uncollectible accounts and the role of

Purchasing on credit is an important fabric of how businesses exchange goods and services. Like most companies my organization extends credit on the purchases of merchandise for our customers. In my field, the use of credit is an essential part of doing business and the company extends the purchase of products on credit to help our customers with cash flow.The customer makes a purchase on credit, administers the product to the patient and then submits for reimbursement through the insurance company. The organization extends payment terms for 30, 60 and even 90 days for the use of the products. This helps the customer pay their invoice after they receive reimbursement from the third partynsurance company.In order to limit our risk of non-payment a complete credit history is conducted utilizing the most reliable and objective credit history. Although the organization takes extreme measures to ensure proper and timely payment is achieved often there are accounts that are unable to pay their bills. The company is willing to extend the use of products on credit knowing that some customer may not be able to pay the invoice.The sales volume that is achieved by the extension of credit is higher if the credit was not extended. Some physicians would be unable or on willing to take on all of the risk of using the product prior to reimbursement. The risk that the company takes is offset by the increased profit of the greater sales volume. When the accounts receivable becomes uncollectible the company will reflect this by a valuation adjustment. This is recorded to reduce the carrying value of the asset and recognize the bad debt expense. Allowance for bad debts accounts is called a contra asset and it is reported as a subtraction on the balance sheet. This account communicates to the financial statement readers that a portion of the accounts receivable is uncollectible.Often sales professionals and managers have to deal with customers that are unable to pay their invoices in a timely manner. These customers may be very important to the success of the territory, division and region. This is often a delicate job for the sales representative/manager and takes good internal and external customer relations.Obviously, the company must get paid for the product and services that they offer and it's the role of the credit department to make sure that this is achieved. The sales representative or manger must work as a liaison between the internal credit department and the customer. The main role of the sales representative/manger is to ensure that both parties are on the same page and they are communicating on the reasons why the invoice was not paid on time. There may be legitimate reasons for the late payment and the organization will potentially extend the payment terms.This is only possible if both the customer and the credit department are having an open dialogue. There are some companies that offer additional discounts for paying invoices within the payment terms. I currently work for an organization that offers this discount and it's imperative that the sales representatives are communicating this benefit. These additional benefits are often unknown and they may help the customer become more efficient in paying their bills. This may help cut down on the amount of bad debt that the organization experiences. There are cases when the customers are unable or unwilling to pay the outstanding invoices.In these cases its best to walk away from the situation and spend your efforts with other customers. Chasing bad debt is usually the responsibility of the internal credit department and spending too much time trying to intervene may be detrimental to your success with other customers.

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