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The top 10 accounts receivable controls

Top 10 Accounts Receivable Controls
Credit: pexels-pavel-danilyuk-7654610

“AR” as we commonly refer to the sub department of the accounting function is a mainstay in any larger group-based hotel. In these juggernauts the importance of efficiently collecting your money is mission critical. Not only do we take the chance that the group will come and stay after we hold all those rooms, but we also roll the dice and give them credit.

In today’s business world it would shock many to realize that credit is a common element in these group hotels. It’s common because we need to be competitive; that other hotel around the corner offers a master account and we need to as well. But be warned. Offering credit comes with risk and when we have these risks, a tight set of controls that we follow will help keep us safe.

I can vividly recall many situations where we ran into problems with collections at the hotels I worked in. In many instances we caused or added to our collection challenges by not strictly following the rules. Write offs are painful and they don’t go unnoticed. Follow these top 10 controls and all the others if you want to limit your chances of coming up short.

Use of credit applications

A full credit application must be filled out completely by all new group clients requesting credit. This means all new group clients that have not stayed in the hotel within the last 24 months. There are no exceptions to this policy unless signed off by the General Manager and Director of Finance.

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Have a credit bureau subscription

Having an outside professional credit bureau assess new credit applications is a must. Getting real hard data will save you from the worst decisions.

Credit meetings

Monthly credit meetings are required. They are to be attended by the credit manager, director of sales, director of conference services, and chaired by the General Manager and Director of Finance.

City ledger balancing

Daily and monthly review and evidence the fact that the city ledger ties to the general ledger. Ensure all credits are investigated and cleared. This is one of the most common black and white mistakes I see hotels make, they don’t understand that the subledger must tie to the general ledger – full stop!

AR billing days

Monthly the AR billing days are calculated. A detailed report is to be attached and an action plan created and reviewed at the monthly credit meeting for all accounts aged 60+ days. Involving the sales and people with an established relationship here is the pro move.

Chargebacks

All chargebacks are to be challenged. A 48-hour turn around for all chargebacks is the standard. Chargebacks are to be summarized and reported at each monthly credit meeting. An action plan must be created for items that occur frequently, e.g., Guaranteed No Shows.

Posting payments

All payments received by the hotel must be recorded and deposited by an individual that is not part of the accounting or accounts receivable function. Executive assistant or sales assistant is a recommendation for this function. Money in any form is never to be given to the accounting employees. The payments received by the hotel are listed and photocopied and then given to the AR department for posting.

Weddings

All weddings without exception are to be paid in advance. Deposits of a minimum of 50% are required and a final payment before the event is mandatory. Zero exceptions here because we all know – anything can and will happen.

Transfers between city ledger accounts

This function is restricted and only available to the Director of Finance. Transfers between city ledger accounts should be extremely limited. This is a telltale sign that something is amiss.

Bad debt

Bad debt is recorded when all attempts to collect an account have been exhausted, including a collection agency. Bad debt should never be used to write off accounts related to a service issue; that is an adjustment to revenue not bad debt expenses. All bad debt requires the approval of the General Manager as well as the Director of Finance. Any amount above $5,000 requires the approval of the CFO and that means corporate. Get ready for that phone call!

Collecting what’s yours is a hands-on full-time, all-out gig. Make sure you’re all in.

Tags: accounts receivable controls, AR, credit applications

The Hotel Financial Coach, United States

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