the last edition of Creditworthy News the lead article told the story of
Steve Morgan, credit manager, who was called upon to answer to both the VP
of Finance and Sales Manager the reasons he informed the accounts payable
department of one of their largest and most important customers that they
were on credit hold due to invoices being 22 days in arrears.
story suggested that Steve had taken inappropriate action in informing the
customer that orders were being delayed until the issue of the past due
invoices had been resolved. It should come as no surprise, then, to the
frequent readers of the CW News that I do not necessarily share the same
opinion with some of the conclusions reached in this story. I do agree,
however, with the following conclusions.
communication existed within the ABC Electronics organization, credit and
sales were not working as a team and the credit department was unaware of
the particulars of the contract between the two parties.
I do not agree with is that a just-in-time inventory contract makes it
basically impossible to hold orders unless the account is seriously in
default. What constitutes “seriously in default”, is it 1, 15, 30, or
90 days past due? When an invoice becomes one day past due, unless
otherwise agreed to, a breech of the agreement occurs.
Thus, the agreement is, at the very least, suspect as to the
validity of any future business under the agreement. In fact, §2-609(1)
of the Uniform Commercial Code reads, in part, “ A contract for sale
imposes an obligation on each party that the other’s expectation of
receiving due performance will not be impaired.” §2-609 and §2A-401
further provides for the contract to be repudiated if either party to the
agreement fails to provide the other adequate assurance they can perform
under the terms of the agreement.
do not agree that Steve made any error in judgment in his conversation
with Marsha, the accounts payable clerk, at Brown. The fact is Steve was
holding orders until the past due was resolved and he had a moral
obligation to inform the customer that orders were being delayed.
I do find fault with Steve contacting Marsha. My Momma taught me
that people identify you by the people you associate with. We constantly
strive to be professional and whine when we are not treated as
professionals yet we continue to spend our time dealing with
non-professionals. Accounts payable is a clerical position and we still
haven’t figured out they have no authority when it comes to paying our
invoices. We should be contacting the professionals within the
organization who have authority to tell accounts payable clerks what to do
and when to do it. These professionals are purchasing personnel,
controllers, chief financial officers, owners and general partners. If you
spend your time dealing with clerks you will not only be considered a
clerk but payment problems will continue.
do not agree that Brown should have been treated any differently
regardless of their size. An ongoing problem within many organizations is
they fail to look beyond the amount of orders being placed by a concern
until it is too late. Steve Morgan acted accordingly based on the facts
presented. He had a customer
who consistently paid beyond agreed terms of sale and was now 7 days (a
week) beyond their normal slow pay, clearly a warning sign of possible
trouble. One has to wonder
what the reaction of the VP of Finance and Sales Manager would have been
had Steve not acted and then the large and important customer defaulted or
will we realize both as professionals and an organization that it is not
the seller or credit department who holds a customer’s order? It is the
customer who delays the processing of their orders by either not abiding
by the terms of the sale or failing to initiate communication with credit
personnel the reasons for paying late.
has to wonder how vendor credit managers fared after the failure of
Service Merchandise, Montgomery Ward, Fleming Foods, Eastern Airlines, and
the list goes on and on and on, all customers who at one time were
“LARGE and IMPORTANT”.
I wish you well.
information is provided as information only and not legal advice.
Legal advice should be obtained from a competent, licensed attorney,
in good standing with the state bar association.