Credit Matters Blog

Effective Management of Accounts Payable and Accounts Receivable

Kim Radok 09 March 2018


I am in a very enviable position as a credit and risk management professional. My work encompasses dealing with businesses of all sizes, in many different countries and industries. When not emotionally involved with my work, I can sit back with some clarity and observe clinically what is happening.

It is therefore regrettable to observe the gradual decline in many business organisations of standards, operational ethos and a focus on cheap (and nasty) business solutions. In this blog, my focus is on the accounts payable and accounts receivable functions. It seems unfortunately, no longer are the professional experiences and knowledge of these employees valued.

As a consequence, I see the people which guard a business's cash resources and have an intimate knowledge of their suppliers and customers, being marginalised or retrenched. Seasoned professionals are therefore replaced by cheap technology solutions, or the work is outsourced to people with a lack of care or the ability to understand even the basics of their role. In either case, the result is frustrated suppliers and customers, which does nothing to enhance your business's reputation.

How has this situation come about?

In my view the causes of these changes comes down to the following factors which seem ever more prevalent in modern society and business.

(i) The changing values by which people operate their businesses and a lack of respect for their stakeholders.

(ii) An unhealthy focus on upfront cheaper costs without due respect to downstream costs.

(iii) An overly strong focus on technology solutions and the perceived marginalisation of the value of people within the business process.

(iv) The failure to measure the causes of incompetence within the business and a lack of willingness to address the causes of incompetence.

(v) A failure by management to learn from exposed problems, or properly admit the faults of their actions or those of the business.

(vi) Failing to understand the influences and factors in today's globally interactive business environment.

(vii) A lack of understanding by business owners and senior management on "The Art of Business".

As a consequence, I have seen those businesses which have marginalised the value of their accounts payable and receivable functions, to the extent where their financial viability and / or their financial records are questionable and easily observable.

To clarify the real state of your business's financial viability and accuracy of financial statements, I suggest an audit by Accounts Payable and Accounts Receivable professionals be undertaken of your Accounts Payable and Receivable functions. Unless you are willing to employ professionals with hands on experience and professional qualifications, any review conducted by other professionals, is likely to be clouded by their own professional prejudices and lack of understanding of these functions.

To conclude, I would also suggest these two observations from a CEO and a well-respected accountant are worth repeating.

The first is from the CEO who said, "Whenever I join a new business, the first thing I do is to look at the receivables. It is in the receivables we will see the sins of the business."

The well-respected accountant said, "The major problems in the business can be found by reviewing the figures between the Gross Profit and the Net Profit figures in the Profit & Lost Statement.