The Case of the Mysterious Overpayments

It was another Southern California fall day, hot with the Santa Ana winds sucking the life out of everything. I was watching the winds blow the leaves off my liquidambar on to my neighbor’s yard when the phone rang. He was the credit manager for an equipment company and he sounded perplexed. Most credit managers sound perplexed.

“We have this customer, a distributor of construction related tools and accessories.” He said. “They’re actually a very good customer in that they buy a lot and they pay on time.” I knew there was going to be a “but”. “But, when they pay, they either short pay or over pay the invoices. Actually, they’ve accumulated a large credit balance, because ever since March, they are over paying most invoices. Funny thing is they claim they’re paying the quoted prices.”

“Okay.” I said. “You have a customer paying you too much. What’s the problem?”

“The auditors can’t stand unapplied cash.” He said, “The controller is on my back to clean it up. This account is a real mess and I just don’t have the time to be worrying about a customer with a credit balance when I have a growing delinquency problem.” He was starting to sound like a kid who wasn’t getting his way.

“What happened in March?” I asked.

“That’s when they have their annual users’ conference, as they call it. Their buyers get with our sales group and negotiate the prices for the year.”

“Sounds like your prices went down, but they’re not going with the program. Tell them to update their program.” It seemed like the problem was solved and I could bill him for the call.

“I tried that. They’re not budging. They send us a purchase order and our order department confirms it and ships the order. I can’t help it if they want to pay too much.”

I told the credit manager I’d make some calls. It was the least I could do. I got on the horn with the payable manager for the construction tool company. I asked him to describe his system. He sounded proud of it.

“When we get a requisition we write up the purchase order. Then we check the computer and see what the price was last time we ordered and that’s what we put on the purchase order. Once we get the confirmation back and the delivery copy, I pay from the purchase order.”

“Did you get updated pricing from the user conference in March?” I asked, but I suspected the answer.

“Nope.” He said.

Of course not. Why should two departments within the same company communicate with each other?

It seemed the purchase order was the key, so I called the credit manager back and asked him to check on something and get back to me.

“Your hunch was right on the mark.” He told me, though he did not sound happy about it. “Our order takers confirm the product and the quantity. They don’t even look at the price because that’s already set up in the computer.”

So on one computer the price is adjusted to the new negotiated price. On another computer the price is never changed, unless the confirming Purchase Order comes back with a difference.

“Send them back their money and in the future, have your order takers correct the price on the P.O. and the problem should go away.” I instructed.

Deductions and discrepancies are often system problems. Figure out the system and you can stop the payment oddities. That’s where Credit Powers can help. We know all about deductions, discrepancies and short pays. We can help you find the problem and fix the system.

Contact us at patickpowers@sbcglobal.net.

Your comments are welcome.