Collection And Repayments PDF

Collection and Repayments CREDIT AND COLLECTION BY: MS. JENINE S. MARASIGAN Accounts Receivable Collection Accounts receivable collections - is the process a business undergoes to ensure that customers follow through on payments for services or pro...

Collection and Repayments CREDIT AND COLLECTION BY: MS. JENINE S. MARASIGAN Accounts Receivable Collection Accounts receivable collections - is the process a business undergoes to ensure that customers follow through on payments for services or products provided. - is the process of recovering debts owed to a company. Accounts receivable are the amounts owed to a business by its customers for goods or services that are not yet paid. “Account Receivable” is an essential balance sheet item for any business. Accounts receivable collections is a revenue stream for companies that falls under the category of operating activities because it aims to improve the cash flow for a company. AR collections is designed to make more money from its current customers by collecting money they owe now. A company’s accounting department records accounts receivable and AR collections on its balance sheet. If a company has a receivable, an account receivable is created, and its balance is recorded as an expense while the related revenue is recognized. An account receivable collection is an asset, however, as it represents incoming cash. There are many ways in which you can improve your accounts receivable collections including: Research your cash flow history Optimize your sales process Optimize payment options There are many ways in which you can improve your accounts receivable collections including: Offer past-due balance discounts and webinars Use an automated AR workflow management software/solution Collection Policies and Procedures Collection cost must be kept within reasonable limits good-will of customers must be cultivated and maintained Risks must be reduced to the minimum Types of Debtors 1 The Cooperative Debtor ✓ This type of debtor will not hesitate to settle his financial obligations as soon as he is provided with the opportunity to do so. ✓ This individual and others of his kind not infrequently pass sleepless night trying to find ways and means by which they could discharge their obligations soon, if not sooner. Types of Debtors 2 The Chronic Complainer ✓ They are the by-product of forced habits. They do not feel happy unless they are able to air certain grievance or complaints, fabricated, flimsy or otherwise. ✓ They are designed to serve as a smoke screen for their failure to meet their obligations on time. Types of Debtors 3 The Politician-Type ✓ This type of debtor does not deny the existence of his obligation which arose from previous transaction of his. Neither does he shun away from the presence of bill collectors. ✓ Like politician, this type of debtor has a number of reasons kept under his sleeves which explain one way or the other why he cannot pay on time or should not pay at least for the time being. Types of Debtors 4 The Uncooperative and Indifferent Debtor ✓ This type of debtor does not pay on time, not because he cannot pay but rather because he finds it difficult to part with his money. ✓ Such type of debtors are not concerned with what society or their fellow-beings think of them. Types of Debtors 5 Paranoiac ✓ They feel on top of the world even when their world is crumbling to pieces. ✓ They suffer delusions of grandeur. ✓ Claiming close association with influential powerful and affluential individuals. ✓ They make it appear as if they are wallowing in wealth although in fact they are hard up. Types of Debtors 6 Belligerent or Pugnacious Type ✓ Those who think they are entitled to the use of credit regardless of their poor credit standing. ✓ This type of debtors whenever reminded of their existing indebtedness always exhibit an air of defiance. They become haughty and arrogant. Types of Debtors 7 The Elusive Type ✓ Some debtors are as elusive as an eel. It is hard for bill collectors to find them in their offices or in their homes. ✓ Many of them maintain two doors, one to gain entry – and the other as an exit without being detected by those who are waiting for them. Paying Habits 1 Prompt Payors ✓ This group consists of individuals and business entities that are conscious of their financial obligations which they discharged promptly without the need of being reminded about them. ✓ Such individuals and business entities are those of proven probity and possessing high integrity and thus, they require minimal attention, if at all, from the collection department Paying Habits 2 Delinquent Debtors ✓ A delinquent debtor is not merely a poor prospect for further business. He is no prospect at all. He will shun the creditor, if only from a sense of personal embarrassment. ✓ Moreover, once he becomes that involved financially, he is all too likely to go from bad to worse as a credit risk. Delinquent Debtors a Fair Credit ✓ Careless borrower – merely needs reminding regularly ✓ Complainer – he has grievances after he falls behind ✓ Unforeseen problems – unemployment, shrunken income, medical expenses Delinquent Debtors b Slow Credit ✓ Poor manager of his finance, over- indebted ✓ Marital problems – may quit his job, skip, or hit the bottle ✓ Coward – afraid to face the creditors Delinquent Debtors c No Good Credit ✓ Lives beyond his income. Credit passed unknown ✓ Gypsy – in residence or employment ✓ Crook – directly attempting to defraud Collection Procedure ✓ Classification is intended to help the company formulate collection procedures for each category as well as a guide for future courses of action when to refuse further accommodation or grant extension of credit. Collection Procedures The Collection Function ✓ Collection work is, at times: Done directly by the credit department By an independent agency which offers and renders collection service for a fee ✓ Collection department is charge with the task and responsibility of insuring the earliest possible payment on receivables without any customer losses through ill will. Collection Procedures Qualities of a Good Bill Collector 1 Industry ✓ While industry alone does not guarantee the success of man in his undertaking, nevertheless, it brings commensurate rewards. ✓ Edison put it very simply when he described success as 99% perspiration (meaning industry and hard work) and 1% inspiration. Collection Procedures Qualities of a Good Bill Collector 2 Persistence ✓ Persistence is the twin brother of industry. A good bill collector is never tired and afraid of making repeat calls until the amount owed by the debtor is turned over to the company. ✓ It takes persistence to break down resistance, stubborn as it may be. Collection Procedures Qualities of a Good Bill Collector 3 Tact ✓ The job of a bill collector is both taxing and at the same time a thankless one. ✓ To succeed, one must as much as possible avoid offending the delinquent debtor while making the collection for the company. Thus, he should possess tact-prudence and good judgement. Collection Procedures Qualities of a Good Bill Collector 4 Resourcefulness ✓ Good bill collectors have demonstrated quite aptly why they are a success in their chosen occupation. ✓ Possessing many desirable qualities, one thing basic to their success is their resourcefulness. Collection Procedures Benefits from Effective Collection Effort ✓ Reduction in the volume of accounts receivables ✓ Freeing capital for carrying the business operation ✓ Increasing profits through decreased expenses ✓ Shortening of credit period ✓ Establishing a line of customers who are financially sound Collection Procedures Seven Elements of a Collection Policy ✓ Collection is made easier, when the credit extended is a package of three things: Credit, Supplies and Knowledge ✓ Timing ✓ Be selective in your clientele ✓ Employ well-trained credit technicians Collection Procedures Seven Elements of a Collection Policy ✓ Maintain continuity of the human-relationship once established. ✓ Tell the story of your bank to your community at every opportunity ✓ Admit that you have a collection problem in your hands Collection Letters Fundamental Principles ✓ Collection letter moreover should be specific and as short as possible without any way appearing curt, and must refrain from the use of terms or words that are susceptible to various meanings or which the customers may not be able to understand well. Collection Letters Fundamental Principles ✓ Collection letters should use dated action, that is, inform the debtor that the credit expects certain action by a given date, and never “in the near future”. Moreover, it should concentrate on a definite course of action. Collection Letters Importance of Collection Letters ✓ Collection letters should follow a definite pattern they must start with a casual reminder of the obligation and progressing to a final step, that is, the possibility of a legal action if payment is note made by a definite date. Collection Letters 2 Objectives of Collection Letters 1 To collect the money due to the company ✓ The best collection letters are those which bring immediate and favorable results to the company. ✓ The first essential to success in collecting by mail is to find out just why the debtor is delinquent in meeting his obligation to pay. Collection Letters 2 Objectives of Collection Letters 2 To keep and retain the goodwill of the customer ✓ Collection letters must be so written as to make them appeal to the debtors’ feelings and sentiments. ✓ Extreme care should be exercised so as not to break down the delinquents’ morale. Collection Letters Qualities of a Good Collection Letters 1 It should be short and direct ✓A short letter not only implied action but moreover conveys the idea that time is of the essence in the settlement of the obligation ✓A letter that is direct, brief and concise, eliminates room for misunderstanding or doubt. Collection Letters Qualities of a Good Collection Letters 2 It should use dated action ✓This means that the creditor expects action from the debtor as of a specified date, and not “in the near future” in which case the latter may have reason to procrastinate in his actions. Collection Letters Qualities of a Good Collection Letters 3 It should be written from the customer’s viewpoint ✓The debtor should be made to understand that it is not only to the advantage of the creditor-company but also to his interest and advantage that his obligations be discharge soonest. Collection Letters Qualities of a Good Collection Letters 4 It should not provide any cause or occasion to arouse the anger and bitterness of the customer ✓Threatening letters will not produce desired results. It could only generate ill will and cause the destruction of goodwill which took the company years to build. Collection Letters Qualities of a Good Collection Letters 5 It should be revised periodically ✓Some companies suffer from the mistake of using the same standardized collection letters to all debtors regardless of whether business conditions are good or bad. There seems to be little questions for the need or revising them periodically to suit the tempo of the times. Collection Letters Qualities of a Good Collection Letters 6 It should have a humanistic approach ✓Regardless of the debtor’s record of not paying on time, still he is entitled to a fair and decent treatment that should be accorded to all human beings. Collection Letters Qualities of a Good Collection Letters 7 It should follow a definite pattern ✓Collection letters should be progressive, that is, they should progress from a casual reminder to a final notice that legal action will be taken if payment is not received as of a definite date. Collection Letters Qualities of a Good Collection Letters 8 It should be written in such a way as to make it appear as if it were the last to be sent to the debtor ✓This may make the debtor think seriously about his obligations and induce him to pay immediately if he is to escape the inevitable consequences. Collection Letters Types of Collection Letters 1 Reminder Letter ✓As a commonly practices by business firms, the first stage of the collection procedure consists of notification, that is, sending bills and statements to the customers. The first “reminder” letter is generally sent out with in a reasonable time after the mailing of the invoices, bills, and statements. Collection Letters Types of Collection Letters 2 Follow-up Letters ✓Such letters generally touch on an inquiry from the debtor why no settlement of the obligation is made, or emphasizing the obligation of the debtor why it must paid soonest. Collection Letters Types of Collection Letters 3 The “Discussion” Letter ✓This letter usually initiates or extends an offer to the customer to help him in his predicament by discussing it together so that it will obviate the possibility of any misunderstanding and unpleasant consequences. Collection Letters Types of Collection Letters 4 The “Appeal” Letter ✓An “appeal” letter is aimed at certain fundamental characteristics of human nature, his soft spot such as making him conscious of the impact of his delinquency on his integrity and reputation, his standing in the community, his sense of responsibility and others, like his pride and ego. Collection Letters Types of Collection Letters 5 The “Demand” Letter ✓The “demand” letters is used to inform the delinquent debtor of the consequences that will befall upon him when the case is brought to court, such as: loss of face or embarrassment; shouldering additional expenses like court fees, lawyer’s fees, interest charges, and a host of others. Collection Letters Effective Techniques ✓Registered Letters ✓Telephone Calls ✓Collection through the use of Drafts ✓Telegrams Bad Debts Some of the circumstances that may influence an authorized official of the company to write off such bad debts: ✓The debtor-customer has become declared insolvent ✓Inspite of diligent efforts as well as exhaustive remedies, the customer has stubbornly refused to sent any reply or take action to settle his obligations. Bad Debts Some of the circumstances that may influence an authorized official of the company to write off such bad debts: ✓The inability to locate the whereabouts of the debt-or-customer notwithstanding diligent efforts and the use of means at the command of the creditor company. ✓The business has ceased operation for several years. Bad Debts Some of the circumstances that may influence an authorized official of the company to write off such bad debts: ✓The untimely demise of the customer leaving obligations behind which the heirs could not or have stubbornly refused to honor and settle. REFERENCES: https://www.scribd.com/document/643818928/Collect ions-and-Repayments-pdf THANK YOU AND GOD BLESS!