Successfully reported this slideshow.
The Kenyan SME Guidebook
A definitive debt collection manual for your
2 Title of the book
| Letter from the Author
| Kicking it off
| Assessing Your Debtors
what you need to know about your debtors all the time
| Creating an Action Plan
what do you need to prepare to be successful at debt collection
| Making Contact
impactful communication for effective collecting
| They Still Haven’t Paid Me: What Next?
alternatives techniques available for difficult cases
3 Getting Paid!
ou work hard to service your clients, creating a viable business that earns
your bread and employs people. You make promises to your
suppliers that you will pay on time and in full. Then you wait for your clients to
deliver on their promise…and they fail you. Unfortunately, in Kenya, this situation
is very common. You struggle to satisfy their needs, and yet clients sometimes do
not honor their end of the bargain. What do you do?
At Afrobiashara, we are passionate about empowering Kenya and Africa
through thriving businesses. However, we have watched many businesses struggle to
remain open because of defaulting clients. The smart thing, of course, is to avoid
getting there. But what happens when you are already stuck with a lot of unpaid
invoices? How do you go about ensuring that you get what you have worked so hard
In this book, we offer real solutions to a very real problem. The information
here has been used by our clients with great success. We realized that the best way
to help even more businesses was to find a way to make this information accessible
quite easily. Our hope is that the knowledge here will help you significantly reduce
the stress that you face everyday as a business. We want your business to grow, and
by sharing this book with you, we want to empower you to do better business.
If you have any questions as you read through, please reach out to us. Our
contacts are below and we would be happy to help you “mind your business”.
Kicking it off
Boss bado hajasign cheque.
the bank. For those businesses that sell on credit, debt collection is a very real
nightmare. While we must recognize that some clients, especially large institutions
and businesses, require credit, this must be properly organized not to affect your
business health. A lot of times, big companies and institutions make good debtors
while individuals and small companies are largely both difficult and expensive to
collect from. However, if you recently supplied some of the big supermarkets, you
realize that even well established brands can be a challenge.
Contrary to popular belief, debt collection starts before you call your client. A recent
study showed that up to 90% of outstanding bills by ** are lost because of poor
tracking of debt! In this book, we will walk you through the whole process, so that
you get paid!
In this book you will learn:
• How to effectively track your debt to ensure you get paid
• Planning for debt collection
• Powerful techniques for getting your debt paid
• Alternative solutions to collecting from very stubborn clients
4 Getting Paid!
Collecting debt is a big challenge for a lot of Kenyan SME’s. No matter how well
your business sales are doing, it doesn’t mean much if you don’t have cash in
Assessing Your Debt
Here you will learn:
• The importance of knowing how much debt you have
• How to keep constant track of your outstanding debt
• Financial ratios that can help you do so
Assessing your debt ensures that you do not miss any coins. It is amazing how much
money is lost by organizations simply because they did not ask for it! I once
worked with a company which was sitting on a pretty Ksh. 2 million debt because
no one knew they owed that much. How much are you losing because of poor
Before you start to collect, you need to assess your debt profile. As a business
owner, you absolutely need to know:
• who owes you,
• how much they owe you, and
• how much of your business is tied up by money owed.
In order to do so, you need to follow these two steps:
Assess your general business debt
How much of your business is tied up
with your debtors? A quick
examination of your Accounts
Receivable (debtors list) can help
you get a round figure. The figure is
your first peak into how much of your
sales is still held up with your
However, this figure is not very useful
unless compared to your other
financial realities such as sales,
profit, capital, and equity. The
impact of the amount is only felt in
relation to your business size. For
example, a small shop with debts of
Ksh. 100,000 may be financially
strained, but a large real estate firm
with outstanding of the same amount
will not be affected. Financial ratios
are a great tool to do this.
What are Financial Ratios?
These are relationships that are
lifted from parts of the financial
statements to help analyze business
performance. They help give more
information about the business.
Useful Financial Ratios for assessing your debt
• Quick Ratio
• Receivables to sales ratio
• Accounts receivable turnover ratio
• Days of Sales Outstanding
• Days of Inventory Outstanding
• Days of Payables Outstanding
• Cash collection cycle
Debts are like children: the smaller they are, the more noise they make
- Spanish Proverb
For example: sales and profit. If my sales are Ksh. 1
million, you might think I am doing well. But if my
profit from this is only Ksh. 60,000, you might be not
be very impressed. A financial ratio helps give more
information, and in the process help management
make better decisions.
books is the key to
Assess your specific debt
When assessing your specific debt, categorize according to:
The amount of debt each client has is very important to track. Large amounts of
debt are “easier” to collect than many small debt amounts. As a general rule,
don’t have very many small debtors: they will be very expensive to collect.
For you to collect what you are owed, you first need to know how much you are
owed. If you don’t keep good records, you will lose money without even realizing
When the debt was incurred is very important because of the time value of
money. Imagine I owe you Ksh. 1,000 today, if I pay you back your Ksh. 1,000
after 5 years, you will probably feel like I am paying you back Ksh. 200. The price
of everything has gone up, and you probably would not be too happy either.
The longer your debtors sit with your money, the more
“useless” it becomes! Over time, the value of your
money tied up in debt reduces due to inflation and
opportunity cost. Opportunity cost is simply what you
are missing out on by the money being in someone else’s
pocket. You could have bought new stock and made a
profit, you could have paid a bit of a loan and reduced
interest charged, you could have even paid off a bill.
Every day you do not have that money in your pocket,
you are slowly losing out!!
Every client means different things to your business: there is that guy who has
been with you for 5 years, that client who randomly places very large orders and
then “disappears”, there is that one who only speaks to the boss, and the one
who always pays in cash.
Some clients will not pay quickly if they are asked for money by one of your
employees, other clients just have a habit of delaying payments, but eventually
pay after 2-3 months of hassling. Understanding the paying nature of your client
ensures you know exactly what to do to make them pay faster.
Not all clients are created equal!
Lets make this practical
Omosh runs a wholesale business supplying kiosks. Business is good! On any given
month, he has a turnover of about Ksh. 2.1 million from his shop. After expenses,
he takes home about Ksh. 120,000 and still has spare change in the coffers. He is
However, he has noticed that of late, there seems to be no money around. He
usually gives his customers credit of about 1 month, but since business grew, he
no longer keeps track. That is Mutua’s job: his most trusted employee. Mutua is
honest, hardworking, but seems to make mistakes all the time writing down what
the customers have taken.
This month, despite his receipts saying that he broke his record and sold Ksh. 2.7
million, he can’t seem to keep up with his payments to suppliers. In fact, one of
his cheques BOUNCED! Now his suppliers are threatening to stop giving him
stock…his business is under threat!
So what is wrong?
It is obvious that sales is not the problem here. At first, Omosh thought someone
was stealing from him. How can he have money problems with such good
business? He is considering installing CCTV in the cash area!
On closer inspection, he realized that his debtors book was overflowing: no one
has been collecting from the clients! What is worse, he is sure Mama Mueni owes
more than Ksh. 36,000! How did this happen?
What can he do about it?
1. Omosh needs to make sure he employs someone competent to manage his
accounts. Hire an accountant, or even get an outsourced accountant to check
his books at least twice a month.
2. No matter how busy you get, as an SME business owner, keeping in touch with
your finances is always your responsibility. He needs to learn basics of
accounts, and have weekly sessions to touch base on the financial health of
his company. This session will cover sales level, debtors list, creditors, and
3. Set targets for collections and monitor whether targets are being met. Since
he now knows how much he is owed every week, he needs to set targets for
his business to collect. Financial ratios will help this.
In the next few chapters we will cover how to ensure that you and/or your team
is effective at getting the debt down.
Remember, you can be profitable but still close if
you do not manage your debt levels!
Get full book here
About this book
The number one reason businesses fail is lack of money.
Outstanding creditors leave you with empty bank accounts
after working so hard to service them. As a business
owner, you are already too busy running around putting
out fires. You cannot afford to have unpaying clients added
to your list of strains.
Unlike the West where bouncing cheques are a very
serious crime and courts work quickly, you need different
strategies to survive here.
In this guide, you will learn tactics that will significantly
reduce your outstanding bills, allowing you to focus on
growing your revenues.
Afrobiashara Book Series
Here at Afrobiashara, we believe in growing Africa through
thriving SMEs all over the continent. Our SME business
guide series looks to provide quality advice to African
business owners in an affordable manner. We tailor make
our advice to fit the African context so that it works for
You can check us out on www.afrobiashar.com