Don’t get me wrong – I love accountants as much as the next person; some of them are very good friends of mine, but I want to share something with you that illustrates why you do NOT want an accountant in charge of your Credit and Collections Policies.
As I was offering some assistance to a Fortune 500 company in an advisory capacity, I came across multiple examples of very small balances that had aged significantly that the regular Collector did not have time to pursue vigorously. In a perfect world, EVERY account would receive the same treatment and attention, but I’ve never been able to find that perfect world so I’ve had to adapt my thinking to this real world that we inhabit.
Part of the work I was doing at this company was to review their aging for items that were counter-productive to the time management of the Collectors. This including finding small balances (under $100) that had been on that aging for more than 400 days to determine whether or not they could be collected at all. Most of the accounts had contact by the Collector with the responsible party and for one reason or another, the invoice had never been paid due to a dispute, an oversight, or some other reason cited in the notes on the account that were dutifully recorded over time.
Per the instructions I was given, I sent an e-mail to the person in charge of adjustments for this company and below is an actual response I received…I’ve changed the names to protect the innocent (and guilty) parties involved:
“Kim – It is not up to Joe to decide if it’s too small to worry about. I cannot clear any fuel surcharges without Jack Smith’s authorization. He has a little more clout that (sic) Joe since he’s VP of Sales. You will need to contact the territory manager and have him write up a fuel surcharge termination form, approved by the Regional sales manager, and then I’ll send to Jack for his approval. Until that time, it needs to stay on the account. If someone else clears it, they better have the authorization for SOX (Sarbanes Oxley legislation for approved Accounting practices as they relate to publicly traded companies), because I’ll throw them under the bus so fast there won’t be time for skid marks on the road! Not your problem I know!!! I just don’t like it when we don’t follow procedures that have my name on it! Thanks, Mary.”
Where do I begin? First of all, there has to be a common sense approach to all business dealings and while I would never condone ignoring the rules in business, there does have to be some leeway in policies and procedures for simple tasks that make life easier for everyone concerned. I would imagine you’ve heard the term “diminishing return on investment.” This applies here in particular in that the invoice is such a small amount that continued pursuit of the debt takes time away from other tasks that would significantly impact the business in a more cost-effective way.
Second, accountants tend to take a very black-and-white, right-or-wrong, rules-cannot-be-broken approach to Accounts Receivable Management. Like it or not, sometimes the debt is just too small to worry about, regardless of the SOX rules and they do allow for small balance write-offs as well as bad debt write-offs that would apply in this particular case.
Finally, the procedure as defined by Mary is extremely cumbersome and time-consuming for multiple levels of the organization. Let’s assume that it takes one day for each step. By my calculations, this balance would not be addressed per these procedures for EIGHT BUSINESS DAYS to clear a balance of less than $100, assuming there are no holidays, sick days, vacation days, or pressing business matters that can happen anywhere along that chain of approvals. Not only that, but does a Regional Sales Manager, Territory Manager, and a Vice President of Sales REALLY need to be involved in a small balance like this? The final sentence of her e-mail back to me pretty much sums up the problem – “I just don’t like it when we don’t follow procedures that have my name on it!” An accountant wrote the procedure and it serves no other purpose than to provide approval for a small balance write off. I think you’ll agree that almost everyone’s time is better spent elsewhere on tasks that actually bring in money to the company.
This e-mail became a teaching point to the Credit Manager and Director of Credit who were frustrated at the lack of progress some of the tasks assigned to Collectors took to complete. By pointing out the convoluted approval process for small balance write-offs, steps could be taken to shorten that time frame and take some responsibility off of the Collectors and others supposed to be involved in that process to maintain a consistent follow-up to ensure the write off was done.
Sometimes it looks good on paper – but watch out – paper doesn’t accurately reflect real business practices. Did the procedure get changed? For their sake, I certainly hope so!
