Unclaimed credit dilemma

Thinking about Decembers past, I remember a CFO who made it his priority to reconcile and use up all “unapplied” credits. December is not a good collection month. There are fewer collection days in it and with the holidays and all nobody wants to pay anyway. So, why would anyone want to do something that would essentially increase the receivables? Getting rid of a credit can mean one of two things: either it gets applied to an outstanding balance, which nets to zero, or it is refunded back to the customer which only increases the total receivable amount on the books. While I’m not opposed to refunding something that is rightfully owed, making it a priority during the worst collection period of the month doesn’t make sense.

The term “unapplied credit” means credits that are not derived from actual credit memos. There can be credit memos that are not matched to the original invoice and sit on the customer’s account just like an invoice. Usually, the customer will do the math and include the credit memos along with the invoices when payment is made. However, mistakes happen and to get rid of the unapplied usually requires a fair amount of research.

Sometimes, for example, a customer will pay the credit memos, treating them just like invoices, ignoring the little dash signifying that it’s a credit memo. The result is after the payment application, the original credit memo and an equal unapplied credit appears on the account. Sometimes a customer will send a check paying another vendor’s bills. Before the error is caught, the check is cashed and the applicator can only enter the entire amounts as “unapplied.” It also happens that customers will pay invoices twice resulting in “unapplied” credit balances. In fact there are a numerous payment errors that will result in “unapplied” credits on customer’s accounts. In order to correct the errors, the collector must explain the error to the customer and then, work out a correction. The simplest solution is for the customer to make the adjustment and take the credits on the next payment. It is very likely that unapplied credits come and go during the natural cycle of account activity. For this reason, devoting an entire month to clearing them out seemed pointless, given there are more pressing issues to occupy the collector’s time.

I believe, the CFO thought unapplied credits could be dealt with in some kind of sweeping magic wand. It is possible he did not understand the process. Why should he? CFOs are accountants and financial managers, they know very little about the inner workings of credit departments. If they did, they wouldn’t act like the pointy haired character in Dilbert, and make ridiculous demands on the department. This is where Strategic Credit Management Solutions can help. We can advise CFOs when perhaps the credit manager cannot. We can help set realistic goals and targets that will actually increase your revenue and lower your delinquency. See our website at http://powerscredit.com/. Your comments are welcome. E-mail us at patrickpowers@sbcglobal.net.