These types of customers do not require a normal credit check, in most cases. But beware of assuming financial stability simply because of high visibility. If you have any doubts about the company, check with your local commercial credit agency or The National Association of Credit Management.
Because a corporation is large and profitable, and because government agencies have exemption from credit evaluation, doesn’t mean that they pay on time. In fact, you will discover (if you don’t already know) that these accounts are traditionally the slowest payers.
In this section you learn the steps that you can take to resolve problems with big business and the government concerning your accounts receivable payments.
Name and Billing Address
These two pieces of information are very important and account for a great many delays in payment. The company or government agency accounting department cannot pay for something if it has not received an invoice. You need to enter the entire name exactly as it must appear on the invoice. If the customer is a division or subsidiary, the name of the parent company should also be shown. If the customer is a sub-agency of another government agency, this relationship should be filled in on the form.
Telephone Number of Accounts Payable
The telephone number is important also. Some sub-agencies and subsidiaries have the parent as the accounts payable entity. You should know this if it is true for a customer.
Key Contact
The key contact is the person that you can contact if trouble arises. If this account is going to do a large volume or dollar amount of business with your firm, be sure to get a name.
Purchase Order Cycle Requirements
The purchase order cycle requirements differ with all cases, so get the following information at acceptance, or even as a condition of acceptance.
A Typical Purchase Order Number
Get a typical purchase order number that will be issued by the customer and, if important, the meaning of the number.
The Most Significant Digits and Characters
Some parts of the purchase order number may be more important than others. If this is so for the large institutions or government agencies you deal with, you need to know it.
A collector once had a government account that was constantly paying late. When he investigated, he was told that the purchase order number was incorrect. It seems that his company’s purchase order number field had only 24 characters, and when a purchase order number was entered, it would truncate (cut off) any characters over that length. This customer had purchase order numbers that were in series, all starting with the same numbers. The last numbers were the ones they needed in order to pay.
To solve the problem, the collector had to have his billing department change the way they entered the purchase order number. The customer paid on time after that.
Blanket Purchase Orders
Some companies issue blanket purchase order numbers when they do business with service companies. The company issues a purchase order for a specific period with a “not to exceed” amount.
It you have this type of customer, you should keep track of your billing amounts, and when the end of the period is approaching or the not-to-exceed amount about to be used, bring it to the attention of the sales department and have them get you a new purchase order.
Purchase Requisitions
You need to find out if a purchase requisition, which some companies use as the form from which they generate purchase orders, can be accepted as a firm order. This is important. Some companies give their management a great deal of freedom, whereas others require an approved purchase order before an order can be placed.
If you have a company that has given you a purchase requisition as an instrument for a firm order, be sure it is valid. Most likely you will get paid in the end, but if you go around the purchasing department of many companies, they resent it, and they will put your order at the bottom of the list for approval for payment.
Schools and Hospitals
When you work with schools (individual schools or school districts) and hospitals, you must get all the information mentioned above, as well as some additional information. The most important piece of information is the day of the month for the monthly board meeting.
Some schools and hospitals require board approval of all invoices before payment. This is usually just a rubber stamp, but if you miss the board meeting by one day, you have to wait until next month to be paid. Find out if the schools and hospitals you deal with have this requirement. If so, know the board meeting date each month.
If your company does business with an organization that has a board that must approve all payments, be sure to send the invoices well before the meeting date. Since this should be one of your special handling accounts, you should have a key contact at the organization. Make an agreement that you will mail all invoices, in one envelope, to your key contact a week before the board meeting. This will make payment a smooth, regular operation.
George
Did you find this article informative? Too short? Not enough information? Check out the Credit Management Institute Website for a full-featured, detailed accounts receivable program that will make your life easier, and increase the cash flow for your company. You’ll find it at: http://creditmgmtinstitute.com
You can reach George at georgeobancroft@gmail.com
