Accounts Receivable Unit 3

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.

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.