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Customer Deductions and Inflated Receivables
Customer deductions, whether vaild or invalid, can be a nightmare to those who deal with accounts receivables. Often such deductions as freight, pricing and even sales tax can sit on an AR ledger for long periods of time until they are either credited or paid back by the customer. There are dozens of different kinds of deductions that customers take. In fact, numerous surveys have shown that more than 80% of the time deductions are valid and should be credited promptly. Some companies have systems in place that allow for a quick resolution of these items, yet in other firms (and it often varies by industry not necessarily firm-to-firm) deductions can sit on a company’s books for as long as six months or more. The result? Inflated receivables that in the long run can cost your company money. If a company’s credit line is, even in part, tied to its AR, then the inflation of this current asset could adversely affect the amount that company can draw against–a thought to consider when evaluating your overall AR status.
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