half of those invoices were paid on time how much money would be put back in the system!
After all, if you shop online or at any retail business you will have to pay for their goods or services at the point of sale. You would not be able to leave the premises without paying so why is it so different in business?
Fortunately for us most businesses sell on credit and that leaves the possibility of invoices being unpaid irrespective of the terms and conditions. But why are we not pushing for shorter payment terms. Well, if you ask the FSB they say they are lobbying for the SME community in order to reduce the amount of outstanding debt to the business community and reduce the excessive length of time some businesses are implementing on their suppliers.
We started this blog talking about the average length your invoices are outstanding. Our recommendation is to ensure that your average length of outstanding invoices should always be under 30 days. If it stretches over 30 days, then you will obviously have invoices that have not been paid for much later which has dragged your average over the 30 days.
Do you check your outstanding debtors’ days?