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Doctor Credit

Suddenly, senior management is interested in A/R. Any idea why?

Answer: After corresponding with this reader, we learned he worked for a publicly traded company. We believe that management in publicly traded companies will be taking a much more active role in monitoring and managing A/R, credit risk and bad debt reserves. Under Sarbanes-Oxley, the CEO and CFO of publicly traded companies must attest to the accuracy of their company’s financial statements. Since in many companies A/R is one of the largest assets on the Balance Sheet, it is logical to assume that management is going to be more interested in the way you are managing credit risk. This is not necessarily bad news. It makes it more likely that your decisions will not be overridden. It makes it likely that uncollectible balances will be written off sooner rather than later. It makes it more likely that your role in establishing the bad debt reserve will be one of the more important tasks that you perform for the company – and Sarbanes-Oxley makes it more likely that your independent auditors ask more questions about the appropriateness of your bad debt reserves.

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