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In this modern era, all firms, small businesses, mid-size companies, and large corporations strive to achieve Wealth Maximization and good Cash Liquidity positions for their organizations. That’s all they are working for to increase their organization’s value and financial stability to pay off all their liabilities. And for that, they have to maintain a healthy cash inflow system which consists of two sources of funds. That is, Cash Sales and Cash realized from Debtors. Cash Sales amount does not affect the firm’s Liquidity position a lot. As in most cases, it is not the majority part of cash inflow. And even if it is, there is no payment managing problem at large. But the scenario changes with Sundry Debtors as it is generally the majority part of the cash inflow system. And managing the cash realization task becomes difficult for businesses. That’s why the Sundry Debtors Management process got created.

So if you have come here to read this article, you want to know about the Sundry Debtors Management process. And there’s some possibility that you might have some background to it. But in this guide, we will tell you about the whole thing right from Beginning to end for all our readers. So let’s get begin with it.

What are Sundry Debtors?

The individuals or small businesses or firms or companies who receive any products or services from any business organization without immediate payment but on a credit basis are known as Sundry Debtors for that particular business organization. The Sundry Debtors promise to pay their dues to the organization in the near future. It is a collective name or account type given to all the borrowers and trade debtors.

Let’s take an example to make it simple. So Mr. David has bought some quantity of goods from Mr. Vivek’s shop and initiated the transaction. But it lacks the element of payment, and instead of that, Mr. David promises Mr. Vivek that he will pay the total cost of the goods in 15 days. And if Mr. Vivek provides the acceptance to Mr. David’s payment terms, the whole transaction between them stands to exist. Accordingly, the transaction gets completed. And, instead of receiving cash payment as Current Asset, Mr. David now becomes a debtor to Mr. Vivek’s business, becomes Current Assets. Like that when many enterprises purchase any product or services from the seller on a credit basis. Then they all become debtors who then collectively are called Sundry Debtors.

What is Sundry Debtors Management?

Sundry Debtors Management is a technique or process by which companies make investment decisions regarding sundry debtors. The decision-making process revolves around the collection of payments from Sundry Debtors. And How to set Terms of Payment and Credit Policies for future dealings with their customers.

Why is it Important and Needed?

Sundry Debtors Management in SME Business - Ultimate Guide

The concept about Sundry debtors and their management process, which’s explained above, may have given you some idea about it. Now let’s understand why it is necessary and needs to get implemented. But before that, we should know a little about Working Capital.

Working Capital is a term that you all might have heard a lot. It tells you about the organization’s liquidity position. That is it able to pay off its liabilities and will not go bankrupt shortly? So it is a financial liquidity position indicator that gets calculated by this formula.

Working Capital = Current Assets – Current Liabilities.

Therefore if any business has surplus working capital, then it can pay for its operating expenses. But if it has a deficiency, it may have trouble paying off daily operating expenses and creditors.

1. Maintain Regular Cash Inflow.

The Cashflow is the foremost aid for any business for its day-to-day requirements. It serves as a bloodline to the Working Capital as the regular injections of cash amounts help pay off daily expenses and current trade liabilities.

Now to break down part what type of Cash Inflows a business gets from its daily operating activities. Majorly there are two sources of funds Cash Sales and Cash amount realized from debtors.

Generally, the Debtor’s cash realization amount largely contributes to cash inflows. Because of which it is necessary to maintain regular cash inflow from sundry debtors. And that’s when Sundry Debtor Management comes up.

Read More about – Ways To Improve Cashflow In SMEs During Pandemic.

2. Sundry Debtor’s Payment Tracking.

The main problem for which Sundry Debtor’s Management acts as the solution is that. It is challenging to ascertain who all trade debtors the company has to receive the due payments and at what time. Also, confusion about the exact amount of due payments prevails. Further, in some cases, when the credit period exceeds for the sundry debtors, then the interest applicability is there.

So by application of sundry debtors management, with the help of software, easy assertation of required information gets possible. The exact amount due with interest, if applicable, from particular debtors get ascertained. Furthermore, the payment which the Debtors have already paid gets updated that provides real-time amount which they have to receive.

3. Follow-ups assertations of Sundry Debtors.

After the sundry debtors’ dues, assertations, and reviewing the customer’s payment history and credit period limits, another process starts. That is the Follow-up process with the debtors in which communications through emails and calls get sent to remind the customer’s about their payment irregularities. This process is necessary to ensure regular cash inflows from sundry debtors, which is essential. And this is possible because of sundry debtor management as it collects and sorts the data and helps management take action on these things.

4. Bad Debts identification.

Bad debts are a monetary expense that debtors of a business are unable to pay, and it becomes uncollectible due to some reasons, therefore, becomes a loss for the firm. The information regarding these debtors who can convert in Bad Debt gets gathered by the Sundry Debtors Management process. And on the basis of this information, the firms can decide how to escape from this loss or reduce the volume of damage.

5. Formulating Terms of Payment and Credit Policies.

The Terms of Payment have become the most inclusive tool for businesses in avoiding losses in their dealings with other firms. Also, it makes clear about the cash and other discount options, interest applicability on late payments, cheque dishonor-related charges terms. The definite depiction of these terms on invoices, quotations, challans, and others, creates a legal binding over customers for their dues.

Additionally, with the sundry debtors’ management process, the Credit Policy of the organization can originate. It will depict information about “How much credit a customer can get and to whom and for how long.”  This particular erudition will categorize the customers into categories on amount of credit, credit period, and transaction type. It gets made on their past performance and aging analysis. Further, it helps develop credit collection guidelines for use inside the organization by fixing responsibility for the particular departments and people.

How to Implement Sundry Debtors Management?

After understanding sundry debtors and their management, why it is necessary, you all will want to know about its implementation. So let’s start with it.

There are two approaches that businesses can use to implement a sundry debtors management process. First is the Traditional or Manual Approach, in which companies early perform the whole process manually by appointing different employees. And the collection of data and preparation of reports for the management’s understanding, whole thing done on paper.

The second approach is using automation software that has the features of performing sundry debtors management. It will help in providing real-time information, messages templates for Follow-ups. Also, it helps in storing all contracts and related documents in one place, monitoring overdue, and providing automated reminders.

Way Forward

After providing you all information about sundry debtors and their management, I must guide you on selecting the different approach for its implementation. So if the businesses, whether small or large, go for the manual process, they will face difficulties in managing and providing the correct information. Also, the process will take a lot of time to complete. And in some cases, a simple graphical depiction of the complete data will not be possible.

So with these all difficulties the second approach is the more suitable option. The use of the software will make it easy and fast for the users to view the data in a much simpler manner. And for that firms, can choose different software solutions available in the market. But should not go for software that only provides for just this particular need. Further, they shall go for a solution that satisfies all their needs and fits their company’s size and nature of business. And TranZact is one such option that is suitable for SMEs.

TranZact is a digital transformation tool and platform for SMEs to digitize business processes right, from customer inquiry to dispatch. It helps in digitizing the core business activities, which also involves the sundry debtor management process. It provides BI Dashboards, which tell about the position of cashflows, total balances of debtors, and other reports. That further helps the users to make data-driven efficient decisions for their business. So firms should choose this software or any other software only if they provide for their nature and size. Otherwise, go for other solutions available in the market if it suits them.

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