By Dean Kaplan+
Debt collection is not usually considered when performing credit analysis; however, insufficient credit analysis can eventually lead to accounts receivable collections. This is the sixth in a seven part series of articles about things the credit department should do when considering potential new customers. This article will focus on what should be included in the customer’s purchase order.
Once credit is extended to a new customer, the relationship truly begins once the first purchase order is received from the customer. For the seller to maintain its profit margins on its products, care must be taken by the seller to follow the purchase order instructions and procedures to the letter. Most deductions from customers result from the seller not following the purchase order instructions correctly which ultimately eats into the profit margin attached to the product sold. In the case where the seller does not agree with the purchase order, it is up to the seller to amend the purchase order in writing to allow for a variance from the original order before the order is filled.
Every order by a customer must be confirmed with a purchase order. Never proceed with filling an order without a purchase order in hand and an assigned purchase order number. If you allow your customers to place orders without a purchase order, you open up the company to being manipulated by the customers with last minute changes to orders and an overall lack of control over the order and how it proceeds through the internal company systems. In general whenever there is an order change, the change must be requested in writing and confirmation of the change with the customer’s receiving department should be received to avoid problems upon delivery.
Below are things to look for in your customer’s purchase orders. These items will help the seller fill orders correctly and maintain profit margins and customer relations.
a. The most important thing to check is that the information on the customer’s purchase order exactly matches the order that is ultimately entered into your company’s computer database. The reason why this is so critical is that deductions usually result from these inconsistencies. Whenever possible
1. Customer name
2. Customer address
3. Customer city, state and zip code
4. The terms and conditions of the sale
5. A line-by-line itemization of the order by product
6. The pricing of the order, by item and in total
7. Billing information
8. Shipping instructions
9. Purchase order number
10. Department information
11. Shipping dates
12. Cancellation dates
13. Promotional or advertising information
14. Any special instructions
b. Signature of the buyer
c. Instructions about invoices
d. Any incentive program information that will affect billing (for example, quantity discounts).
e. Is the order quantity within the credit limit current balance available?
Collection agencies are not usually too concerned about purchase orders. However, because deductions can be such a huge problem for sellers these days, collection agencies may become involved in attempting to collect on deductions taken in error. These debt collections can be very difficult to collect for in-house debt collectors because the company may have a desire to maintain good customer relations. In this situation, calling in an independent third party to pursue the debt collection may be a good idea. Collection agencies are experts in accounts receivable collections, and they know what strategies work the best for different types of debt collections. Because they typically work on a contingency basis, their fees are only paid if the collection is successful.
Click here if you are ready to go onto the final article in this seven part series Credit Analysis To Promote Successful Debt Collection 7 Of 7. Click here if you missed previous articles in this series Credit Analysis To Promote Successful Debt Collection 1 Of 7.
And be sure to check out the other articles in this series:
- Evaluate New Customers
- Credit Application Development
- Credit References
- Financial Statements and Credit Reports
- Credit Decision
- Purchase Orders
- Identifying A Fraudulent Credit Applicant
The Kaplan Group is a boutique collection agency specializing in large (over $10,000) debt collections due from businesses. Founded in 1991, the company has a stellar reputation (A+ rating with the Better Business Bureau) and is recognized as one of the leading collection agencies for results on large and complex matters.