Look Through Receivables to Find Potential Liability Claims

There's an old adage in risk management: anything pending is a potential liability. 

Just like football coaches forgive hitting mistakes over inaction, top-notch business risk managers design processes which complete tasks; and when awaiting customer input, they mandate a date certain response time with follow-up. They do not want inaction to lead to uncertainty.

One form of the pending dilemma disguises itself as accounts receivable. Business owners cringe at the mention of this toxic reality - not everyone pays on time.

Use receivables as a valuable risk management tool. One of two basic truths drive accounts receivable:

1. The company made a poor credit choice and extended terms on which the customer could not

2. The customer, in hindsight, does not value the product or service as much as they expected.

Okay, before you argue that some customers are just dishonest (credit criminals) or the economy went south for the decade, see observation 1 above.

Legitimate liability issues dwell in the second house. Investigate the reason for non-pay.

Was the customer over-promised results? The area a coat of paint will cover is puffery and not a liability issue. The promise that paint is lead-free when it is not is a liability issue. If all you do is steam over not getting paid, this issue will not be rectified in a time-prudent manner.

Was your product or service defective in some way? In construction, perhaps the concrete mix was specified to be rated high strength and early tests show it is not going to meet the standard. The contractor may only find out ten days after the pour. If they move the business to a different concrete pre-mix company, you may never find out without proper investigation.

Not only is proper after-sale follow-up good salesmanship, it provides a pathway to lowering past-due receivables and detecting quality issues. 

If your company is not a high priority on your customers payables list, there is a disconnect between perceived value and observed value. This situation germinates pending liability claims. 

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