How to Keep Track of Credit Sales and Customer Dues in Pakistan

How to Keep Track of Credit Sales and Customer Dues in Pakistan

For many businesses in Pakistan selling on credit is part of the game.

The customer walks into your store, picks up the goods they want, and demands “Abhi maal de dein, payment aglay haftay kar doon ga.” You know the customer and have been doing business with for years and you agree.

• The deal is done.
• The money is still in the customer's pocket though.
• Credit sales and customer dues can be problematic.

One customer owes you Rs. 5,000. Another customer has a due of Rs. 25,000. The retailer has taken stock of Rs. 80,000 on credit. Another has paid half of their previous balance but has already made another purchase.

It all seems simple at first.

Write it all in a book, make a note in your traditional account ledger, save the WhatsApp message or just remember it.

As your business grows, all those methods can become a headache.

A forgotten entry, a missed or misplaced payment can cause confusion between you and your customers.

Even worse for your cash flow if there is too much hanging due from customers.

The good news is that it doesn't have to be that way.

With a simple system in place, you can have an overview of who owes you money, how much is due, when it is due, and if the customer is paying on time or not.

In this guide we'll show you how to track credit sales and customer dues in Pakistan, why it's important, what systems you can use, and how to reduce delinquencies without hurting those all important customer relationships.

What Are Credit Sales and Customer Dues?

A credit sale is when a company sells goods or services to a customer on the basis that the payment won't be received until future.

This is also known as selling on udhaar in Pakistan.

Let me give you an example.

Suppose you own a wholesale grocery shop in Lahore.

A retailer buys stock from you worth Rs. 100,000.

Half the payment is made on cash and the rest is promised to be paid within 30 days.

So, you have made a sale, but you haven't received the full amount of Rs. 100,000.

The amount that the customer still owes you is known as the customer due.

So if after two weeks the customer pays you Rs. 40,000, then the remaining amount would be

• Rs. 100,000 - Rs. 40,000 = Rs.60,000

That seems simple enough.

But if you have to keep track of 50 or 100 or 500 credit customers, then you might need something else.

Why Tracking Customer Dues Is Important for Pakistani Businesses

Credit can be a powerful tool to build loyalty and boost sales, but mismanaged credit can lead to dire straits.

While a company's sales may be healthy, it can find itself in a financial crisis due to a large amount of money owed to the business that is not collected.

Here are some of the most compelling arguments for ensuring that records are kept correctly.

1. You Always Know Who Owes You Money

The most obvious benefit of this feature is that it gives you a clear picture of what your customers actually owe you.

Instead of thinking things like:

"I'm pretty sure they owe me some money, but how much?",

you'll be able to check at the drop of a hat and know exactly what they owe.

For example: if I had this feature in the above example, I would be able to tell you that:

• Customer: Ali Traders
• Credit Sales: Rs. 180,000
• Receive: Rs. 120,000
• Outstanding Balance: Rs. 60,000

2. It Protects Your Cash Flow

Cash flow is extremely important for small and medium businesses.

You may need cash for:

• buying new stock,

• paying off suppliers,

• paying off your workers,

• shop rent,

• utility bills,

• transportation,

• and investment in the development of the business.

If you have a lot of money tied up in customers’ debt, you may experience cash flow issues and will not be able to pay off some of these expenses despite having sales.

Moreover, tracking customer dues gives a good idea of how much money should be expected from the sales.

3. It Reduces Arguments With Customers

Payment disputes are much easier to resolve with proper records.

For example: imagine a customer tells you,'I have already paid Rs 20,000.' If you do not have any record of this, it might be hard to argue the point.

However, if the customer's account record shows that:

• Previous balance Rs 50,000
• New purchase Rs 30,000
• Payment received Rs 20,000
• Current balance Rs 60,000

you will be able to discuss the details of the account objectively.

Maintaining good records not only helps protect the business-it also helps protect the customers.

4. You Can Identify Customers Who Pay Late

• Not all customers have identical payment behaviors.
• Some customers are always punctual in their payments.
• Some are always late with their payments.
• Keeping the histories of the payments will help you identify customers who always take long to clear their debts.
• This information will help you make decisions on such customers as:
• Cutting their credit limit
• Cutting their payment period
• Asking them to make partial payments
• Denying them further credit temporarily
• Giving them credit depending on their improved payment histories

5. You Can Make Better Business Decisions

Final

Accurate customer records provide you with invaluable financial data

With the right information you know exactly what is due and who is due, who has the highest balance due and how long payments take to clear.

With accurate records you can rely on figures and facts when making important financial decisions.

How to Keep Track of Credit Sales and Customer Dues

Now let's get to the practical side of things.

You don't need to break the bank financing all of this to have a solid credit sales policy. All that's needed is a system, and a commitment to actually using it.

2. Record Every Credit Sale Immediately

One of the most frequent errors that businesses make is putting off record keeping.

You may think to yourself,

“I will enter it in later.”

And then another customer shows up, then your phone rings, then you get a delivery.

Before you know it, you have a number of transactions that you will have to try to remember.

This is where errors are made.

Make a rule,

if it is a credit sale, enter it in immediately.

Make sure to enter in the date, customer name, invoice number, amount and payment terms.

3. Give Every Credit Transaction an Invoice

Create a proper invoice that will provide both you and your client with a paper trail of the transaction.

• An invoice usually contains the following information.
• Business name
• Customer name
• Invoice number
• Date
• Products or services
• Quantity
• Price
• Total amount
• Amount paid
• Balance remaining
• Payment due date

For regular clients, it is advisable to keep invoicing numbers in a sequence to simplify future reference.

4. Record Partial Payments

The customers may not always pay their entire amount due at one time.

For example, a customer who owes 75,000 may make a payment of 25,000 today.

Your accounting software should show a history of that customer including

• previous balance of 75,000
• receipt of 25,000

and

• the new balance of 50,000

It seems too simple but not recording payments partially is actually one of the easiest causes of incorrect customer balances.

5. Set Clear Credit Terms

Before giving credit to a customer, you should know when he is supposed to pay.

Typical due dates could be:

• Within 7 days
• Within 15 days
• Within 30 days
• Within 45 days
• Within 60 days.

This depends on what kind of industry you are in. It also depends on the customer you are dealing with. The main thing is that it has to be clear to both people involved. Instead of putting in

“Payment baad mein kar dena.”

you could put

“Payment 30 days ke andar karni hai.”

Having clear terms makes everything much easier when you have to remind customers that the money is due.

Set a Credit Limit for Each Customer

Advantages Of Giving Unlimited Credit To Your Customers

Giving credit to your customer has some advantages with some risks. It's best to offer your customer some limits regarding credit. For example, you can offer your customer the following credit limits:

• New customers: Rs 20,000
• Regular customer: Rs 50,000
• Old customer: Rs 150,000

You can decide for your own business, what you set as your own credit limits. These limits can't go higher than your cash flow, profit margin, customer's risk profile, etc. In case a customer has reached his credit limit, it's possible that you ask him for the full payment, before you can give him credit again. This way you won't have 1 customer with a huge credit balance.

Use a Customer Ledger to Track Dues

A customer ledger is one of the simplest ways to organize customer accounts.

Many Pakistani business owners have the physical book register as their traditional customer accounting system.

There is nothing wrong with a manual account ledger as long as it is properly maintained.

With an electronic customer ledger, you can now:

search customers faster

• auto calculate balances
• retrieve old transactions
• generate reports
• view payment history
• see overdue accounts
• remove calculation errors

The best customer accounting system is the one you consistently maintain.

Should You Use a Notebook, Excel, or Accounting Software?

There is no universal method that can be applied by any company.

The approach should rather be determined by the size of the enterprise and the amount of transactions.

Traditional Ledger

A notebook or a register can be sufficient for a small shop with a limited number of clients.

It is affordable and easy to use, although calculations and searching for necessary information can become complicated in the long run.

Excel or Google Sheets

Microsoft Excel can be an appropriate middle ground here.

One can develop a file with columns for:

• Customer
• Sale date
• Invoice
• Sale
• Payment
• Balance
• Due date

Formulas can be used to calculate the balance automatically, and the sheet can be sorted according to the client’s name, date of sale, or the amount of money due. For most small businesses, this method would be significantly more efficient than any manual way of accounting.

Accounting or Business Management Software

As your business grows, dedicated software may become more practical.

Depending on the software, it may be possible to manage:

• Sales
• Customers
• Invoices
• Payments
• Inventory
• Expenses
• Receivables
• Reports

Automation can save time and make it easier to monitor customer dues.

The important thing is not simply to buy software.

The software is only useful when your business records are updated correctly.

Create a Customer Aging Report

An aging report is used to analyze how long customers owe money to you

You can use the aging report to classify different accounts at due dates. For instance, you can group your outstanding balance as:

Age of Due

Amount

Current

Rs. 300,000

1-30 Days

Rs. 150,000

31-60 Days

Rs. 90,000

61-90 Days

Rs. 45,000

90+ Days

Rs. 70,000

From the above example, the aging report provides information on the financial status of the business. For instance, it will be easy to analyze the cash flow situation due to the aging of receivables. A balance that is due tomorrow does not demand the same attention as a balance that has been outstanding for more than one year.

Send Payment Reminders Before the Due Date

You should not wait till your customer becomes overdue

Give a polite reminder before the due date

For example:

Assalam-o-Alaikum. Just a friendly reminder that your payment of Rs. 35,000 is due on September 30. Please let us know if you need the invoice or account statement. Thank you.

You cannot force a customer to pay

but you can remind them before the due date politely and professionally so they don't forget

Most customers don't remember to pay you on time.

Follow Up on Overdue Payments Professionally

When a payment is overdue, follow up immediately.

No aggressive emails or calls. Just politely remind the client and ask what date he will make the transfer.

For example:

Assalam-o-Alaikum. We are following up regarding the outstanding balance of Rs. 45,000 against your account. The payment was due on September 5. Please let us know when we should expect the payment. Thank you.

A well worded email is more effective than a dozen angry and ineffective ones. And it preserves your professional image.

Keep Customer Statements Clear

If a customer has multiple transactions, it is better to provide them with an account statement than to explain each transaction.

With an account statement, you can indicate the beginning balance,

• any new purchases,
• payments,
• adjustments,
• and ending balance

This will provide clarity to the client about the state of their account and avoid confusion.

How to Handle Customers Who Keep Delaying Payments

This is where credit management is important.

If a customer is repeatedly late with payments do not just keep increasing their balance owing. Firstly investigate their payment history by asking yourself these questions:

How much does the customer currently owe?

How long has this balance been outstanding?

Have they always paid on time?

How often do they purchase from us?

Are they paying only a portion of the balance owing?

Is there a dispute?

If the customer is facing a temporary cash flow problem, perhaps we could agree on a repayment schedule such as Rs. 20,000 every two weeks until the balance is cleared. However if a customer is deliberately avoiding payment, it would be foolish to continue to grant them credit.

Do Not Let Customer Dues Become Your Business's Hidden Problem

One of the key pitfalls of credit sales is that they may look good from the outside.

Your sales may be rising

your customers may be accumulating,

your invoices may show a significant revenue,

but if customers do not pay you, your cash position could be negative.

For example: if your business recorded

Rs. 1,000,000 in credit sales during the month,

this would seem to be a great achievement.

However, if your customers paid you only

Rs. 400,000

of the due amount, you still have Rs. 600,000 that is overdue. This amount will not be available to you to pay your liabilities until you receive it. This is why business owners must monitor their sales and collections.

A Simple Weekly Customer Due Management Routine

You do not need to check customer accounts around the clock. A simple weekly routine will suffice. Here is an example of a routine you could implement:

Every Monday: Review All Outstanding Balances

Check what balances all your customers currently hold.

Every Tuesday: Check Upcoming Due Dates

Take a look at who is due to pay you soon.

Every Wednesday: Send Friendly Reminders

Remind delinquent customers that you expect to be paid.

Every Thursday: Follow Up on Overdue Accounts

Contact customers that have not paid by the due date.

Every Friday: Update Your Records

Update your records to reflect the payments made and check that all your balances are up to date.

This routine takes discipline, but it can save you significant time and financial stress later.

Five Rules for Better Credit Management

There are a few simple accounts receivable practices that one can easily adopt in order to improve the management of the abovementioned. The five rules below should be followed in order to optimize accounts receivable.

Rule 1: Record everything

Credit sales and cash received should be recorded.

Rule 2: Specify terms

One should never leave terms open so that payment due dates are clear.

Rule 3: Know your customers’ habits

Before increasing an account’s credit limit, payment habits should be reviewed.

Rule 4: Follow up

It is better to call soon rather than later if no payment is received.

Rule 5: Review aging schedules on a regular basis

Customer’s bills should be a regular weekly or daily priority.

Common Mistakes to Avoid

Problems with Solely Relying on Memory

Memory cannot be used as the accounting system for sales.

Even though you know your customer personally, you should still record each transaction.

Combining multiple customers into one

Each customer should have their own independent account.

Overlooking small balances

Even though a customer only owes Rs. 2,000, if you have 50 such customers, that makes for Rs. 100,000 in due payments that you're not collecting.

Approving new sales on credit to customers who already have large balances due

Review the customers' account balance before approving any new credit sales.

Failure to update the records promptly in case of cash received from customers

Such a procedure will ensure that the records are accurate.

Asking customers for the money they owe, even if it means a difficult conversation

Most people will find it unpleasant to remind customers of their payment obligations, especially if they've known the customer for a longtime and personally trust them. However, a company's professional demeanor requires that they send such reminders as a matter of course.

How Pakistani Small Businesses Can Improve Credit Sales Management

For many small businesses in Pakistan, the biggest accounting headache will not have a fix in complicated accounting.

It will come in consistency.

A customer name → sale → payment + remaining balance sheet → due date is a great start.

As your business grows, you can move on to more sophisticated accounting methods.

And it is never too late to start.

If you have been maintaining the customer dues in a notebook, make sure it is legible.

If you use Excel, make sure you keep the workbook backed up.

If you use accounting software, make sure each sale and payment goes through.

And if you have multiple people handling the sales, make sure everyone follows the same format for recording the transactions.

Final Thoughts

Credit Sales: The Ultimate Guide in Simple English Essay

Credit sales can often be an effective tool to build customer relationships and grow your business in Pakistan.

For wholesale, retail, distributor, manufacturer, service providers, and many more types of businesses – offering customers reasonable credit can be an effective way to persuade them into buying more from you and becoming returning customers.

However,

• it is crucial to note that credit needs to be controlled.
• A sale is only complete in terms of cash flow when the money is in your account.
• That is why it is vital that you track credit-related sales and customer’s dues closely.
• There is no need to overcomplicate the system.

All you need to do is start by recording all credit-related sales and open a new account for every customer, set payment conditions, record all payments, track overdue payments, and follow up on them in a professional manner.

It is also good to switch to a more reliable system like Excel or accounting software as your business grows and becomes more reliant on credit sales. The most important thing is to not let customer dues become an issue that drags you down. Know what is due, who owes you money, and when they became overdue. Always follow up, and keep everything methodical.

Keeping your customer accounts up to date will allow you to have more control over your cash flow, reduce customer-related disputes, build better customer relationships, maintain a healthy image of your business as a professional entity dealing in sales of products/services on credit, and much more.

In the end,

managing credit sales is not about harassing customers for money – it is about being professional and having a system that allows you to sell with confidence.