Business Article

 
Is your ADO a “best practices” model? By Martin B. Greenbaum, Esq.
3rd In A Series California Collection Attorney
Greenbaum Law Group, LLP
www.CollectionLaw.com 

Most business-to-business debt is still monitored and collected on a monthly billing and  cycle.  Invoices are sent, often with payment terms of 30 or EOM (end of month). Some creditors monitor open accounts on an invoice basis but most don’t. Generally, open accounts are billed at the end of a month for the monthly balance owing.  Creditors generally wait 30 days to get paid. Others billing on an invoice basis apply credits as received but still send a monthly statement.

 

A key metric used in collection of accounts receivables is ADO (average days outstanding).  But from when?  From first invoice?  From EOM billing?   It goes without saying that the faster your company gets money, the better your cash flow.  But sometimes the accounting department, the sales department and the finance department define things differently.  Best Practices requires that everyone in the company work from the same definition of ADO . 

 

But the decision on when to invoice or bill isn’t always easy. Even who makes the decision varies.  It seems to be frequently dictated by the technology being used for billing.  While the finance department wants an ADO from date of invoice, technology will frequently say the “System” isn’t “programmed” for that.  The System is programmed to measure ADO from the EOM billing.  This leaves from 1 to 29 extra days on the table.  It is far more accurate to measure from the day a payment or receivable is actually accrued or the date of invoicing  

 

Start with just the first step.  Conduct a company-wide survey of how each department views the money that is owed. Did it hit their sphere on the day of the order, the day of the sale, the day of the shipment, the day of the invoicing or the EOM.  If you find variance, make a decision and implement a policy.  Good management isn’t about how many days are in the definition of ADO .  Good Management about all interested parties being on the same page is using a metric of ADO as a cash management technique. 

 

The Best Practices varies from company to company.  Even so, it still requires everyone in the company to know what the definitions are and use the measurements for unified reporting and projecting.

   

Martin B. Greenbaum is a California Collection Attorney and the senior attorney with the Collection Law Firm of Greenbaum Law Group LLP.  See his website at www.collectionlaw.com.

 

Legal Disclaimer: This article contains the opinions of the author and does not constitute legal advice or the rendition of legal services.  You should consult your own attorney for specific questions related to your specific legal issues.  No attorney-client relationship has been created by the author writing and publishing this article nor by your reading and taking, or not taking any action based on the content hereof.

 

© Martin B. Greenbaum 2013


About Martin B. Greenbaum

MARTIN B. GREENBAUM is the senior attorney with the law firm of Greenbaum Law Group, LLP and limits his practice to collection and loss recovery.  Mr. Greenbaum is rated "AV" by Martindale-Hubbell Law Directory, the highest rating given by the most prestigious attorney rating directory in the United States. 

He attended UCLA for both his undergraduate and law degrees. He acquired intensive trial experience while serving as Deputy District Attorney with the Los Angeles District Attorney's Office for almost five years. Since then, he has been engaged in collection, enforcement of judgments, and debt recovery.  Greenbaum Law Group LLP has its’ principal office in Newport Beach, California with satellite locations in San Diego, Beverly Hills and San Francisco

www.collectionlaw.com                       

 

 

 

Copyright © 2012-2017 TheDebtCollector.org -  All Rights Reserved. A Subsidiary of Viking Web Group.

Web Design and SEO by Viking Web Group