Why It Is Important to Collect Your Debt within Three Months According to Paul Mackenzie

Having so many debtors can have a very negative impact on your business. Every business relies on the sale of its goods and services in order to make profit. Making sales is very important to your cash flow. When you make a sale your sales ledger is credited with your amount but when it’s a debt your income statement remains the same. When you give out goods and services on debt many times the income of your business will be very minimal. According to Paul Mackenzie it is important to make sales but it is more important to collect the payments.

Many businesses will fail if they lack enough cash to run the business. A business might have cash out there in terms of debts but it will not be of help if it’s not repayed in time. If a business allows its customers to keep debts for more than three months, they will have to have huge capital to make sure their business keeps running at this time. Not many businesses have adequate working capital to run the business for three months without adequate income so it is important to collect your debts within that time if you need your business to keep up with competitors.

Having debtors not paying for more than three months can have a devastating effect on your cash flow. If your business only deals with a few customers and they all fail to pay their debts in time, your business might become bankrupt because there will be no income to run it. Another effect of customers not paying up is you will delay paying suppliers who will stop supplying goods to you. This will stop your business operations for a while if there is a shortage in stock. Shortage of income might also get you in trouble with the authorities because of delayed taxes.

Shortage of income due to delay in payment of goods by debtors might have a negative impact to your employees too. When a business is low on cash it takes time to pay the employees. You have to convince them to wait until a certain debtor pays up so you can pay them. This will demotivate them to work. They will not give their best to the business and you might end up losing some of them. When a business is successful in terms of sales and income it motivates your workers because they can see the fruits of their hardwork.

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