For distributors, accounts receivable are a vital component of current assets, and establishing a systematic management process is a common concern. To this end, Chen Lei (pseudonym), general manager of Wuhan Shengyuan Trading Co., Ltd. in Hubei, shared his company's accounts receivable management system. Chen Lei stated, "Establishing an accounts receivable management system ensures the company maximizes the use of customer credit to expand the market, which not only facilitates product sales but also minimizes the cost of bad debt losses, shortens the time funds are tied up in receivables, and accelerates capital turnover, thereby safeguarding the company's capital and preventing operational risks."

Establishing Customer Files and Credit Assessment Mechanisms Chen Lei introduced that Shengyuan's accounts receivable management primarily involves the finance and business departments. The finance department handles data transmission and information feedback, the business department handles customer contact and payment collection, and both departments jointly determine customer credit limits. The collection of customer information is the starting point for accounts receivable management, and only then can accurate customer information files be established. To this end, Shengyuan has introduced three specific regulations: First, any customer with more than two transactions and a single transaction amount of 5,000 yuan or more falls within the scope of information collection. The salesperson in that region is responsible for this, and it must be completed within one month after the second transaction. Second, after collection, customer information is handed over to the business manager for consolidation and filing. Customer information files include basic customer data, customer characteristics, business status, and transaction status. The files are made in duplicate, signed by the business manager after review, with one copy kept in the general manager's office and one in the business department. The business manager is the ultimate person responsible for the file and updates or supplements it regularly. Third, customer information files are important company documents, and all operating personnel must keep them properly. If any staff member is transferred or leaves, the file is a major part of the work handover. Those with unclear handovers will not be allowed to leave their posts or complete resignation procedures. Chen Lei told reporters that the establishment of customer information files facilitates the company's investigation and analysis of customers' creditworthiness and sales capabilities, thereby determining the credit limit and credit period each customer can enjoy. At the same time, a "Credit Limit and Period Table" is established, with copies kept by both the business and finance departments. Customer credit limits and periods are reviewed quarterly and adjusted at any time based on feedback on customers' operating conditions and payment status. With the "Credit Limit and Period Table," Shengyuan's various departments have a basis for handling credit sales: First, for new customers making their first credit purchase, the credit limit and period are usually set at 50% of the normal standard. If a new customer has good creditworthiness and needs a higher credit limit or longer credit period, it must be agreed upon by both the finance and sales departments and approved by the general manager before implementation. Second, in market development and product sales, any credit sales using credit limits must first have the salesperson fill out a "Credit Application Form." After the business manager strictly approves within the pre-assessed credit limit for each customer, the warehouse management department can process the shipment. Third, the accountant responsible for accounts receivable in the finance department checks the collection and settlement of receivables against the "Credit Limit and Period Table" every ten days, strictly monitoring the collection and settlement of each account. If payment is not received within 10 days after the credit period, the accountant must promptly notify the department manager in charge of finance, who will summarize and promptly notify the business department to contact the customer for collection. Chen Lei said, "The establishment of the customer credit assessment mechanism has improved the efficiency of the company's business department and greatly reduced the probability of doubtful and bad debts. More importantly, it has enhanced mutual trust between the company and customers, making cooperation more harmonious."

Controlling from Aging Analysis to Improve Collection Efficiency On the fifth day of each month, Shengyuan's finance department submits an "Accounts Receivable Aging Schedule" for customers who have not yet paid. The business department strictly compares the "Credit Limit and Period Table" with the "Accounts Receivable Aging Schedule" to promptly verify and track the collection status of credit customers, contact customers who have not paid on time, and report feedback to the business manager and the deputy general manager in charge of marketing. After verification, the general manager approves the collection work. Chen Lei stated that the primary person responsible for collecting accounts is the salesperson who directly interfaces with the customer. When signing contracts or agreements with customers, the salesperson should agree on the single sales amount and settlement period according to the credit limit and period for the corresponding customer in the "Credit Limit and Period Table," and be responsible for collecting and contacting related accounts within the period. If payment is still not received after the credit period, unless the customer can provide reliable financial guarantees under special circumstances, shipments and credit sales will be stopped, and the following regulations will apply:

  • If overdue by 1-10 days, the handler reports to the business manager and makes phone reminders;
  • If overdue by 11-60 days, the business manager reports to the deputy general manager, arranges a personal visit for collection, and deducts 20% of the handler's commission for that invoice;
  • If overdue by 61-90 days and collection efforts are ineffective, the business supervisor reports to the general manager for case-by-case handling (such as considering legal action through the company's legal advisor), and deducts 50% of the handler's commission for that invoice; ... The longer the aging of accounts receivable, the more difficult collection becomes, so problems encountered during collection must be resolved promptly. To this end, Shengyuan has made the following regulations:
  1. The business department should have a comprehensive understanding of all customers' credit status and transaction history. For all overdue receivables, the handling salesperson should provide a detailed explanation of the reasons for non-payment in the remarks column of the "Accounts Receivable Aging Schedule" for company reference. For large overdue receivables, a special written explanation and collection recommendations should be provided; otherwise, if such accounts become bad debts due to inability to collect, the salesperson should compensate the company's losses according to a certain proportion.
  2. Collection work is arranged by the business department, which determines the route and customers and sets the return time. When salespeople are out collecting, they must report progress by phone to the business manager at each customer visit, whether or not collection is completed. It is strictly forbidden for anyone to take the opportunity to sightsee.
  3. When collecting, if the customer raises issues such as price, delivery time, quality, or transportation on the spot, the salesperson can agree immediately if within their authority; if outside their authority, they must promptly report to the business manager and provide a response to the customer within no more than 3 working days. If it involves price adjustments, they should immediately fill out a price adjustment form upon return to inform relevant departments and record it in relevant materials.
  4. If salespeople engage in misconduct such as failing to report accounts or accumulating collections, failing to report returns or accumulating returns, or reselling without following regulations or for personal gain, they will be dismissed immediately upon discovery, required to compensate company losses within a specified period, and in serious cases, handed over to judicial authorities.

Preventing Risks from Staff Transfers and Resignations It is well known that a large portion of distributors' doubtful and bad debts are caused by the transfer or resignation of the handling salesperson. To prevent this, Shengyuan has strengthened the handover management for internal transfers and resignations. According to Chen Lei, when a salesperson applies for a transfer or resignation, they must hand over the accounts receivable they handled. Specifically, for transferred salespeople, they must first complete the work handover, including accounts receivable; if not completed, they cannot leave their post. If the handover is unclear, the transferor is responsible; after a clear handover, the successor is responsible. For resigning salespeople, they should apply to the company 30 days in advance, and after approval, complete the handover procedures. If they leave without completing the handover, their salary and resignation allowance will not be paid, and if losses are caused to the company, legal liability will be pursued. In the actual handover of accounts receivable, three parties are involved: the transferor, the receiver, and the supervisor. The supervisor is the deputy general manager in charge of marketing, responsible for supervising the entire handover process and clarifying the responsibilities of the transferor and receiver:

  1. After a salesperson proposes resignation, they must collect all accounts receivable they handled within one month, or obtain a written commitment or guarantee from the customer for payment; otherwise, resignation will not be processed.
  2. If the resigning salesperson has obtained written confirmation from the customer for bad debt claims, this does not affect the resignation process; the successor will take over the claim work, and the claim is not invalidated by the handler's resignation.
  3. If during the handover, the salesperson is found to have embezzled public funds, or shortages of items, cash, bills, or other vouchers, they must compensate within a specified period; in serious cases, civil and criminal liability will be pursued according to law.
  4. When the receiver takes over, they should verify statements with customers. If there are doubts or unclear accounts, they should immediately report to the supervisor. Failure to report promptly or intentional concealment will result in the receiver bearing full responsibility along with the departing employee.
  5. All account statements involved in the handover must be compiled and organized into a "Resignation Handover Checklist." After verification, the receiver is responsible for taking over collection. If discrepancies are found later, the receiver is responsible. The checklist is made in at least triplicate, signed by the transferor, receiver, and supervisor, with one copy kept by each of the transferor and receiver, and one retained in company archives.
  6. Only after completing the handover procedures and obtaining supervisor approval can the final month's salary be paid. If salary is paid without supervisor approval, the cashier is responsible. Through the above series of regulations, Shengyuan has established a complete accounts receivable management process, effectively reducing account risks while also becoming an important part of Shengyuan's institutional development. Chen Lei stated that many issues, including accounts receivable, need to be resolved through systematic management, which will be the necessary path for distributors to improve operational efficiency.

Source: FMCG Workshop

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