Discussin Problem

You're the CFO of the Wachusett Window Company, which sells windows to residential builders. The firm's customers tend to be small, thinly capitalized construction companies that are frequently short of cash. Over the past year, there's been a slump in the housing industry and Wachusett's sales have slowed. Several months ago the marketing department initiated a program to attract new customers to counteract the downward sales trend.

The VP of marketing and the president agreed that the firm would have to deal with even smaller, newer builders if it was going to keep sales up. At the time the president overruled your concerns about the credit quality of such customers. He personally approved a number of accounts brought in by the sales department that ordinarily wouldn't have qualified for credit. More recently receivables have gone up substantially, and collection efforts have been less successful than usual.

Collectors have asked for help from sales representatives in chasing down delinquent customers, but the VP of marketing says they don't have time because ‘‘reps have to be out on the street selling.'' The president has suddenly become concerned about the receivables increase, and has demanded to know why finance has let it happen.

Prepare a memo explaining the processes behind the creation and management of receivables and explain what's behind the increase. Tactfully explain why the blame should not be placed solely on the finance department. Can you argue that finance is completely without fault in this matter?