Credit and Collection

• Billing practices


  Practices to facilitate timely payment and avoid collection headaches, including providing prompt and accurate invoices, statements of accounts, credit memos, debit memos and reminder notices to customers
• Effective billing system


  • Respects the delicate balance between keeping pressure on a customer for prompt payment, while at the same time, maintaining a good business relationship and not jeopardizing future sales
  • Distinguishes between good pay customers and bad pay customers
• Components of a well-run accounting and billing operation


  • Consistency in billing
  • Accounts receivable aging report
  • Interest charges for late payments
• Consistency in billing


  Translates into dependability, defuses customer frustration when disputing bills or accounts being past due
• Accounts receivable aging report


  A record that shows the unpaid invoice balances along with the duration for which they've been outstanding and unpaid, used to collect debts and establish credit
• Standard categories in accounts receivable aging report

  • Current: Due immediately
  • 1 to 30 days: Due within the next 30 days
  • 31 to 60 days: A month overdue
  • 61 to 90 days: Two months overdue
  • 91 days and over: More than two months overdue
• Importance of accounts receivable aging report

  Shows what receivables must be dealt with more urgently because they've been overdue longer, helps focus on the 20% of customers with the highest balances to maximize collections
• Interest charges for late payments

  Can help prompt customers to pay bills before interest starts to accrue, but beware of violating usury law limits
• Documents and steps in an effective billing system

  • Credit application
  • Purchase order
  • Invoice
  • Delivery receipts
  • Credit memos
  • Debit memos
  • Change orders
  • Statement of account
• Keeping bills accurate


  Customers want prompt, accurate paperwork or they won't pay, so the speed, timing and content of billing forms are crucial
• Effective billing system


  • Organizes and properly documents items on customer accounting ledger, keeps customers constantly informed of exact balances owed, can support every item on statement of account with documentation
• Maintaining precise records


  Customers want to see proper documentation before authorizing payment, so billings should be prepared promptly and sent out in an organized fashion
• Everything in the billing system must be in writing to create a paper trail
• Training staff in billing matters

  • Accurate data input, proper use of forms, and respecting confidential/sensitive customer data
• Sirach 29:1-7: 'Be kind enough to lend to your neighbor when he needs help. You are keeping the Lord's commands if you help him. If he needs something, lend it to him. And when you are in debt, pay it back as soon as you can. If you meet your obligations, you will always be able to borrow what you need. Many people treat a loan as something they found and can keep, causing embarrassment to those who helped them. Some people will speak politely, bow, and scrape until they get the loan they want, but when the time comes to pay it back, they'll put it off, say that it's inconvenient, and make a lot of worthless excuses. If the lender insists on being paid, he can count himself lucky to get back half. If he doesn't insist, the borrower has robbed him and made an unnecessary enemy. All the lender will get from him are curses, insults, and disrespect, but never any gratitude. Many people refuse to lend at all, not because they are stingy, but because they don't want to be cheated if they can avoid it.'
• Collecting money claims may they be current, delinquent or bad account receivables, is a tedious, frustrating and exasperating process.
• The science and art of collection requires tenacity and immense fortitude on the part of the collector.
• The collector's success or failure is, to a large extent, dependent on his education, knowledge, his appreciation of the issues and its consequences and on his experiences.
• Forces of Collection


  The forces that drive the collection process
• Collection Efforts


  The actions taken to collect money claims
• Outsourcing of services like purchasing, human resources recruitment, accounting, promotions and credit and collection operations of big businesses is slowly, but surely getting to be the norm more than an exception.
• It may be pragmatically economical in the long run to outsource the collection of the company's regular routine as well as delinquent, distressed or bad accounts receivable to duly licensed and reputable collection agencies.
• Benefits of paying


  • Good credit reputation
  • Satisfaction of fulfilling an obligation
  • Reputation for fair play
  • Self respect
• General types of debtors


  • The up-to-date
  • Occasional delinquent
  • Habitual delinquent
  • The changed circumstance
  • The premeditated delinquent
• Offensive or aggressive debtor's defense

  • Premeditated delinquent debtor, had no intention of paying from the start
• Denial or evasion debtor's defense

  • Motivated by inability to pay (with good reason) or to avoid payment (without good reason)
• Defiance debtor's defense


  • Used by unscrupulous or habitual debtors
• Plea for sympathy and compassion debtor's defense

  • Used by victims of accident, misfortune or unfavorable financial position
• Twelve types of problem customers

  • The negligent
  • The honest but confused
  • The "can't be bothered"
  • The seasonal delinquent
  • The embarrassed late-payer/honest late-payer
  • The chronically slow
  • The chronic late-payer/the wittingly late
  • The credit stretcher
  • The perennial discounter
  • The last-ditch debtors/the tightrope walker
  • The outright fraud/the braggart
• The negligent


  Does not bother with due dates of his debts
• The honest but confused

  Customer who did not understand the terms or conditions of the sale or obligation
• The "can't be bothered"


  Puts off paying little balances until he adds on to his account
• The seasonal delinquent


  Falls behind in paying debts because his business slows down at certain periods of the year
• The embarrassed late-payer/honest late-payer


  Pays late because his own debtors also pay him late
• The chronically slow


  A debtor who makes all creditors wait until they give more liberal payment terms
• The chronic late-payer/the wittingly late


  A debtor who uses supplier's credit which is generally interest free instead of a bank loan, they could pay but say they can't
• The credit stretcher


  A debtor who is temporarily over-extended or who intentionally delays paying
• The perennial discounter


  One who insists on a discount- whether earned or not
• The last-ditch debtors/the tightrope walker


  One who is usually on the verge of financial crisis, the insolvent debtors
• The outright fraud/the braggart

  A debtor who almost always says "Do you know who I am?" and generally does not pay unless put in an embarrassing situation or threatened with a court suit