Tales From the Road – Who Owns the Accounts Receivable Aging?
2023 has been a very busy time for my credit consulting role. While helping petroleum companies sharpen up their credit and collections processes, it’s become apparent that the escalated price of product, cost of money and economic stresses on customers are all contributing to a ballooning of the accounts receivable asset class.
This year especially, I’ve spotted a troubling trend of customers severely past due on the A/R aging that are not being pressed for a solution hard enough by credit staff, or any other employees. The reason they are not being pressed? These customers have previously been considered valuable, “good” customers, but recent changes to their payment habits have resulted in a large balance sitting in the 90 day past due category. Because there has been a long-term good relationship with these customers, there is a false security in the receivable being something that will be resolved. But what if that’s not the case? Who in your company sounds the alarm first? My question to you is, who in your company really owns the A/R aging?
Typically, the answer would be the Collection Specialist leading the charge in customer communication and collection efforts, followed by the Credit Manager who reports up to the CFO. Throw into the mix a couple of employees making collection calls when they have time, and communication and resulting game-plan clarity becomes complicated. Then there is that “Oh *&%*” moment with the realization that the previous solid customer with a $30,000 credit limit now owes us $1,000,000 and is 65 days past due.
Who is responsible for this scenario? The collection person has spoken to the customer several times, received some payments here and there, but orders continue to be filled, which offsets the progress made on getting current. The collection person has communicated to the Credit Manager about promises and conversations so there is a false security that things are moving in the right direction. No one is terribly concerned until someone outside of the credit department takes a hard look at what’s been happening and blows the whistle. It’s amazing what can happen on that aging that doesn’t get attention until the receivable balance is a very large amount of money.
My advice on owning the A/R aging is the Credit Manager should be looking at the aging with critical eyes at least 3X a week and reporting the Top 10 concerns up to the Leadership Team weekly. This includes all conversations, plans to pay and current orders. Putting a dual-control team in place is also highly effective in ending the lull of false security of a good customer gone bad. Dual control would be the collectors focusing and reporting on their top dollar past due customers with daily intent to solve and reporting those detailed results up to the Credit Manager or CFO.
The scenario described above has been trending in very healthy, well-run organizations with strong leadership and credit staff. It can happen quickly and take a long time to solve. Part of being a true business partner with customers is spotting troubling trends and having honest conversations, at the highest level possible, about solutions. Sometimes the solutions are tough and a can seem like a compromise such as setting aside a balance in a note payable.
Final advice is to be diligent on customer behavior, report up the chain of command quickly and never cease to look at the A/R aging with fresh, inquisitive eyes.
Ann Pitts
817.304.1533