Credit Matters Blog

Accounts Receivable Is Your Customer Payment Information Resource Centre

Kim Radok 27 July 2012


Your credit and accounts receivable employees have a great deal of information on the payment (or non-payment behaviour) of your customers.

It is a pity that in so many business organisations this knowledge is not used by management to operate and sell more efficiently. The result of not using this information means your "good customers" can be some of your worst paying customers. Furthermore these same customers can be bleeding your business's resources dry through their slow paying tactics, sales incentive and dubious credit claims.

Here is a typical example.

Many years ago, in preparing my monthly cashflow budget, I always had to prepare a conservative cashflow budget. The reason was:

I knew only 80% of the current monthly balance, and 60% of the 30 and 60 day account figures of our major customers would be paid in the coming month.

You may think this figure was not so bad for major retailers and perhaps you might be right. The problem was; we offered settlement discount for payment at 30 days.

Furthermore, we often had cashflow and payment issues whilst maintaining a large business overdraft to fund day to day operations. You might think management would have then been interested in how I prepared the cashflow budget or alternatively, in identifying if there were any cashflow strategies we could use to increase our cashflow rate.

It with some sadness I must report, not once was I asked how the cashflow budget was prepared or could we do any better. My only consolation was that I knew many of my credit manager peers were in the same position.

On another level, our credit claims were double or triple the rate of our immediate competitors. Again, was management interested in any statistics related to the numbers and dollar values; regretfully not.

It would have been nice if management had encouraged me to have a go at improving these figures. Alas it was not to be. However I did learn about the difference between having good and  bad managers running a business. That lesson was invaluable in the years to come.

Then in another example of history being ignored, was our customer that continually had broken their payment agreements. Theyw ere however, deemed to be a valuable customer. It was my view that if customer could not be trusted to honour their special agreements,  there was not any way we could make a profit from the trading relationship. On this occasion I was able to prove such a case and we closed their account.

Sometime later, due to some smart talking by their purchasing manager, and with the support of our sales department, we started doing business again with this customer. This was despite my recommendations, based on current research which was subsequently ignored by management.

Sure enough, within 12 months, we  lost thousands of dollars this time instead of the hundreds of dollars on the early occasion. Time and time again in business, we see due to new circumstances, a previously closed account is reactivated. The result is usually the same; the second loss is  greater the second time around.

I was not surprised about this result because history shows "... leopards don't change their spots - nor do recalcitrant and unco-operative customers change their habits".

In another business, a friend of mine had to stand by whilst a business being run by a friend of the boss, racked up thousands of dollars of sales. Meanwhile they could get organise a payment from the customer. Again, the credit manager was powerless to stop a disaster happening as his advice was deemed not to be for the "... greater benefit of the business."

It is stories like these which indicate the one part of business which is under- utilised, is the Credit or Accounts Receivable department.

My belief is; if profitable sales and increased cashflow is important to your business, the Credit or Accounts Receivable department is definitely, one place to begin asking questions.

May you be paid today rather than tomorrow

Kim Radok