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Getting Paid! Free Chapter

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Getting Paid! Free Chapter

  1. 1. The Kenyan SME Guidebook A definitive debt collection manual for your Kenyan biashara Getting Paid!
  2. 2. Contents 2 Title of the book 3 4 5 8 10 16 | 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 Email Phone: Website: info@afrobiashara.com 0726407878 afrobiashara.com
  3. 3. Letterfrom the Author Y 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 for? 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”.
  4. 4. Kicking it off Boss bado hajasign cheque. -Kenyan Proverb 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
  5. 5. 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 5 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 records? 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 debtors. 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 are: • 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 Getting Paid! 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.
  6. 6. 6 Remember, keeping good accounting books is the key to getting this information! Assess your specific debt When assessing your specific debt, categorize according to: Amount 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 it. Date 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!! Debtor’s relationship 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! Getting Paid!
  7. 7. 7 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 happy! 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 expenses. 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. Getting Paid! Remember, you can be profitable but still close if you do not manage your debt levels! Get full book here
  8. 8. 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 your business. You can check us out on www.afrobiashar.com Email Phone: Website: info@afrobiashara.com 0726407878 afrobiashara.com

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