Bad debt – more than a finance concern?

by Anne-Marie Fast 1. September 2011 09:46

Bad debt is often seen as purely a ‘finance’ issue, predominantly by those outside of finance but also, surprisingly at times, by those within finance. As a non-finance person, I too held this view until quite recently. It had never occurred to me that I could play a part in preventing bad debt until I sat in on a presentation by our CFO.

No one would deny that the finance function is ultimately responsible for monitoring the financial health of the business, including pursuing debtors.
It is the finance team who must keep their fingers on the pulse of the company, implementing the correct processes to spot and resolve emerging bad debt to nip
it in the bud before it can cause serious problems. But the rest of us can most certainly play a part.

Take the sales force - with their customer relationships and regular contacts, they can easily contribute to the resolution of disputes and overdue payments in a more amicable manner. They can also avoid accepting new orders from defaulting customers or from those who have breached their credit limit in the first place.

A less obvious one for me was the whole issue of over-selling – sales and marketing unwittingly making claims that products or services – what they will do, ease of use, the support available and so on – in reality cannot deliver. When times are tough it can be tempting to overplay the positives and potentially gloss over the limitations when trying to close a sale with a customer. A customer who has willingly paid your invoice will have every right to demand a refund or discount if the product or service fails to live up to their contracted expectations. This will impact your bottom line and consume large amounts of time and effort to turn the situation around.

Product development teams too, play their part, as failure to deliver on time can affect payments and, worst case scenario, can make an order null and void. After-sales is another area which can disappoint the customer. If you keep them hanging on the phone and fail to resolve issues, they will have valid cause for complaint. In some industries, strict SLAs will even entitle them to compensation if service performance does not meet agree timescales and quality.

There are obviously many more examples of areas where other departments play a part in preventing bad debt but in essence, it’s all about creating awareness and changing habits. Looking back, it’s so obvious, but without my recent wake-up call, I’d be plodding along still believing bad debt issue were purely the domain of my finance colleagues.

If you're interested in knowing more about making bad debt more than just a finance concern, please read the recently published IRIS Exchequer white paper, which includes 10 great tips for getting the whole company on board with bad debt resolution … and better still, prevention. Click here to download.

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