Introduction to this document
Debtor days incentive scheme
Whilst larger debts are being actively pursued, the level of older debts can build up. Incentivising your sales ledger staff to keep debtor days down to an acceptable level can save you having to intervene.
Introducing a scheme
Positive cash flow is a priority for any company. This means not just chasing the larger debts on your sales ledger but also the myriad small ones, particularly as debtor days is one of the key figures finance directors always focus on as part of the management accounts. How can you motivate your sales ledger staff to make your life easier when it comes to controlling debtor days to, say, below 60 days' credit?
Introduce a Debtor Days Incentive Scheme which pays out an amount if certain monthly targets, say, set at 60 days’ credit, are met. Under such a scheme, the incentive is a payment to be made with the employee’s monthly salary (in the month following) when total debtor days on the sales ledger hit certain targets. For example:
Debtor days | Payment |
66 days or above | No payment will be made |
60 to 65 days inclusive | A monthly payment of £75 |
Below 60 days | A monthly payment of £100 |
It’s best to confirm the details of your Debtor Days Incentive Scheme in writing and get the employee to sign their acceptance of its terms. Our document makes it clear that this scheme is personal to sales ledger staff and that these terms do not apply to members of staff in other departments. It also includes a paragraph whereby your company reserves the right to cancel the scheme at any time without notice. You will, however, notify the employee in writing if this should happen. If the employee leaves the company, payments are made up to, say, the month-end preceding the month of departure. No further payments are made after this date; the decision of the finance director is final in all matters relating to the scheme.
tax cost
The employee does have to pay tax and NI on the payment as it passes through the payroll, and your company will have to pay employers' NI on the incentive. However, by keeping debtor days down, the company should still see a positive effect on cash flow and employees will welcome a little extra in these difficult times.
Document
10 Dec 2012
