Your accounting department could be costing you money

Companies routinely allow their Accounts Payable and Accounts Receivable departments to have direct customer contact. Unfortunately, many of these people are programmed to have a "numbers and rules" mindset, and that's exactly how they approach people outside the organization.

The results often include inefficiency, damaged relationships, and a vicious cycle that starts all over again.

Accounts Receivable

Your A/R department can hurt your image and ultimately cost you money in two ways.

The first is through poor billing practices. Earlier this week, I received a bill from a vendor. The job I hired them to do wasn't complete and I was told I would be billed for the entire job once it was finished, but the bill came anyway. To top it off, the bill was dated 13 days earlier and the terms were net 10. Yup - I received an unexpected bill that was already overdue when it arrived.

The second problem comes through poor collections procedures. Every business person knows cash is the lifeblood of the business, but many A/R employees are stubborn, stern, and anti-social. There are certainly many outstanding A/R people out there, but if your company doesn't employ any of them, the net result could be angry customers AND slower payments. Double whammy!

Accounts Payable

It's a time-honored tactic for A/P departments to sit on invoices until they feel like paying them. Some A/P departments have a blanket "net 30" or "net 45" policy, and the time clock usually starts when they receive the invoice (not when the company receives the invoice or the job is done). How can this hurt the company? Let me give you a few examples:

  • Upset vendors = declining service. Try asking a vendor for a big favor after you've developed a pattern of paying late, you have aging bills outstanding, or your company's A/P department is just a plain ol' hassle to work with.
  • Upset vendors = tightened credit. Poor treatment from your A/P department could lead to stricter credit terms or no credit at all. That means more cash up front for purchases or you'll need to tap into a secondary source of credit to make purchases. (The opposite is often true too - treat your vendors well and they are likely to be more flexible.)
  • Late fees aren't assigned to MY cost center. Good ol' cost center accounting ensures that any late fees assessed by your vendors are typically passed along to the department that originated the work, not the A/P department that sat on the bill. This means no incentive for them to change behavior, but it also means your company is paying more than it needs to.
  • No pay, no work. Many companies a firm policy of cutting off all business if too many bills are outstanding. It makes sense, doesn't it? We work to get paid, so if we aren't getting paid, we don't work. (Seriously, would you keep coming to work if your company didn't pay you?) The problem here is you may have an urgent need on one hand, but a belligerent A/P department means you also have no credit. Yikes!

The bottom line is your accounting department shouldn't be exempt from treating your customers, vendors, and even your employees with respect, professionalism, and a spirit of cooperation. It's cheaper and easier to work this way, plus you can brag that you have one of the few "cool" accounting departments.