Stop Approving Adjustments and Write-offs

June 08, 2017

Category: General

Most companies have a procedure that requires a manager approve write offs over a certain amount. We challenge customers to understand the hidden costs of this and reject this out-dated practice. It can be a big source of inefficiency. 

When we hear that a policy like this exists, we ask: how often do you reject that approval. The typical response is: rarely. So, why are you wasting managerial time, at managerial pay-grades, for something that almost always is a non-issue? 

A simple example for illustration: 

• Assume you require approval for adjustments of over $50
• There are about 10 approvals that come across someone's esk every week, or 40 per month
• The total cost of these adjustments is $5,000 (remember, they can be of varying amounts)
• It takes approximately 2 hours per week (8 hours per month) to review the requests
• At an average pay rate, it will cost about $400-$500 in labor efforts to process these approvals 
• If none are rejected, that is a 10% additional loss of labor expense on top of the adjusted amounts

This doesn't even account for the inefficency of the requestor's time. Adding steps, creating delays, requiring follow up - these are additional layers of lost productivity. Plus, until those write-offs are completed, the reality of your cash flow projections will be obscured. 

If you find that only a very small percentage of these adjustment requests are not approved, consider moving to an internal audit process. In just one hour a month, a manager can spot-check five randomly-selected adjustments. Instead of putting this big bottlebeck in the middle of your AR process, you are still keeping write-off in check and encouraging accountability, but you won't be doing it at the expense of lost productivity. 

 

For more tips on how to improve your AR processes, check out our presentation on Improving Visibility and Control in Accounts Receivable or read more about the Medforce Accounts Recievable Management App today. 

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