Home >> Procedures Summary

Collection Procedure

The following collection procedure reveals the typical process flow for contacting customers about overdue accounts receivable, shifting accounts to a collection agency, writing off a bad debt, and conducting a review of why a receivable turned into a bad debt. In reality, the process flow will vary depending on the circumstances, but this procedure does give the most common process flow.

Verify Overdue Receivables against Deduction Plan (Collection staff)

1. If a customer sends in an official marketing plan deduction form, then compare the deduction amount against the deduction plan for validity.
2. If the deduction amount is valid, then check off the deduction against the planned amount.
3. If the deduction has already been taken, refer the matter to the marketing director.
4. If the deduction is invalid, notify the customer and the marketing director.
5. If the customer has not submitted a deduction form but claims the deduction, then send the deduction form to them with instructions for how to complete and submit it.

Issue Dunning Letters (Collection staff)

1. Set up the accounting software to automatically print dunning letters based on the age of the receivable.
2. Print dunning letters.
3. Review the dunning letters and extract any letters for which there are other collection actions already taking place.
4. Mail the dunning letters.

Contact Customers Directly (Collection staff)

1. Call customers to ascertain the reasons why receivables have not been paid.
2. Record the name of the person contacted, reasons given for nonpayment, promises given, and the expected date of receipt.
3. If a special payment plan is needed, document the plan and submit it to the collections manager for approval.

Send Account to a Collection Agency (Collection staff)

1. Once a month, call a meeting with the collections manager to review which accounts shall be shifted to a collection agency.
2. During the meeting, discuss collection actions taken, and identify those receivables for which no more in-house collections work is expected.
3. The collections manager approves the list, and forwards the receivables to the collection agency.

Bring Suit Against the Customer (Attorney)

1. Schedule a meeting with the credit manager, collections manager, and company counsel to review any possible lawsuits against customers.
2. As preparation for the meeting, the credit manager assembles information about the financial situation of the customer, while the company counsel collects information about other liens against the customer.
3. During the meeting, the group discusses the chances of success in court against the customer, as well as its ability to pay even if the court decides in the company's favor.
4. If the credit manager and company counsel are in agreement that this is a cost-effective approach, then the lawsuit can proceed.

Write Off Overdue Account (Accounting staff)

1. When all collection methods have failed, the collections staff prepares a credit memo request form, identifying the specific receivables to be written off.
2. The collections manager assembles all credit memos during the month, and reviews them all monthly with the controller, discussing collection actions taken.
3. The controller signs all credit memos, and maintains this information in a write-off log.
4. Quarterly, the assistant controller compares the write-off log to credit memos recorded in the accounting system, and investigates any differences.

Conduct Bad Debt Post Mortem (Collection staff)

1. Once a quarter, schedule a meeting with the sales manager, controller, credit manager, and collections manager to discuss bad debts.
2. During the meeting, discuss specific systemic issues causing bad debts to occur.
3. If there are specific action items, then document them in formal meeting minutes, assign responsibility for them, and distribute them to the meeting participants.

Related Topics

Billing procedure
Cash receipts procedure
Credit granting procedure