How to Reduce Debtors Days and Get Paid Faster in SA

Profitable businesses run out of cash all the time in South Africa, and the usual reason is not margin. It is that the money is sitting in the debtors ledger. If you have ever wondered how to reduce debtors days without picking a fight with the customers who keep the lights on, this is the practical version.

Debtors days, also called days sales outstanding, measures the average time between raising an invoice and banking the cash. It is one of the few ratios an owner can influence directly, within weeks, without selling more or spending less.

What debtors days actually measures

Think of it as a delay, expressed in days. If your debtors days is 62 and your terms are 30 days, the average customer is holding your money for a month longer than they agreed to. That gap is funded by someone: usually your overdraft, sometimes your suppliers, occasionally your own salary.

How to calculate it without fooling yourself

Run the ratio monthly off the same source every time, and put it on the front page of your monthly management accounts next to the cash balance. Two refinements make the number honest.

1. 1Strip out anything that is not a genuine trade receivable: deposits, staff loans, intercompany balances and VAT receivable. They inflate the ratio and are not collectable through credit control.
2. 2Look at the ageing profile alongside the average. A business with 45 debtors days where nothing is past 60 is healthy. A business with 45 days where a third of the ledger is past 120 has a bad debt forming and a good looking average.

Why the number drifts upward

Debtors days rarely jumps. It creeps, and it creeps for reasons that have nothing to do with customers being difficult.

• The invoice was wrong or late. A customer who receives an invoice on the eighth of the month with the wrong purchase order number will pay on the following cycle, not this one. Invoice accuracy is the cheapest collection tool there is.
• No one owns the follow up. Collection sits between sales, who do not want to nag, and finance, who do not know the relationship. Unowned tasks do not happen.
• Terms were never agreed in writing. Without signed terms of trade you are negotiating the due date every month.
• Credit was extended without a check. New customers get the same terms as a fifteen year account because nobody set a policy.
• Disputes are logged nowhere. A single unresolved query holds up the whole account, and finance only discovers it at day 90.

A credit control process that works

The businesses that collect well do not have better collectors. They have a rhythm that runs whether anyone feels like it or not.

1. 1Set terms before the first sale. Signed terms of trade, a credit application, and a credit limit that matches the risk. For larger exposures, ask for a suretyship.
2. 2Invoice the same day the work is delivered, with the customer's purchase order reference and the delivery evidence attached.
3. 3Confirm receipt at day seven. A short email asking whether the invoice is loaded for payment catches every missing purchase order and every disputed line while there is still time.
4. 4Statement and call at due date, not a week after. The call is short and specific: which invoices are on the next payment run, and if not, why not.
5. 5Escalate on a fixed ladder. Account manager, then finance, then a credit hold, then a formal letter of demand. Publish the ladder internally so nobody has to decide in the moment.

Collecting without damaging the relationship

Owners resist credit control because they picture an argument. In practice, the customers who pay slowly are usually not refusing to pay, they are responding to whoever contacts them most clearly. Being specific, polite and consistent moves you up the payment run without a single difficult conversation.

Where a customer genuinely cannot pay, get a written payment arrangement with dates and amounts, and stop supplying on credit until it is honoured. An arrangement that is kept is worth more than a legal letter that is not.

Most collection problems are administration problems wearing a costume. Fix the invoice, fix the follow up, and the difficult customers become a much shorter list.

Rishen Narsing, CA(SA)

Feeding the number back into the forecast

Debtors days is an input to your cash forecast, not just a scorecard. Model the collection profile you actually achieve rather than your stated terms, and the forecast stops being optimistic. Our guide to budgeting and cash flow forecasting covers how to build that in, and if the underlying issue is that your margins are too thin to absorb any delay, start instead with product costing and pricing for profit.

How Synergy helps

Debtors management sits inside operational finance: we run the age analysis, set the credit control rhythm, chase the ledger on your behalf, and report the collection result monthly so you can see the ratio move. Where the wider process needs rebuilding, from credit applications to dispute logging, we document it under process and policy so it survives a staff change.