【#BusinessManagement #PolicyDesign】#RnR #Overdue #AR
and #CreditLimit #Approver 202305010001
Hi. This is Emily from Taiwan, finance and accounting work background, the author of Whatsyouridea1996 blog.
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Emily Says：If you
define the work roles and responsibilities properly and complete the definition
works, you almost complete the management policies and work processes design!
This article
related to policies design for work
owners departments of Accounts
Receivable Collection and Customers’
Credit Limit Approver at companies in retailing and service, trading or
general manufacturing industries etc. These are majorly for dealers or agents
or business model related to B2B; all the paragraphs are listed below, please choose your most interest topics or
their colors and jump to the section to view：
1. Story sharing: To recognize the bad debt, to successfully collect the
account receivable?!
2. What’s your idea:
(1) [Role and responsibility] discussion takes the most time in policies
design.
(2) To cut from top to bottom, balance the role and responsibility, simplify
the things; decision made won't always
follow this rule.
3. Who makes money, who collects money and who urges to pay: To exchange
[products or service] for customers' [money].
Before viewing the article, please listen to this recommended song： Jay Chou【Far Away (feat. Fei Yu-ching)】
https://www.youtube.com/watch?v=ocDo3ySyHSI&list=RDocDo3ySyHSI&start_radio=1
1. Story sharing: To
recognize the bad debt, to successfully collect the account receivable?!
When I worked for
Company A as an [Accounting Manager], firstly, my work mission was to
[reorganize the accounting records], it included many overdue accounts
receivables and the amount was significant(I say “significant” because the
number was bigger than my salary😆 ),
there was also temporary records generated from system posting; payers of those
account receivables included Banks,
and the collection work owner
was [Treasury Department](we
both reporting to CFO), and, regarding the Bank receivable, it refused to pay
because they felt the contents in our payment request documents were incomplete
or flaw. I forgot the detail of the flaw, I remembered the overall situation
was our company thought the problems were in Bank side, though, the company has
never taken legal action before my handling this case and it has not recognized
the bad debt, either; I felt something weird; on the other hand, my colleague
told me, there were senior managers of other departments would like to know [in
the past, the former mighty Accounting
Manager cannot achieve the mission of clearing accounts or closing the accounts
reorganizing project, what would this
new comer Emily do for that?!] (👈What?! What kind of attitude is this?! 😆 )
💡! “Everybody please formalize and documentize
your opinion as supporting evidence for further discussion in the future!”=>
I raised this request, and then…….the Bank paid us! It was the amount they
needed to pay! 😃
I’ve prepared for
the worst and would like to gather all related information for my “formal
report” to my CFO and CEO, furthermore, this report was for my supporting
documents for “tax and legal purpose” in the future once there is further work
instruction, they all need formal
documents from Bank side. Hence, I asked for help from our Treasury
Department for that “formal response
from Bank”, and it needed to have “corporate
seal and stamped in red(*) on it”.ç I though the Bank
would be happy to do that, right?!
(*)In Taiwan, to
stamp in red, usually, it means it’s formal, and those in blue
are more general.
Moreover, I hope could know how the Bank would formally describe the reason they “refuse” to pay? I hope the opinion was not from their staff members but the person who is able to represent for them formally! …Unexpectedly, they paid, I was shocked! 😄
Though, I guessed there was
something unusual in the whole work procedures in the past, I didn’t plan to
find it out since I’ve completed my work mission then.
I hope this story
has brought you some inspiration.😊
2. What’s your idea:
(1) [Role and responsibility] discussion takes the most time in policies
design.
(2) To cut from top to bottom, balance the role and responsibility, simplify
the things; decision made won't always
follow this rule.
(1) [Role and responsibility] discussion takes the
most time in policies design.: Do you agree with this?!
I think it this way and have never changed, and I sincerely invite you to share
your opinion. It’s just like the advice in [#BusinessManagement] Selecting Consultants is likeSelecting Talents, if you would like to hire external
consultants for your policies development someday, I suggest you to prepare
questions related to work role and responsibility issues to ask for candidates’
opinion as one of your screening requirements.
(2) To cut from top to bottom, balance
the role and responsibility, simplify the things; decision made won't always follow
this rule: Usually, when people are talking about work role
and responsibility, only “parties
involved” are considered and they are discussed their appropriateness,
there is nothing bad in this, however, to the end, we need to consider [management
responsibility] and [internal control issues], I suggest the discussion could focus
on “It belongs to which CXO(VP of OOO) is more appropriate?!” for decision
making in order to clarify the issues and make things done easier. CXO work
position is the head of work function, the highest work position, it won’t change once the person in tihs
role changes: Chief Financial
Officer, Chief Legal Officer,
Chief Sales Officer and Chief
Marketing Officer….
For example: In
some events, in the beginning, the roles and responsibilities discussion
involved departments of Product, Procurement, Accounting, Treasury, Sales and
Risk etc., and I suggest people to adjust their focus, they should discuss the
roles and responsibilities among Chief Marketing Officer ( or Chief Products
Officer), Chief Procurement Officer, Chief Financial Officer, Chief Accounting
Officer, Chief Sales Officer or Chief Risk Officer, this makes things look
clearer because it brings another
kind of viewpoints. So, I suggest you to define the work roles and
responsibilities among CXO
before authorizing/allocating/discussing the departments below them (Chief Financial Officer->Treasury
Department；Chief Sales
Officer ->Sales Department…).
EX1:Is Chief
Sales Officer or Chief Financial Officer the work owner of
collecting Accounts Receivables?!
Because ______________.
EX2:Is Chief
Sales Officer, or Chief Financial Officer or Chief Risk Officer
the work owner of collecting overdue Accounts Receivables?!
Because
______________.
EX3:Which is
more appropriate to do customer credit limit [request for approval]? Team
members of Chief Sales Officer or Chief Financial Officer or Chief
Risk Officer?!
Because ______________.
EX4: [To
verify and investigate] customers credit, it is more appropriate to be
conducted by team members of Chief Sales Officer or Chief Financial
Officer or Chief Risk Officer?!
Because
______________.
EX5:In the
result of above 4, it is the Chief Financial Officer or Chief Risk Officer’s
job to [define] the level of customers’ credit risk?!
Because
______________.
EX6:Because
of above 3~5, it is more appropriate to [define] customers’ payment terms by Chief
Sales Officer or Chief Financial Officer or Chief Risk Officer?!
Because
______________.
EX7:Because
of above 3~6 and to follow all defined rules above, it is more appropriate to
[approve] above customers’ credit limit request by
Chief Sales Officer or Chief Financial Officer or Chief Risk
Officer?!
Because
______________.
What are your
answers?
Decision made won't always follow this rule：It means => [the
decision boss would like to make may not be in alignment with specific logic
and internal control!].
EX1:Auditing
department needs to be independent and report to the Board directly, however,
practically in Taiwan, there are companies define Auditing needs to report to
Finance and Accounting, Legal or President Office because of many kinds of reasons.
EX2:There is a producing by order company, in the beginning,
they defined non-sales departments, including inventory storage management,
belong to the management field of Chief
Financial Officer; later, they changed themselves to become a business work
performance oriented company, they adjusted the inventory storage management as
a department under Chief Sales
Officer; hereafter, the Chief
Sales Officer is not only responsible for sales achieving rate but also
those would influence sales performance, such as plant producing capacity,
products quality, storage spaces and plant security etc. everything related to
goods needs to be in his work management field. The company thinks Chief Financial Officer can also
monitor business work performance via number generated for finance statements
and make it more concise, the volume of Chief Financial Officer’s work did not
decrease.
What’s your comment about this work arrangement?!
For your reference: Due to its industry
characteristic, because its Procurement Department work responsibility involves
vendors supplying quality assessment, I suggest they need to separate their Procurement
Department from Sales and Products Department in order to early control or
reject high flaw rate or high slow
moving products re-purchasing request, and to avoid any improper work instruction from Sales and Products
Department, so, they don’t need to wait for improper purchasing goods received
and to review it via finance number. Thus, to properly arrange work
role and responsibility can enhance management work efficiency before flaw happens;
to monitor finance number for business management is not always the best way
for Chief Financial Officer to contribute their work value, it needs to
consider and ensure the number is generated independently without any
manipulation.
3. Who makes money, who collects money and who urges to pay: To exchange [products
or service] for customers' [money].
The picture above shows the result of my survey via LinkedIn at 2023/4: the work owner of overdue Account Receivable collection, due date is 1/31 and has not received on 4/8?! There were 970 viewers within two weeks; however, only 10 placed the vote. And, it means, in this voting, Finance and Accounting, Legal and Sales vote percentage is not 0%, obviously, opinion won’t be the same though the involved people are not many. Do you agree with this idea?! Regarding work role and responsibility discussion in some companies, they [love to see] everyone thinks differently, so they are able to see things in various aspects and hope could find an answer to meet all needs, this situation is similar to Q&A meeting mentioned in a chart in How to 【write/build】 policies ?：it needs to be fully discussed…；do you agree?!
(Below also utilize
job title of work function head to discuss work role and responsibility
issues.)
Responsible for making money: is the work duty of Chief Sales Officer, less people would doubt
about this.
Collection work owner：Account receivable is the result of
exchanging products or service (assets of the companies) with customers for
money not paid immediately; it is Chief Sales Officer exchanging
products or service with customers, thus, Chief Sales Officer needs to
get the money back from customers to the companies, otherwise, Chief Sales
Officer has the rights to provide products or service to customers but has
no responsibility to collect the money back, this causes its work role and
responsibility not balanced. Do you agree?!
Work owner of overdue account receivables collection: If this work
responsibility belongs to someone else rather than Chief Sales Officer as
above, then, this person should be the one to do collection in the beginning once
account receivables is generated, right?! The company doesn’t need to wait for
its overdue then change the person to collect it back! 😌
Yes, you can say “overdue account receivables collection work owner” is a
trick question.
The issue is “who should start the overdue
receivables collection work procedures?” and “how to do it?”
Discussion: If the company needs to start the overdue receivables collecting work procedures once the Chief Sales Officer cannot achieve the work before the deadline, then, how to manage and ensure the Chief Sales Officer would surely kick off the work rather than to ignore it on the contrary?!
Advised tool: Account
Receivables Aging Reports by Chief Accounting Officer +periodically
follow up Account Receivables
clearing/wash-up/offset sheet(note1) well prepared and sent back from Chief
Sales Officer.
(note1) Account Receivables clearing/wash-up/offset sheet：Chief Sales
Officer needs to prepare one of below kinds
of documents according to actual collection progress, fill it up and send back to Chief Accounting Officer
as the supporting documents for account receivables accounting records
adjustment:
(1)[Customers Paid Notice with
signatures or received stamp of Chief Sales Officer and Chief
Financial Officer]+[account
receivable statement].
(2)[Notice of Kicking-Off Legal
Action for Receivables Collection with signatures or stamp of Chief
Sales Officer and Chief Legal Officer](or collection reports or request
for approval…..in form of explanation.)
(3)[Bad Debt Report with
signatures or stamp of Chief Sales Officer and Chief Legal Officer]+other
legal documents
EXP1：You don’t need to prepare any kinds of written documents if all above work
process are systemized.
EXP2: Before Notice
of Kicking-Off Legal Action for Receivables Collection procedure, there are
lots of required oral communication; however, Chief Accounting Officer needs to take the initiative to check the accounts record directly
with customers and also needs to acknowledge Chief Sales Officer before taking this
action, be ready to provide account receivables record for Chief Legal
Officer and Chief Sales Officer in order to proactively conduct internal control and manage accounting records’
freshness to timely reflect accounting information close to the truth
on time to reach departmental work mission.
EXP3: After receiving the legal action kicking-off
notice, the Chief Legal Officer needs to take related action to collect
the receivables accordingly.
EXP4: In the overall
situation, to describe it in internal control term, Chief Sales Officer
is the account receivables collection Project Manager, and, the Chief
Accounting Officer has the responsibility to monitor this project works goes
on time by progresses, all involved work departments need to “sign” on related
documents to express “information well received” or “ got it” or “approved”.
Chief Accounting Officer has no
opportunity to ignore their own monitoring work responsibility and take the
initiative, it is because they need to periodically explain and report the
accounting information to CEO and/or Board of Directors; however, there is an exception…no one knows
how to utilize accounting information or no one knows the required
accounting reporting procedures. Practically, all kinds of situations are
happening frequently.
Above all, all the
work departments are responsible for their own work progress and keep others
informed about the most updated situation. If the information is updated via
email, it is advised to use this format:
From: email sender＊＊＊
To: Sales
Department（account
receivables collection project manager）
Cc: Another
involved department
Subject：［sender department＊＊＊report］ＯＯＯ customer’s
account receivable collecting work progress
Hence: Account receivables collection work owner is Sales
Department, the work owner to become another department is because the company
needs to adjust the way to collect it back, so, it extends to Accounting and
Legal Department and hope could get it back as soon as possible; if we/Sales
Department request for help from others to collect receivables, it doesn’t mean
we have no responsibility for those things we are asking for help. Then,
Sales Department is the overall work
PM of this collection work. Do you agree?!
If the company has built up a policy for work compliance, it doesn’t mean
oral communication is not allowed or not required before policies compliance work.
All complete oral communication needs to be done before documentation or system
works for making consensus first.
4. Does customers’
credit limit approval [right owners] need to take the [responsibility] for not
enough customers, sales not achieved or bad debts?
This question also attracted more than 1,000 views within 2 weeks, however, there were only 17 votes；why?! I hope I will get the answer someday.😒
Accounting got 0
vote, I also think the same, so, I won’t include Accounting into below
discussion; should you have question, please click to contribute an article as an management work
professional or leave message below or use above Contact Emily at the right
hand side and submit message to me. Thank you.
If we also discuss by [work functions] and their [department heads’ job
titles], who should be customer credit limit approver? Chief Risk Officer, Chief Financial
Officer or Chief Sales Officer?!
If we go back to above 7 questions in pink, what your answers will be?!
My advices are:
EXP1:The company
needs to take all the departments as the same work level, no one is higher than
others, thus, approval request cannot be approved
by another work department, then, customer credit limit approval
requester(1) and approver(7) need to be the
same work department.
EXP2: Verify = (2)
and (3) in above chart, it means credit checking. Except for leasing companies
or sizable companies, they separate Risk Department from other work units,
however, we usually find that companies usually define Chief Risk Officer/Risk
Department and Chief Financial Officer/Finance Department are the same work
department, they do customers’ credit verification by going through customers
profiles and those information provided by Chief Sales Officer/ Department and
check and verify the credit records via Banks or Credit Checking work
organization in the scope authorized by customers.
EXP3:Control and
Advice=(4) and (5) in above chart, it means, the companies assess customers’
credit limit amount appropriateness by following their own predefine customers’
risk level and the ways of risk avoidance. E.g. After risk assessment, the
result of a specific customer’s risk level is N=Not suitable to define credit
at this moment, or H=High Risk, and, some will be advised to increase the value of customers’ collaterals, and this
would also cause impact on (6), (6)=this
customer needs to 100% pay in advance.
EXP4:Payment Terms, (6) in above chart belongs to Chief Financial Officer’s management
scope, others need to follow its rule, so, after this, the request needs to go
to (7), the requester department follows all above work procedures and to
re-assess their request amount and consider they need to ask for customer’s
collaterals increase or not, otherwise, they need to consider to adjust their
requested credit limit amount, more than that, they also need to rearrange
their customers’ sales contribution plan, to make a conclusion and approve
accordingly, furthermore, they need to input the approved customer profile
and credit limit amount into system.
EXP5: Regarding (8) in the chart
above, it is Chief Financial Officer/Finance Department to conduct compliance control, we usually
say it is to “activate/take effect” the new customer’s profile information or “release”
the blocked exceeded credit limit sales order, it needs to be separated from
Sales Department.
EXP6: There are some other reasons
to define Chief Sales Officer/Department as the customers’ credit limit
approver:
- It is Sales
Department daily routine work
activities and role and responsibility to physically
observe customers’ business operation, business reputation in the industry for
credit limit assessment.
- Sales achievement
amount relies on customers’ credit limit amount, if the credit limit amount is
lower that causing sales amount not achieved, then, Sales Department needs to
create another sales or they need to do another customer development and to consider
how many customer order they need to create, Sales Department needs to consider
the pros and cons before their final request approval.
EXP7: There are
also companies define their credit limit approver work owner as Chief Financial
Officer/Finance Department, that is, (7) in above chart belongs to Finance
Department, and, in this situation, Chief Sales Officer/Sales Department only
needs to do request while the Finance Department has the right to
reject(=not approved) and Chief Financial Officer/Finance Department doesn’t
need to be responsible for sales achievement, it causes both departments work
roles and responsibilities not balanced and sales achievement may grow more
slowly or causes work conflict cross functionally.
EX1: Chief Sales Officer/Sales Department: sales amount not achieved is
because the approved customer credit limit amount approved by our Chief
Financial Officer is always smaller than requested, thus, do we need to split
the sales orders?!
EX2: Chief Sales Officer/Sales Department: I have no responsibility about
the bad debt, I am responsible for sales achievement only.
What’s your idea?!
Please share your idea.
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