in my career, as a corporate credit manager, I was assigned to take on
the additional responsibility of overseeing the operations of our
company’s billing department. I have to admit this assignment did
not come as a complete surprise as I had been making a case for some
time that our under performing collections were a direct result of the
inadequacy of our billing department. Ask any credit manager to
identify the most common type of collection problem and incorrect
billing will usually be close to the top of the list.
Until assuming this responsibility it was
believed that improper billing was due to incompetence, carelessness
or both. It soon became obvious that billing errors most often
occur due to communication breakdowns between departments involved in
providing the necessary information that creates the final product,
Imagine the billing department as nothing more
then a desktop computer that order administration, sales,
manufacturing, distribution, order processing, tax department, and
anyone else with product or service information has access to. Order
administration creates a customer number and the process begins to
generate revenue as quick as possible.
Granted, it is not that simple but inadequate or
antiquated systems along with outdated or non-existent policies and
procedures have caused the majority of firms to generate incorrect
billing repeatedly. Ask any credit manager what is the most common
uncorrected problem and incorrect billing is at the top of the list.
Too often information goes un-checked or verified before the invoice
is produced and sent to the customer. This generally occurs
because hard copy documents such as purchase orders or shipping
documents are not received until after the invoice has been printed
and mailed. There is no better reason for the customer to delay
payment then the seller company providing the excuse through an
Businesses inability or refusal to create an
efficient method of billing has given rise to the increasing number of
deduction management firms. In the recent issue of “Business
Credit”, the publication for finance and credit professionals
produced by the National Association of Credit Management (NACM),
there were no fewer then seven firms advertising services to resolve
disputed billings. Incorrect billings not only cost money to correct
but they also delay the collection of accounts receivable and can
damage customer relations.
Billing, granted, is and should not be the
function of the credit department. Because it does, however, play a
major role in the credit departments efficiency, productivity and
ability to meet goals and objectives, today’s credit manager should
be taking an active role in the development and implementation of
billing policy and procedures.
In the August “Credit Managers Index”
published by The National Association of Credit Management. It
was reported average disputes to be 49.6 and customer deductions 49.7
for the twelve months ending August 2003. NACM attributes these
unfavorable numbers to “cash flow problems of customers.” Although
we have certainly experienced a depressed economy, slow collections
can be more attributed to cash flow problems whereas disputes and
deductions usually can be traced back to billing, product or service
An efficient billing department, through
verification of purchase orders, order acknowledgements and shipping
documents prior to the creation of invoices, can provide a major
assist in the prompt collection of accounts receivable. If the billing
correctly reflects both purchase and shipping documents then any
questions concerning an invoice can be easily reconciled. Once the
customer realizes that invoices agree with purchasing and shipping
documents then deductions decrease while collections increase.
This provides the credit professional more time
to concentrate on credit and collection issues and methods to further
support the sales department.
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.