Dispute, Short Pay and a Bounced Cheque at Halcyon Media
Halcyon Media Group bills advertisers in the Halcyon US business unit. Verity Retail Holdings is a strategic account with a 250,000 USD credit limit, backed by a parent guarantee. Three items are open. Invoice 8842 for 87,600 USD is 45 days past due; Verity disputes 12,400 USD of it over a cancelled campaign and has withheld payment of the whole invoice. Invoice 8790 for 41,500 USD was short-paid by 4,150 USD because Verity applied a volume discount that Halcyon never approved. A 26,000 USD cheque from Verity was returned by the bank as insufficient funds after it had already been applied to invoice 8711. Verity's open receivables plus booked orders now total 310,000 USD, and the collections analyst has asked for the credit limit to be raised to 400,000 USD so that new orders are not blocked.
1. Should the 12,400 USD disputed amount be handled by a credit memo, an adjustment, or a write-off? Justify the choice, including tax and collections effects.
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Use a credit memo, because the cancellation reduces the consideration Halcyon is legally entitled to, and the taxable base must fall with it. A credit memo is a negative transaction: it creates its own document number the customer can see, it corrects tax through the normal tax engine, and it is applied against invoice 8842 so the invoice balance drops to 75,200 USD.
Why not the alternatives:
- An adjustment reduces the invoice balance but leaves the tax as originally calculated and posts against the distribution account of the adjustment activity. It is the right tool for non-tax concessions - rounding, service credits, goodwill - not for reversing billed consideration. It also consumes an approval limit on the adjustment activity, which adds a control step for no benefit here.
- A write-off is for small, immaterial balances where pursuit costs exceed recovery. Using it on a single 12,400 USD line distorts the bad-debt account and hides a commercial dispute.
Operational point: apply the credit memo. Left on account, it sits as an open credit against the customer and quietly flatters the aging while the disputed invoice still shows as overdue and keeps generating dunning letters. Place the remaining 75,200 USD in dispute status so collections activity is suspended on that invoice until the campaign issue is settled.
2. How should the 4,150 USD unapproved short payment be recorded so that the balance is still pursued, and when would a chargeback be preferable?
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The receipt application and the dispute record are separate decisions.
Option A - partial application, invoice stays open. Apply the 37,350 USD received to invoice 8790 and leave 4,150 USD open on the original invoice. The balance keeps the original due date, so it ages correctly and continues into dunning and collections without any new document. This is the cleanest choice when the customer is simply wrong and you intend to collect.
Option B - chargeback. Creating a chargeback on the receipt settles invoice 8790 and creates a new debit item for 4,150 USD with a fresh due date and reason code. Use this when you want to segregate the disputed amount from normal aging - for example to track the deduction as a deduction-management case, to give the customer a short window to substantiate the discount, or to route it to a separate collector. The trade-off is that the original invoice shows as closed and the aging clock resets, which can flatter your over-90 bucket.
Given an unapproved discount, Option A is the better default: no new document, no reset due date, no ambiguity about which item the collector is chasing. Reserve the chargeback for the case where the customer has raised a formal deduction claim that needs its own tracking.
3. The 26,000 USD cheque has been returned. Should the receipt be voided, reversed, or chargeback-reversed, and what does the analyst need to understand about the 310,000 USD exposure before approving a limit increase?
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Returned payment. The receipt was applied and almost certainly posted to the ledger, so it must be reversed, not voided. Void is only appropriate while a receipt is unapplied and uncleared and has no accounting; reversing restores the accounting (debit receivable, credit cash) and reopens the invoice it was applied to. If the receipt was already confirmed as cleared in Cash Management, the returned cheque also needs the corresponding bank statement handling so the cash balance is not overstated. After reversal, either let invoice 8711 reopen at its original due date - appropriate when you intend to pursue the original debt - or raise a chargeback for 26,000 USD to create a new debit item and track the dishonoured instrument separately.
Credit exposure. The 310,000 USD comprises open receivables plus open orders where the credit check rule includes pending orders. Do not raise the limit now:
- 12,400 USD is disputed and should fall away once the credit memo is applied.
- 4,150 USD is being pursued and is likely collectible.
- 26,000 USD has just demonstrated a cash problem. The three signals together indicate deterioration, not a limit problem. Put new orders on hold, invoke the parent guarantee, agree a payment plan on the undisputed balances, and raise the limit only after the disputed items are cleared and two consecutive payments arrive on time.