As a Credit Manager that demands nothing less than excellence, you know the importance of allocating cash correctly and completely every day on the day the cash comes in.
One of the main duties of management is to run daily control reports to make sure everything that should be happening is really happening, unallocated cash has to be one of these key reports. If customers are giving us money and we don’t know why or if we cannot match the amount of the payment to the specific invoices that it relates to or if our method of accounting is so sloppy that we simply maintain a balance forward statement and allocate the cash received against the opening balance, or even against the oldest items you are creating a major problem for yourself at a future time.
It has to be someone’s job to contact the customer either by phone or by e mail to find out exactly what they are paying, on the day the payment is received, if there are large number of invoices you should ask for a copy of the remittance advice which lists the invoices, dates and amounts that are included in the payment.
If the amounts don’t match there are a number of possible reasons and a number of possible solutions – I hope you find this list useful:
1. Invoices omitted from the payment.
Clear the invoices that were paid and make a call or drop an email to your contact in the customers’ accounts department to find out why the invoices were omitted; are they in query, are they missing, do they need copies, you should ask for an additional cheque for the short payment rather than waiting another month.
2. Invoices paid but not cleared in full.
If an invoice is short paid, chances are they think they have been over charged, or short delivered, or charged for an item in error. Each instance must be investigated and resolved, on the day if possible. If they have been overcharged, your sales figures and margin figures and your debtors’ figures have been overstated and the sooner it is resolved the better. If they think they have been overcharged but the price is correct, the sooner they are made aware of their error the easier it will be in the end. If this is allowed to go on for weeks or months you are at risk of losing this money altogether, like everything else in credit – timing is everything.
3. Cash entered on the wrong account.
Find the correct and transfer the cash across straight away.
4. All invoices paid but there is a difference of say €27
If the difference between your list of invoices and their list of invoices can be divided evenly by nine, chances are that a number was transposed. If the difference is €27 chances someone wrote €96 instead of €69 or €58 instead of €85. When you know what you are looking for it is much easier to find it.
By knowing the difference you will know exactly where to look, if the difference is a single 9, then you need to look at the last two digits of the number, and you are looking for numbers that are next to each other e.g. 12 written as 21, 23 written as 32, 67 written as 76, 89 written as 98. If the difference is 18 you are looking in the last two digits again but this time you are looking for a number that is two apart e.g. 13 written as 31, 57 written as 75 or 97 written as 79.
This knowledge should help speed up your reconciliations. If there is a missing invoice there are no short cuts you have to go through them line by line or use your spreadsheet knowledge to dump both sets of numbers in and compare on with the other.
5 Credit Notes taken but the invoice to which it relates is left out
If you send out credit notes to cancel specific invoices this can happen, when it does you have to spend the time to find out exactly how the charge appeared on the account and notify your contact immediately.