Beyond the Numbers: How a Routine Data Migration Exposed a Costly Credit Management Gap

A little while ago, I began working on helping a company migrate their financial data from QuickBooks Online to an enterprise grade accounting system. When I was reviewing the data, I noticed there were a large number of customer invoices that were overdue. Not only were they overdue, but a significant number were overdue by more than two months. The total value of the accounts receivable balance was very high. While I was not specifically hired to solve this problem, it is something that stuck out. During my next meeting with the CFO, I mentioned that it appeared they had an unexpectedly high accounts receivable balance and that many of the invoices were very overdue. The CFO went on to talk about how the business had been struggling with timely collection of customer, and that several months before it was even worse. He also went on to talk about how they do not have any credit management practices and have been struggling to get this under control as well.

This suggests that the company lacks controls in its ordering and dispatching processes. Employees accept every job that is requested and perform them all on credit. Further, no customers have an established credit limit. Knowing this, the CFO feels it is making cashflow management difficult and shrinking margins.

We went on to talk about some features in the accounting system’s customer records and accounts receivable management module which could support more robust credit management. He was pleased to hear about this. Despite the fact that the system had been in use for about four years, no one had ever presented this concept before. I cautioned that this alone will not solve the problem, but could at least provide some structure to help deal with it.

For the company to get its credit management under control, we would need to implement new policies and procedures regarding how credit is issued. Specifically:

1. Establish rules on how much can be given out
2. Determine who can approve it
3. Establish a method for how creditworthiness would be evaluated
4. Build a set of guidelines for accepting orders without issuing credit
5. Determine how this methodology would be automatically enforced within the system

This company now has some direction to solving this problem, something that was borne out of a lack of focus on rigorous structure in its operating methodology.

For me, looking at the data brought to light issues which were directly affecting the company’s financial success beyond the specific challenge I was seeking to address. This is a very common occurrence, and something I am always looking for when I work with a client.