Financial Accounting, 9th Edition

8 Accounting for Receivables

Feature Story A Dose of Careful Management Keeps Receivables Healthy

“Sometimes you have to know when to be very tough, and sometimes you can give them a bit of a break,” says Vivi Su. She's not talking about her children but about the customers of a subsidiary of pharmaceutical company Whitehall-Robins, where she works as supervisor of credit and collections.

For example, while the company's regular terms are 1/15, n/30 (1% discount if paid within 15 days), a customer might ask for and receive a few days of grace and still get the discount. Or a customer might place orders above its credit limit, in which case, depending on its payment history and the circumstances, Ms. Su might authorize shipment of the goods anyway.

“It's not about drawing a line in the sand, and that's all,” she explains. “You want a good relationship with your customers—but you also need to bring in the money.”

“The money,” in Whitehall-Robins' case, amounts to some $170 million in sales a year. Nearly all of it comes in through the credit accounts Ms. Su manages. The process starts with the decision to grant a customer an account in the first place, Ms. Su explains. The sales rep gives the customer a credit application. “My department reviews this application very carefully; a customer ...