Question

"Mini Case Study - Haley Roberts "

Haley Roberts is quite proud that she has grown her business in website design from a small startup to a mid-sized organization. However, she is now running into some “growing pains.” Now there are sales people and account managers that deal with the clients. Her Controller, Dan, oversees daily operations, human resources, and accounting. One day, Dan comes into Haley’s office to discuss the morning meeting. Sales have almost doubled from the prior year, but collections are down. SOMETHING has to be done! Dan and Haley refer to their notes of the ideas and concerns voiced at the meeting:

• Alex (sales) – “I’m no accountant, I just know sales. I have grown my sales by reaching out to clients who need our help but may not have the best credit. Just by giving them an extra month or so to pay makes a big difference! And who cares, as long as they pay? We still get the money!”
• Jessie (account manager) – “I just want to keep my clients happy. I do that by addressing their concerns, and I can tell you that their biggest concern is usually that they can get similar services cheaper somewhere else. If I start pressuring them to pay sooner, we may lose them!”
• Sam (accounting) – “All I know is that if we are going to get our vendors paid on time, we need to pull in our cash faster! I am tired of putting off payments and then sometimes paying interest or late fees just because I didn’t have enough cash to go around!”
• Dan (Controller) – “Maybe there are ways to get our cash faster without bugging our clients directly. There are companies that will buy our receivables from us, so we would not be dealing with the clients directly regarding collectibles. Of course, that would also cost us…”

Haley feels overwhelmed by all of her options. There is no easy answer. After reviewing the various perspectives above, what should Haley do? What would you do, or what advice would you give to Haley

Answer 1

Answer :

As given in the question , Sales have doubled from prior year but collections are down. So, it is time for Haley to reconsider the pricing, credit and collection policy.

Currently Sales are handled by Alex. As mentioned in the question at time sale he is not focusing on client's creditworthiness.

Advice : Haley must form sound CREDIT policy to ensure creditworthiness that is payment capacity of potential card can be checked before making sale on credit. To increase the possibility of collection from client avoid bad debts.

Jessie ( account manager ) saying that clients are getting similar service at cheaper rates from competitors so, it is not advisable to presue clients pay sonner it may lead to lose of clients.

Advice : Haley may consider it's pricing policy after making competitive analysis of pricing of competitors and advice the account manager for collection without fear of losing the clients as after new pricing policy our prices will be more competitive.

Sam is focusing on payment of vendors on time.

Advice : Haley and Sam should try to avoid late payment thus be saving late fees and interest charges and increae credit rating amongs the vendors. This can be done by increasing the float on payment that is time taken by vendor to get cash after making payment. There are many methods for it like issue of check on account instead of cash or E- transfer.

Dam is advising about the factoring the account receivables.

Advice : As most of collections are pending Haley may opt for factoring service after considering Cost - benefit analysis by comparing charges of factoring and potential uncollectible. This is temporary solution for higher collectible issue.

Summary :

A.

Haley must frame NEW PRICING, CREDIT and COLLECTION POLICY. ( For future sales )

- To ensure credit is given to creditworthy customeers to potentially avoid uncollectible.

- Make prices more competitive to ensure higher sales.

- offering cash discount and other measures such as loyally points for early payment etc to incentivize early Collection.

Haley should try to make payment to vendors in time to aviod paying late fees and interest charges.

B.

Current situation of Non-collection.

- Haley may go for factoring of accounts receivable to ensure cash receipts at earliest after considering Cost - Benefits.

- Haley may meet with some clients ( potential uncollectible ) and re-construct Collection amount to avoid total loss of Collection.