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Thresholds for Automatic Settlement of Customer Deductions

Introduction

For customer payments, many companies allow short payments from customers [1] to automatically settle outstanding invoices, assuming they do not exceed a pre-established threshold.  They have justified this threshold as the funds which may be recovered by lowering or eliminating the short-payment have been more than offset by the additional costs required to administer collection.  Based on a review of how short payments are typically resolved, if in the overwhelming percentage of cases they are resolved in the customers’ favor [2], unless there is sufficient benefit to a root cause analysis to improve underlying work processes, establishing a meaningful threshold is probably a very good idea.

iPollingTM Results Review

Recently a Peeriosity iPollingTM question was created to better understand how prevalent tolerance thresholds are for customer deductions, and when thresholds are utilized, the relative dollar amount that is used.  The results indicate that 94% of member companies have implemented and are using a tolerance threshold that allows for short payments from suppliers to automatically settle outstanding invoices without intervention or special approval [3], with the remaining 6% of member companies in the process of implementing tolerance thresholds. 

iPolling: Thresholds for Automatic Settlement status

The actual amount of the threshold varies, with 80% setting an amount at or below $50 USD, and half of those in the range of $21 to $50 USD. An additional 13% have a threshold between $51 and $100, with 7% having a much higher threshold.

iPolling: tolerance threshold

Here are some of the comments from responding companies that provide insight into the approach member companies take to these types of transactions:

Closing Summary

Large multi-billion-dollar companies aren’t immune from the daily challenges and questions about how to fine-tune their processes to make them better.  Many times, the issues are the same as those faced by companies with a smaller scale; however, for larger companies, because of the volume of transactions, the impact of even a modest change can be significant. Being able to quickly identify the details of how leading peers approach similar challenges is a real advantage for making the types of changes that will create the greatest impact. 

What threshold is in place at your company to support automatic processing for customer deductions?   What analysis was completed to determine the amount of the threshold and how often is the tolerance amount reviewed?

Who are your peers and how are you collaborating with them?

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“iPollingTM” is available exclusively to Peeriosity member company employees, with consultants or vendors prohibited from participating or accessing content. Members have full visibility of all respondents and their comments. Using Peeriosity’s integrated email system, Peer MailTM, members can easily communicate at any time with others who participated in iPolling.

Peeriosity members are invited to log into www.peeriosity.com [5] to join the discussion and connect with Peers.   Membership is for practitioners only, with no consultants or vendors permitted.  To learn more about Peeriosity, click here [6]