WHAT DO YOU SEE WHEN YOU LOOK AT A DEBTORS LEDGER?
I know most business people think they see a group of assets when they look at the Debtors Ledger. The general view is these assets are sales, and therefore, assets of the business. In effect, they see what they have been trained to see.
Rarely however, are these same business people able to see the true business picture presented in the Debtors Ledger. It is not until these business people are asked to wear the devil advocate's or Edward De Bono's "Black Hat" that they begin to see the true picture within their Debtors Ledger.
This is indeed unfortunate. Just because a business person wears the Black Hat, does not mean they will discover any negative factors in the Debtors Ledger.
Indeed, the true picture of the Debtors Ledger may be as desired, one that is in good shape. On the other hand, if the Black Hat is never worn, the negative factors which exist, will never be found.
A review of the contents of a typical Debtors Ledger will reveal the following invoice types.
First, the majority of invoices listed, will be paid, within, or a short time after the specified payment terms.
Secondly, there will also be invoices with special terms, which will be paid outside normal trading terms by a pre-arranged agreement.
Finally, there will be problematic invoices. Many of these invoices will still be classed as assets of the company. However, any realistic review will soon discover these invoices are liabilities not assets.
What causes an invoice to change from an asset to a liability?
An invoice becomes a liability when it is raised incorrectly and the cause is not quickly resolved . Typically, the invoice may be for the wrong goods or services, at the incorrect price, sent to the wrong address, incorrectly completed, e.g. without a purchase order number, etc.
An invoice can also be a liability if it becomes obvious the customer has no intention of paying it. What usually happens, is that management lacks the will to challenge the customer about the slow or non-payment, take legal action or write off the invoice(s) as a bad debt.
Therefore, when I wear the Dark Hat, I can quickly identify the problematic invoice which has become a liability to the business. If you too can put on the Black Hat, in a short time, you will see this liability within your Debtors Ledger.
If you can learn this skill and act promptly on your findings, then you will have a better business with increase efficiencies, cash flow and profits.
May you be paid today rather than tomorrow.