You can count on Mary Schaeffer to make complex things simple and to make simple things profound.
She posted a great article on her blog this week related to Credit Memos and why so many credit memos go unrealized. This is a nice discussion adding a little more oomph into her one-woman crusade for making the AP department a profit center – and for raising the overall esteem of the AP department across the larger corporate structure. The great thing about Mary’s comments in this blog are how, in a world of ever-growing complexity, this topic focuses on the power simple communication. In her statement of the problem she offer three reasons why a credit memo may not be realized:
- The credits are sent to purchasing, where they are either tossed in the garbage or filed as the purchasing professional doesn’t know what to do with them.
- They are sent to accounts payable (either by the vendor or purchasing) and the associate doesn’t know what to do with them. In the worst case scenario of this situation, the processor pays the credit memos.
- They are sent to the company addressed to no one and end up in a variety of places, rarely accounts payable.
In all of these scenarios the main breakdown is communication and a lack of good information. If only AP departments could communicate better with their suppliers… If only supplier could communicate and identify their AP contacts at customers more accurately… You wouldn’t have this problem, you wouldn’t suffer these breakdowns. You wouldn’t lose this money! Mary’s article goes on to say a lot more. It is an easy read and certainly worth a look. The content also recalls a fantastic white paper she wrote in connection with Lavante: The Case of the Disappearing Credits. Another great informative piece. Also worth a read.
What is so important about Mary’s commentary in both her blog post and her white paper are the cross-section between supplier information, communication and profit. Lavante has identified over the last fifteen years that the single most common reason for credits appearing in vendor records is a breakdown in communication between the customer and the supplier and that usually stems from having poor quality supplier information on file.