USA Need Advice on Dealing with Customer Overpayments


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Hi,

I am a staff accountant at a manufacturing firm. I help manage accounts receivable. We have a large, global customer that keeps making overpayments on invoices. These overpayments are getting to the point where they are a fairly large balance. This causes a liability on our books because these are amounts that we owe to the customer and they keep building up. We have tried numerous times to contact the customer to get them to take the overpayments as credits against other invoices but we have gotten no response so far and these credits we owe them are aging and growing. We can't just apply them to other invoices without the customer knowing or acknowledging it on their end because they will then end up paying the invoices and this will cause other overpayments.

Has anybody else ever dealt with a similar situation? What is the best practice moving forward if the customer will not take the credits or even acknowledge they have them?
 
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kirby

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As the Wicked Witch of the West said ,"These things must be done delicately..."

Horrid example:
I know of a case where Company A had millions in such credits and when Mr. Bigshot of Company A was informed he made a big show of saying "We must do the right thing and immediately return those overpayments. Contact all the companies we owe right now and arrange that." Yes, a good thing to do. Unfortunately, Company A did not have enough bucks to do this and now the other companies were aware and on the phone daily asking for the money and very very angry that they were not being paid immediately. This caused a lot of grief for Company A's salesforce when they tried to do new business with those other companies.

Question to ponder:
Are you absolutely sure the other company's accounting is wrong and not yours??? Once you send that money out, good luck getting it back if your team has got things wrong.

Suggestion:
Since this can be something that can go wrong in so many ways, I suggest you notify your management of the situation and let them tell you how they want you to proceed.
 
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Kirby

Thanks for your response. Yes, we are sure the error is on their end. With this particular customer, we have new pricing negotiations each quarter. This is not done by the finance/accounting department, it is done by our sales department. At times, the price will drop for the units that the customer buys and then we have a new price list we go by to bill. This list also goes out to the customer, however, sometimes their finance department does not update the pricing in their own records. They are going by the old price list when they pay us, instead of the invoice they receive from us with the correct price. This is causing the overpayments. They have a supply chain financing program that they pay us through where a lot of the process is automated, so getting the prices updated with them has been complex.

Our senior controller is aware of the problem and agrees something should be done, but getting the sales management team on board with convincing the customer to make the proper changes has not been easy. I think we may have finally made some progress with this situation this week though as we have finally made contact with a higher up finance employee at our customer's business who may be able to do something. I just hope they actually can help and once they correct their process, it stays corrected. They are wasting so much money with these overpayments and we are wasting time and resources tracking them.
 
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