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Published Articles by David Balovich

Title: Improve Billing To Increase Collection Performance.
Published in: Creditworthy News
Date: 9/17/03
Early 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, the invoice.

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Granted, it is not that simple but inadequate or antiquated systems along with outdated or non-existent policies and procedures have caused the majority of firms to generate incorrect billing repeatedly.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 incorrect invoice.

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 issues.

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.

This 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.

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