Credit Matters Blog

Reviewing Your Credit and Accounts Receivable

Kim Radok 25 October 2012


All business owners and managers should complete a periodic review of their operations and processes. The purpose of these reviews is evaluate and ascertain if your current operations are to be suitable for the changing business environment we operate in today.

How and when might you manage this process for credit and accounts receivable operations and processes?

My suggestion is to complete a review after the books have been ruled off after every six or twelve month period. The results are fresh and if they are not as expected or required, emotions are still raw in everybody's mind. What better time is there to complete a review? The emotions and the feelings are still strong and inevitably somebody should be saying "... we have to do something about these results - they are just not good enough!"

In my mind, the best group of professionals suited to this review area professional credit or accounts receivable professionals. These professionals bring with them the experience of day to day operations, long-term objectives of the business, and the desire to increase sales. With due respect, most other professionals do not bring the same level of understanding to the review and/or what might be achievable with the right operational conditions.

The key performance areas under review should be:

1 management support and encouragement;

2 economic conditions in general and in your marketplace(s);

3 an understanding and review of your competitors and customers;

4 internal resources to do the work in a timely and efficient manner;

5 the relationship between the operational areas, particularly between sales and credit/accounts receivable;

6 the quality of employees and their encouragement to be the best they can be through training and motivational resources;

7 management support and encouragement.

I have deliberately put management first and last in this list of key performance areas. Without management's support and encouragement at the beginning of the review, it is unlikely for the review to be fully supported by the employees. As a result, the information produced in rectifying problems or cutting costs during the review process may be less valuable.

The consequence of a poor review process may result in employees only viewing the subsequent objectives  as a token effort to improving the credit and accounts receivable operations. Furthermore, in any review process, employees are also looking for the ways they can improve the efficiency and results of what they do.

For instance, credit and accounts receivable employees may want to demonstrate their ability to add value to the business. Just ticking boxes on how many telephone calls or account follow up's per day/week/month etc. is not enough. Many employees soon understand masses of telephone calls are meaningless on their own, as are customer account reconciliations. Whilst many employees are willing to add value to the business, they will only do so if encouraged by management.

However it is not unusual to find management has not provided any objectives in the review report on how the credit and accounts receivable employees can learn about or participate in the "adding value" proposition. This failure may result in further disenfranchisement of the employees and a lessoning of their endeavour to complete the work to the best of their ability.

I have likewise added management lastly and deliberately for the same reasons of commitment to the process of review. For instance, if the objectives of the review are ambitious and valid, the question remains. Will management provide a reasonable level of resources and encouragement to achieve the objectives of the review? If not, then the review may not produce outcomes which could be expected of a positive review process which has been supported by management.

At the end of the day, as the old saying goes, "... the buck stops with management." Unfortunately if the business does not sell enough to make enough profit, everybody in the business suffers. By nature then, the outcome of the review of the credit and accounts receivable operations will be a testament of management's commitments to the review process.

May you be paid today rather than tomorrow 

Kim Radok