Accounts Receivable Unit 3

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Questions and Answers

What should be included when rebilling a customer for a deduction?

A discount coupon

A detailed report of past transactions

A personalized thank you note

A copy of the group service agreement (correct)

When should a credit professional follow up with a phone call to a customer's accounts payable manager?

After a deduction is resolved

After a customer complaint is filed

After sending the initial introduction letter (correct)

After the first payment is received

What is one benefit of using software to track promises and deadlines in debt collection?

It automatically writes off bad debts.

It minimizes the chance of losing track of customers. (correct)

It guarantees all debts will be paid on time.

It eliminates the need for collection professionals.

Why is it important to resolve complaints and discrepancies quickly?

To ensure that unauthorized deductions are addressed promptly Signup and view all the answers

How can specializing in debt collection improve outcomes?

By improving the collection rate and speed. Signup and view all the answers

What should a credit professional do immediately after identifying a deduction?

Request the backup paperwork from the customer Signup and view all the answers

What is a potential risk of putting customers on credit hold?

Good customers may stop engaging due to frustration. Signup and view all the answers

What does DSO stand for in the context of debt collection?

Days Sales Outstanding Signup and view all the answers

What action should be taken if the backup paperwork is not provided by the customer?

Continue to request the information from the customer Signup and view all the answers

Which payment method has gained favor as a way to improve collections and reduce costs?

Automated Clearing House (ACH) payments. Signup and view all the answers

How can billing staff contribute to improving collections on short-paid invoices?

By reviewing and following up on short-paid invoices Signup and view all the answers

What is one of the common types of ACH credits?

Direct deposit of payroll. Signup and view all the answers

What is an effective response to a customer who has calculated a discount incorrectly?

Send a standard memo thanking them for prompt payment Signup and view all the answers

What should credit departments do when customers take unauthorized deductions?

Collaborate with the sales department to resolve issues Signup and view all the answers

Why is it important to act quickly in the debt collection process?

To avoid preference claims with bankrupt clients. Signup and view all the answers

Which of the following techniques may not be effective for every type of customer?

Implementing credit hold strategies. Signup and view all the answers

What is one recommended technique for reducing bad-debt write-offs?

Call customers early to check on payment readiness. Signup and view all the answers

Why is it important to maintain good communication with the sales force?

Sales teams are often better positioned to identify risky customers. Signup and view all the answers

Which of the following is NOT a common method used to calculate a bad-debt reserve?

Extensive financial forecasting. Signup and view all the answers

The concept of following up with customers is primarily aimed at achieving what outcome?

Ensuring timely payments and reducing write-offs. Signup and view all the answers

What factor can significantly influence the calculation of a bad-debt reserve?

Current industry conditions. Signup and view all the answers

What is a common misconception about achieving zero bad-debt write-offs?

It is an unrealistic goal in most industries. Signup and view all the answers

What might happen if a credit professional waits too long to contact a customer about late payments?

More shipments could be sent before payment is received. Signup and view all the answers

What is one consequence of maintaining poor dialogue with customers?

Heightened risk of bad-debt write-offs. Signup and view all the answers

What action should sellers take regarding inconsistent terms in buyer documents?

Expressly reject any inconsistencies with their own terms. Signup and view all the answers

What is a major risk associated with confirming purchase orders?

They can introduce conflicting terms in writing. Signup and view all the answers

Why do companies reserve for bad debts?

To create a financial cushion for unforeseen losses. Signup and view all the answers

In the context of an improving economy, what action might a company take regarding bad debts?

Loosen credit policy and decrease the reserve. Signup and view all the answers

What does the initial acceptance of a purchase order imply?

The purchase order is treated as a legal offer only. Signup and view all the answers

How do companies typically react to rising bad debt during a recession?

They either increase bad-debt reserves or tighten credit terms. Signup and view all the answers

What conclusion can be drawn about companies with no reported bad debts?

They might be limiting their credit sales too much. Signup and view all the answers

What is often the primary motivation for a company to adjust its bad-debt reserves?

To adapt to changes in economic conditions. Signup and view all the answers

What is the primary method suggested to prevent unauthorized deductions?

Educating the sales force Signup and view all the answers

What should be included in a letter sent after the first occurrence of an unearned discount?

A warning about jeopardizing the discount program Signup and view all the answers

In case of a deduction, what is the first step to take if it's deemed invalid?

Send an email requesting reimbursement Signup and view all the answers

What is a proactive measure to verify purchase orders?

Send incorrect purchase orders back to customers Signup and view all the answers

How can customers submit complaints for unresolved issues?

Through a customer-complaint system Signup and view all the answers

What should you do if the first contact person at a customer’s company refuses to resolve a dispute?

Escalate the issue to their supervisor Signup and view all the answers

What documentation should be included in the follow-up letter after a deduction?

Amount disallowed and postmark details Signup and view all the answers

What effect does informing customers that unearned discounts will not be tolerated tend to have?

Many will likely stop taking unearned discounts Signup and view all the answers

Study Notes

Purchase Orders and Confirmation

Sellers often reject any inconsistencies in buyer documents regarding terms and conditions.
Buyers may confirm phone orders with written purchase orders, which can introduce unexpected terms.
A cautious approach is necessary to avoid misunderstandings; confirming purchase orders should not be assumed to reflect oral agreements.

Bad-Debt Reserves

Companies typically set aside reserves for bad debts as part of normal business operations.
An absence of bad debts may indicate overly strict credit policies, which limit sales potential.
Economic conditions influence bad-debt reserves; companies should adjust policies in response to economic downturns or improvements.
Calculation methods for bad-debt reserves vary, commonly using percentages of sales or outstanding receivables.

Techniques to Reduce Bad-Debt Write-Offs

Initiate early contact with customers regarding account statuses to prevent overdue deliveries and payments.
Maintain open communication between credit managers and sales personnel to identify potentially risky customers.
Regular follow-ups encourage timely payments and act as reminders for outstanding debts.
Implement systematic tracking of promises and deadlines through software to minimize oversight.
Designate a specialized collection team for managing overdue accounts to improve performance.
Use credit holds to incentivize payments but be cautious of potential backfiring if the customer has alternatives.

Electronic Payments and ACH

Electronic payments improve Days Sales Outstanding (DSO) and decrease collection costs.
Automated Clearing House (ACH) payments, like direct deposits, are increasingly used for various transactions.

Prevention of Unauthorized Deductions

Educate the sales force on the importance of resolving issues before invoice payment to prevent deductions.
Communicate a zero-tolerance policy for unauthorized deductions to deter customers from taking liberties.
Ensure that purchase orders align with sales terms; discrepancies should be corrected before processing.

Resolving Deduction Problems

Quickly assess the validity of deductions and request reimbursements if necessary.
Identify and address underlying causes of frequent deductions to improve future issue resolution.
Follow up persistently to obtain necessary documentation from customers regarding deductions.
Create a system for customer complaints to facilitate prompt problem resolution.

Strategies for Resolving Deduction Issues

Send immediate rebills for unauthorized deductions, including policy documentation to reinforce seriousness.
Develop relationships with customer accounts payable managers to enhance communication and cooperate effectively.
Resolve disputes swiftly to avoid delays and reinforce the expectation that unauthorized deductions are unacceptable.
Train billing personnel to proactively review short-paid invoices while collections teams focus on larger issues.

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Description

This quiz covers key aspects of handling purchase orders, including the importance of standard terms and conditions. It addresses common pitfalls, such as confirming orders placed via telephone and understanding the implications of small print. Test your knowledge to ensure effective transaction management.