While preparing material, for one of my upcoming highly successful corporate presentations, I was reading through the National Association of Credit Management’s publication, “Principles of Business Credit; Field Version 4” when I came across the following passage:

“The resolution of disputes about how much is due  is also a function of the collection effort”.

My immediate thought was “huh”?

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 customer’s 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: I’m calling about invoice 11111.

Customer: I haven’t paid it yet.

Credit Pro: Why is that?

Customer: I’m waiting for my discount.

Credit Pro: What discount?

Customer: The promotional discount Sheila (sales rep) promised me when I placed the order. Don’t 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 customer’s 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 can’t possibly achieve.

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 Bankruptcy.