Procedures can help avoid nightmare situations like the example below.
We came across an extreme example recently of how seemingly small things can escalate to create a massive problem.
A drum of cable was ordered and delivered to a company from a supplier. The goods were delivered to one site, but the delivery note was sent by email and signed for by someone at head office, who did not check the actual delivery.
The supplier subsequently sent an invoice to the accounts department at head office, located at a different site to the delivery address. The invoice was for £55,000. Nothing was done to check validity of invoice until the company received notice of intention to issue a Winding Up Petition from the supplier’s factoring company.
It was only at this point that anyone looked at the details on the invoice. Clearly, delaying payment is one issue but the situation has been made worse by leaving it so late to deal with the realisation that something was fundamentally wrong as the usual price for a drum of cable was in the region of £2,800.
Unfortunately, although the price on the order was wrong, goods had been supplied and a delivery note was signed. This was reasonably taken as confirmation that the client was happy to pay an invoice for the amount on the order. Even the creditor’s approach to dealing with late payment was logical.
The problem was trying to resolve the situation.
This could all have been avoided if the company had had any one of a number of procedures in place.
Possible procedures include using approved suppliers, checking prices, checking orders, inspecting goods, not signing delivery notes without carrying out checks, approving invoices for payment and approving payment, which could have avoided this situation.
The key message is that procedures prevent small problems from escalating into nightmare situations.
Do you have adequate procedures in place?