If you were granted only two tests to really understand a business, here’s a recommendation. Firstly, look at the bank accounts to see what cash is coming in and going out. And secondly get to grips with the credit notes.
That, of course, is the advice of a confirmed number cruncher – but the reality is that understanding credit notes is often overlooked as a tool for understanding what is actually happening within a business. Unfortunately, the lack of awareness around the company’s debtors book is an aspect in many businesses where incidental credit is extended. And number cruncher or not – your Accounts Receivables book is the bedrock of your business. It acts as a SCORECARD for your financial and operational processes.
Reining in free-hand
How often have you seen credit notes with “free-hand” descriptions as to the reasons they were granted. Free-hand responses make collective analysis impossibly difficult. In Nimble’s experience, the value of analysing credit notes is under-appreciated and because of this attitude – we find it tends to be very unstructured.
At Nimble, when we engage with clients, we have found enormous power in being able to collate credit notes into logical groups in order to discover why people are not settling their accounts. It gives great insight as to what is not functioning optimally in a business, and it focuses a spotlight on operational challenges.
Between the lines
Credit notes quickly tell you whether you have administrative challenges such as: payments not being allocated, pre-invoicing to massage sales numbers, pricing errors and random discounting offers. They will just as easily reveal customer satisfaction and product challenges such as warranty claims, short deliveries, incorrect product and missing PoD’s. A veritable treasure trove of valuable insight can be found in the not so humble credit note.
It is this knowledge that will serve as the first step in fixing troubled front office environments. So when the debtors book is slipping out, take a look at the credit notes – you might just discover that it is not the credit controller’s fault that money is not recoverable.
There’s no doubt that business benefits are experienced immediately – just by placing the correct amount of detailed attention to credit notes.
Devil in the detail
Credit note analysis unlocks real value:
- The spotlight will immediately highlight areas where there are deficiencies in the business; be it in under-performing branches or regions or where processes are failing.
- Cash flow is enhanced, as payments on invoices are normally delayed until the credit notes on the account are resolved.
- Time efficiencies and cost reductions are built-in as resources no longer have to prepare, approve and distribute credit notes – freeing up time for other collection activities.
- Management reporting is enhanced through a systematic credit note process within the finance function.