CHAPTER 5: CASH APPLICATION, DEDUCTIONS, AND DISPUTE MANAGEMENT
5.1 Introduction
The O2C process does not meet its goal until the money is in the bank by its due date. Getting paid in full and on time is the end goal and the responsibility for this belongs to accounts receivable. This chapter describes the means, methods, and steps involved in cash receipt and processing. It covers payment types and methods, cash application, dispute management, and deductions. Typically, most organizations have cash application staffs that focus on applying payments to the customer’s account. An AR staff member or members, also called deductions analysts or deduction clerks, handle any and all discrepancies, deductions, and short pays. The AR staff will interface with billing, sales, the carrier, and the customer to resolve the deductions.
5.2 Payment Types and Methods
How payments are received varies based on factors, including whether they are consumer or business payments, by industry, and by country of origin.
Globally, in business-to-consumer (B2C) organizations, consumer payments are made primarily through credit cards (includes mobile device payments) or bank electronic debits or credits. Businesses that sell to consumers have specific electronic payment methods that customers must utilize. Globally, business-to-business (B2B) payments are primarily processed electronically (electronic funds transfer, card payments, and wire transfers). However, the U.S. lags behind other countries, since some business payments are still made through paper checks. In addition to the main methods of EFT and card payments, letters of credit also are used, especially for cross-border payments.
U.S.-based domestic transactions use a variety of payment methods: cards (p-cards or virtual cards), automated clearing house (ACH) payments, and paper checks, although their use is declining over time.
Some industries dictate the methods of payment. For instance, the textile industry mainly accepts credit cards for payment. If the customer can’t pay by credit card, they will use a factor. A factor is a third party that finances the purchase on behalf of the seller. The factor will perform a credit analysis and assign the line of credit and terms. Payments are then made to the factor rather than the seller. For some organizations, these issues are handled outside of AR entirely. At Crown Castle, for example, Nicole Amodeo (Manager of Billing and Cash App) explains that p-cards and check printing are entirely handled by AP, and she relies on banks to provide EDI detail for payment remittance. CHECKS (CHEQUES) A check (or cheque) is a negotiable paper instrument instructing a financial institution to pay a specific amount of a specified currency from a specified demand account held in the depositor’s name with that institution. Payment fraud mostly stems from paper checks.
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THE ACCOUNTS RECEIVABLE SPECIALIST CERTIFICATION PROGRAM E-TEXTBOOK
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