Regular readers of this
column know that I often do not subscribe to what are considered generally
accepted credit and collection practices. Many times in this column I have
questioned what we, as credit professionals, do. In this edition I will
continue to not disappoint you.
While preparing material,
for one of my upcoming highly successful corporate presentations, I was
reading through the National Association of Credit Managementís
publication, ďPrinciples of Business Credit; Field Version 4Ē when I
came across the following passage:
ďThe resolution of disputes about how much is due
also a function of the collection effortĒ.
My immediate thought was
It has always been my
belief that the majority of credit and collection personnel are
responsible for activities they either have no authority for or control
over. Dispute resolution is one of those activities.
When I was a practicing
credit manager, the majority of the time, I was not present during the
negotiation of terms, price and promotional discounts. To the best of my
knowledge nothing has evolved to make me believe that credit professionals
today are actively involved in these negotiations. The negotiation of
price and terms is usually conducted between the company sales
representative (direct or indirect) and the customerís purchasing
department. In some instances, company management may be included in
approving special terms or pricing presented to them prior to the sale,
however, credit is usually not consulted in these agreements and, as a
rule, the last to learn about such arrangements.
The conversation usually
goes something like this:
Credit Pro: Iím calling
about invoice 11111.
Customer: I havenít paid
Credit Pro: Why is that?
Customer: Iím waiting
for my discount.
Credit Pro: What discount?
Customer: The promotional
discount Sheila (sales rep) promised me when I placed the order. Donít
you know about it?
Credit Pro: Certainly I do
(what the heck is he talking about?), let me ask Sheila when it will be
issued and the amount and I will call you back shortly.
How can credit personnel
be expected to negotiate a resolution to something they were not involved
with from the beginning? And whom do they often negotiate with? Why the
customerís accounts payable department, who was not involved in the sale
either. Is it any wonder then, why the accounts receivable of many
organizations are cluttered with unresolved issues? We have uninformed
parties on both sides trying to enforce terms and policies that were
either ignored or agreed to by the contracting agents of their respective
organizations and, in many cases, with management approval for the purpose
of conducting ongoing business.
The function of the
collection department is (should be) to identify the reasons for the
dispute and to then forward that information to the proper individual or
department for resolution.
The collection department
should be responsible for collecting the amount of the invoice that is not
in dispute. Once the undisputed amount is collected the disputed amount
should then be transferred from the account receivable and charged to a
reserve account of the department responsible for resolving the dispute.
If unresolved, the disputed amount should become a permanent expense
against the responsible departments P&L. For the most part, deductions
are representative of weaknesses in the operations of an organization.
Departments within the organization are not encouraged to correct their
weaknesses because they are not given the responsibility to do so.
The time has come for
credit professionals to identify and take responsibility for what they
have authority for and can control. Responsibilities they have no
authority for or have no control over should be delegated to those
individuals or departments who have the authority to resolve them.
Delegation is a management function that encompasses not only subordinates
but also peers. Credit professionals tend not to practice delegation
outside of the boundaries of their departments. One only has to audit the
month end account receivable aging report to prove this theory.
As long as credit
professionals continue to address tasks they have no authority and control
over and professional associations continue to support the theory that the
collection department is not only responsible for but also resolving
disputes and teaches this philosophy to its members through their
publications and education courses, then credit professionals will
continue to be challenged with goals and objectives that they canít
I wish you well.
The information provided above is for
educational purposes only and not provided as legal advice. Legal advice
should be obtained from a licensed attorney in good standing with the Bar
Association and preferably Board Certified in either Creditor Rights or