Over the years I have seen everything when it comes to accounts receivables and collecting past due invoices. I have worked for companies where it was the sole responsibility of an accounting resource in a corporate office hundreds of miles away. All the way to collections being the responsibility of the calling outside sales person collecting on past due invoices while they are trying to sell something else to the customer. Regardless of how your organization chooses to collect its invoices, my belief is everyone needs to be engaged in the process of accounts receivables, somebody just has to be designated to take the lead and manage the process.
Accounts Receivables are a key component of your working capital for any organization, if you are not getting paid for the products or services you provide, staying in business will be difficult. A few years ago, a Sales Manager and I had to make a difficult decision to “fire” a very big customer. They were a well known global manufacturer that had negotiated deep discounts with a manufacturer of a device we were the distributor for. This particular customer required 3-4 hours of inside sales service per day to manage order entry, inventory, work on specifications and another 1-2 hours per day for someone to collect on past due invoices. With the deep discounting, it was critical that we closely managed our inventory and accounts receivable to maintain our profitability. Much to our surprise they informed us that they were “requiring us” to provide 180 day terms to keep our supplier of choice status. With the pricing, inventory requirements and those kind of terms we were going to lose money, we had to make a decision. After several meetings with their accounting, procurement and production departments, trying to find some middle ground, we walked away from over $200,000 in business, the supplier of choice status wasn’t worth it. We worked with the manufacturer of the device to seek out better terms for our inventory position, as well we made sure that the customer could source the product from another distributor. By the way, after about 3 months, the new distributor wanted out of the deal as well. Bottom-line we had resources tied up 4-6 hours per day working really hard to satisfy a customer we were losing money on.
After we terminated the customer relationship and moved on, we found new business, margins improved, inventory turns improved and our employees were thankful that we made the decision. Our outside sales person had more time to pursue profitable business, our inside sales person had more time to service other customers with better margins and the administrative assistant had more time to take care of other accounts receivable and customer service issues. Whether it’s your accounting resources or your sales resources responsible for accounts receivables, make sure that everyone stays informed and engaged in the process, but most importantly who will take the lead in working with the customer. At the end of the day you are in business to make money and you need to collect it.