CHAPTER 5: CASH APPLICATION, DEDUCTIONS, AND DISPUTE MANAGEMENT
5.6 Best Practices
The following are tools and practices that should be investigated for cost effectiveness, suitability, and utilization in your cash application and deduction management processes. Metrics: Maintain key metrics such as: Average cycle time to clear: { Payments { Deductions Throughput: { How many payments are received and how quickly are they recorded in the AR system { Deductions received and cleared in a period Quantity: { Type of payments { Deductions (include age of deductions and outcome) Cost of processing: { Payments { Researching and resolving deductions Tolerances: A company can institute a policy by which, for small balances, they do not investigate the deduction but automatically write off the difference against the appropriate ledger account (manually or through an automated system). A lot of time-consuming work can be avoided compared to saving a relatively small amount of money. Small-balance write-off thresholds vary from $25 to $400. To determine the appropriate threshold, compare the cost of researching a deduction against the expected return of the effort.
Periodically audit and review write-offs to identify any abusive customers and recurring amounts that may indicate a continuing billing or delivery problem.
Customer welcome letter: In an effort to find out about discrepancies before the payment is received, add a few rules in the customer welcome letter and on the invoice, which may help to resolve issues sooner and aid in getting full payment. Technology: There is a vast array of cash application and deduction management software solutions that can be implemented. These automation tools improve efficiencies, reduce cost, and improve the cycle time. There are automated cash application systems that can automatically apply the payment to the customer’s account. If there are any deductions, the system will look for a credit memo, match and clear the payment, or— through workflow—send it to the appropriate person to research the deduction. Having an efficient system tool to route, categorize, track, and report disputes automatically can have a huge impact on productivity, reducing the time employees spend on clerical tasks. However, automation should not be looked upon solely as a means of improving employee production—it should also be viewed strategically as a means to identify and correct the causes of disputes before they cause a loss in revenue.
99
THE ACCOUNTS RECEIVABLE SPECIALIST CERTIFICATION PROGRAM E-TEXTBOOK
Made with FlippingBook - Online catalogs