Business Advice

Cash flow drivers #4:
The dilemma of debtors

By December 9, 2021 March 22nd, 2022 No Comments

This is part 4 of Ravit Insights series on the 7 Cash Flow Drivers essential for SMEs.


Image credit: Scott Graham via Unsplash

A business associate declined an invite to an event recently. The reason? Nothing to do with my social status, but because she was cash poor waiting for two months of invoices to be paid.

This is the dilemma of debtors – one of the most serious issues for SME cash flow.

Cash flow negative:  Increasing debtors are a negative influence on cash flow.


Also known as accounts receivable, it is the amount of money that your business is owed by customers for goods and services delivered but that you’ve yet to receive payment for.  Also, any amount of money owed by customers for purchases made on credit. 

It can be tempting to count this incoming money as money in the bank. But it is no such thing until it’s there.

In fact one of the biggest problems companies can have is collecting outstanding invoices. Unfortunately, it is such a big problem it can contribute to the collapse of companies.

A common problem for business owners is forgetting to follow-up on unpaid invoices, which may ultimately end up with them writing off invoices as bad debt.

What’s your process?

When we work with companies, we look at the importance of business processes. Sending out and ensuring invoices are paid is right near the top of this list.


We look at:

  • How long are your payment terms? 14, 30, 60 or 90 days? Is this suitable? Is this increasing over time?
  • When do you follow up unpaid invoices? Who is in charge of this and is it manual vs automated?
  • Is there a stop work/supply available for unpaid invoices?
  • When does the CEO get involved?
  • What’s the problem with getting these invoices paid?

The impact of a failing in this process can be catastrophic, especially with banking lines of credit or funding becoming harder and harder to access. Not having access to cash can impact critical business payments including staff wages, pressure from your own creditors or payments to the ATO.

Common reasons for delays

Understanding why payments are late can be essential to fixing the problem. If it’s a lapse of a debtor’s mind or if there’s some major macro issues they are facing, you’ll be able to understand when you might get paid and what measures you can take to do so.

Is it you?

As mentioned above, having a solid process around invoices including when they are sent out and followed up is important to ensure they are paid.

Is it them?

Have your debtors been consistently late, and have cash flow issues of their own? Perhaps they have a busy CEO who is unavailable to approve payments or don’t have the right process in place to ensure they are on time. Whatever the reason, to continue working with this business understanding their hurdles is helpful to maintain a good relationship and ensure you can get paid.

Broader issues

Unfortunately, sometimes businesses face unforeseen circumstances, such as the coronavirus pandemic. Debtors facing their own cash flow issues can be a common reason for late payments. These big macro issues are often out of everyone’s control. Communication is key to working through this.

Debtor financing

A popular way to navigate debtors is to get financing to cover the gap between an invoice and when it is paid. This kind of financing must be approached with a solid understanding of your business and motivations behind using it.

Businesses must consider why they need this and if it is essential, especially related to any additional financing they have in place.

A bad example would be when it the business equivalent of a consumer applying for a new credit card after maxing out their first.

A good example is when the company recognises the delay in finance is impacting their growth strategy and applies for debtor finance to temporarily fill the gap and give it greater flexibility in using its working capital.

This ultimately is an essential conversation to have with your accountant / advisor.


Check out the other cash flow drivers all business owners should understand.

Jun Yan

Jun Yan

Jun Yan is the co-founder and director at Ravit Insights. Prior to this, he was a commercial banker at NAB.

Leave a Reply