This is a question often asked in relation to the write off of unearned cash discounts. The people with the authority to approve writing off an unearned discount, or alternatively not charging back unearned cash discounts, often have a vested interest in making the unearned discount disappear.
For example, the salesperson wants a positive working relationship with their customer and may believe charging back unearned discounts is unnecessary. The Cash Application person certainly knows that it is more work to write off a cash discount than to charge it back. The Collector assigned to the account knows how difficult it will be to convince the customer to repay an unearned discount if it is charged back.
I don’t think the solution is to require management approval to write off unearned discounts – either before or after the fact. That would be slow and cumbersome. In my opinion, the best solution is to create a policy for use in cash application that addresses when discounts must be charged back as unearned.
Do you have a current policy for handling unearned discounts ?
By Michael C. Dennis. Michael has authored more than 1,000 essays on the Encyclopedia of Credit. Please visit: www.