You're a Graduate Accountant working for Tidy Seek Ltd. ('Tidy Seek') and management have asked for your help to develop an add-on solution.

Tidy Seek is a water utility business that services designated areas in VIC. Tidy Seek is committed to providing the highest standard of locally sourced spring water and a personalised delivery service to Australian homes and businesses. Three years ago, the company successfully implemented a market penetration strategy which has allowed the company to expand its business rapidly. The company now employs over 100 workers, with 12 office staff who manage invoicing and accounts receivable collecting.

Although Tidy Seek has been rated as one of the best water utility businesses in Australia, the company struggles to follow up on late paying customers, resolve payment disputes, and deal with credit approvals. The lack of timely payments is a pervasive challenge for Tidy Seek. An effective accounts receivable collection procedure is of paramount importance since the uncollected claims have a tremendous effect on cash flow forecast planning and on Tidy Seek's future growth plans. Tidy Seek's accounts receivable collection goal is to recover overdue receivables at the earliest opportunity.

Tidy Seek's management decided to review the internal business processes to get a better understanding of the current accounts receivable collection process, as well as to identify a strategy to improve the process. Management has discovered that Tidy Seek faces following challenges to having an effective accounts receivable collection procedure:

There is a lack of a standardised and understandable workflow process for the accounts receivable collection procedure.
The staff don't seem to be adept at collecting payments. The company has neglected providing staff with appropriate training on how to deal with late-paying customers.
The staff are constantly resending copies of invoices and payment reminders to customers.
Staff roles and responsibilities are unclear. It's not clear who is responsible for the accounts receivable collection process within Tidy Seek and who needs to be informed when a certain decision or action has been taken by staff.
No interest is imposed on payment delays due to the fear that customer dissatisfaction will lead to negative publicity.
The accounting staff sometimes miss reminding customers to pay on-time because they're not able to keep up with the heavy workload at Tidy Seek. Due to these time constraints, the accounts receivable collection process tends to be reactive as opposed to being proactive.
The company receives late payments from customers because some invoices don't state the payment terms.
Although credit and collections are seen strictly as an accounting function, sales representatives can override credit limits. They don't inform the finance and accounting department about changes. This has led to significant financial losses from bad credit risks.
 

Tidy Seek has organised a phone call with one of its late-paying customers, Amanda, to get a better understanding of the current accounts receivable collection procedure. Amanda has held an account with Tidy Seek for two years. Over two billing periods, she has accrued a debt of $380, and she knows she won't be able to pay some of her future bills. Amanda's primary source of income is provided by the government's single parenting allowance. She further explains that she offered to make payments of $20 a fortnight, which was refused by a Tidy Seek representative.

Tidy Seek will unlikely be able to enforce judgment against Amanda as her sole source of income is social security and, therefore, protected. She also does not possess any sizable assets. Amanda explains that, despite these circumstances, Tidy Seek's representative requested the full payment to be made over a shorter period of time. After her lengthy discussion with the representative, they offered to send out a form for a utility relief grant and a form to establish a new payment arrangement. Amanda never received these forms, despite contacting the company several times. She explains that Tidy Seek commenced contact with her through regular, weekly letters, demanding full payment of the $380. In addition, she'd received persistent phone calls from different representatives of Tidy Seek at various times of the day, sometimes after 6pm. She explains that she'd stopped answering the calls because she felt that Tidy Seek were not listening to her and the amount of contact they had with her caused her high levels of stress.

Tidy Seek uses a basic accounting software package. The software has the capacity to prepare invoices, to match payments to invoices, and to generate accounts receivable aging reports.

For some reason, the software isn't preparing and sending automated reminders to clients. The accounts receivable reports are reviewed on a regular basis by the finance and accounting department. This review is completed by different staff members, every two weeks.

Tidy Seek's management team has decided to automate the accounts receivable collection procedure to address the identified challenges. The management team hopes to free up time needed to schedule follow-ups, call customers, or send out emails. This would allow staff to focus on other value-adding tasks as the company grows and transaction volumes increases. The management team has considered developing a software add-on for the current accounting system. The add-on would simplify the processing of large volumes of customer invoices and to significantly reduce the time staff spend on collecting payments from customers and communicating with them. The management team hopes that the add-on will have a positive impact on Tidy Seek's cash flow and its profitability.

 

Required:

Based on the information above, complete the following tasks.

Analyse the existing accounts receivable collection procedure and identify three main problems with the existing procedure. Give a brief description of each problem you've identified.
Identify three viable solutions for each highlighted problem and offer a brief description of each solution identified.
Tidy Seek employs in-house developers with technical skills to develop the add-on solution, but management is worried that the developers won't fully understand the challenges related to the accounts receivable collection process and may misinterpret the requirements. To prevent this, you have been tasked with identifying the requirements for the add-on and communicating those requirements to the in-house developers.