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(^236) Financial Management
years must be a warning against the automatic granting of unlimited credit.
Vetting Incoming Orders
The amount appearing on the customerís ledger account at any time will, of course,
result from invoicing the orders he has placed, so that if the value of orders in any
period were to exceed the original forecast this might not become apparent until after
invoicing. At that time the outstanding balance on the ledger would suddenly be found
to be in excess of the agreed limit.
To safeguard against this possibility an order register may be kept for each customer,
showing the value of orders placed for delivery in particular months. Each incoming
order will then be checked against the register to confirm that it will not cause the credit
limit to be exceeded. This could be a cumbersome procedure, and normally it would
only be used in respect of:
(a) New customersí whose compliance with credit limits has not been established;
(b) Customers who had consistently failed to adhere to their credit limits in the past.
(It might be better in such cases to withdraw credit facilities completely).
All incoming orders should be checked to ensure that are placed on the customerís
official order form and authorised by somebody purporting to have the power to place
that type of order. Computerisation has made this task very easy.
Sales Invoicing
So far as the customer is concerned, the companyís credit period does not begin until
he receives an invoice. Even then his accounting procedures probably involve a monthly
cut off date for the receipt of invoices, so that any invoice received after, say, the 28th
day of the month will be treated as belonging to the succeeding month.
It is important, therefore, that delays in invoicing be kept to a minimum. The causes of
delay are nearly all within the control of the company, and may include:
(a) An inflexible routine in the sales invoicing department (perhaps invoices are issued
only on certain days in the month);
(b) A requirement for approval or signature of sales invoices by members of the
sales staff who are often away from the office;
(c) Failure to agree prices for special work; and
(d) For job work, and in other cases where prices are linked with costs, excessively
slow procedures for calculating costs.