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Introduction to this document

Sales credit note report

Rather than your department repeatedly issuing sales credit notes for the same types of problem, the key is to focus on fixing the root cause processes that are creating the issues. This should significantly improve your company’s cash flow by reducing debtor days and freeing up more time for the credit control team to focus on the real collection problems.

Cause not effect

Interestingly, the majority of collection problems are not, in fact, collection problems! Research has found that customers who don’t pay their bills due to cash flow problems range from 20%-30% of the overdue debtor accounts. The vast majority of overdue debtors don’t pay because they’re not yet satisfied with the execution of their order. It’s then up to your credit control department to act as the facilitator in solving these customers’ problems, often leading to the issue of sales credit notes (SCNs) before payment is made. As well as obviously delaying the payment of the transaction that has to be reworked, waiting for SCNs can be a reason for customers to withhold payment on their total account.

SCNs can atone for a variety of internal sins, including: (1) sales wrongly priced (either by arithmetical error or wrong product identification); (2) sales wrongly quantified; (3) agreed discounts or rebates omitted; (4) defective products; (5) delivery arriving incomplete; (6) products arriving too late to be used; (7) products arriving on time but at the wrong location, and subsequently being too late to be used; (8) pricing agreements being ignored; and (9) failure to obtain a valid purchase order number(s) from the customer.

If issuing SCNs is a significant problem for your business, introduce a Sales Credit Note Report each month to summarise the scale of and the reasons why they have been issued. There are, of course, SCNs given for legitimate reasons, such as agreed rebates, and these should be clearly identified in the report. To be effective, the analysis needs to be by both number and value of SCNs. The number indicates the frequency of errors made by staff or processes; the value indicates the amount of money lost as a result of problems.

Monthly meeting

As a number of the root cause issues that result in SCNs will be outside the accounts department, consider setting up a monthly meeting with sales, production and despatch to review  the Sales Credit Note Report. You can use the report to identify and solve the problems and thereby drive improvements.