CHAPTER 5: CASH APPLICATION, DEDUCTIONS, AND DISPUTE MANAGEMENT
receivable. If the total amount of short pays is significant enough, receivables is put at risk of being overstated. In the event of an audit, the validity of receivables will be called into question. Misstating receivables can be like overstating revenue. Receivables are an asset of value, and need to reflect what is actually owed by the customers. 6. Closure: It is important to make a decision based on facts and to reach agreement with the customer. The closure must result in either issuing a credit to settle the customer’s claim, payment from the customer, or a write-off to bad debt. Best practice in researching and resolving deductions and invoice disputes includes several basic principles: The organization must embrace the philosophy that a deduction/dispute is a customer satisfaction issue first and an AR issue second. The entire organization (sales, customer service, order fulfillment, etc.) where appropriate, must share in the task of determining if the customer is right or wrong, and correcting it. It is not solely an AR responsibility. The dispute must be routed to the person in the organization who is best positioned to resolve it in the fastest and most accurate way. For example, sales tax disputes are routed to the tax department, pricing disputes to the team responsible for contracts, undelivered product to the traffic department, and so on. Disputes/deductions must be resolved and cleared from the AR ledger quickly. Dispute/deduction research and resolution is best performed with a software application that automatically routes them to a designated resolver based on type, via a full-featured workflow that tracks them through to clearing and provides reporting by resolver of the performance and backlogs. UNEARNED DISCOUNTS Some large companies take discounts on all invoices, even if they don’t pay within the discount period offered. This is called “unearned discount” (UED). The company will write a check and list the invoices it is paying. The check will state “Paid in full,” which is an endorsement. According to your records, it is short because the customer has taken a discount you weren’t expecting. When this happens, check with the sales manager before interfacing with the customer. Sometimes sales will strike deals to get the business but forget to tell the AR staff. Ask for purchase orders and contracts and explain that accounts receivable needs documentation to support approved discounts. Conduct a little due diligence to find out who made the rules and who agreed to them. Instead of calling the customer, document the rules, all the correspondence, all the paper trails, and then see if the mistake was on the customer side or the sales side. If sales arranged with the customer that it did not communicate to AR, AR has to apply the discount to the discount account. If the customer was wrong to take the discount, now AR has the documentation and can write a polite letter asking them to pay or write off the amount to a bad debt account. The issue can come into play when the invoice does not clearly state when the payment needs to be received. The terms will state a timeframe, but the exact date is usually not stated, which leaves the customer to determine when the clock starts. This will be calculated to their advantage.
95
THE ACCOUNTS RECEIVABLE SPECIALIST CERTIFICATION PROGRAM E-TEXTBOOK
Made with FlippingBook - Online catalogs