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Chapter 02: Credit and Collection Operations: Lesson 02

This document discusses the key roles and activities within the credit and collections function of a business. It outlines five main roles: the credit manager, credit clerk, collections manager, collector, and skip tracer. It also identifies some common risks if the credit and collections function is not properly managed. Finally, it lists five main activities: customer credit approval, customer master data management, invoicing/billing automation, cash application process, and collection process. It emphasizes the importance of timely follow-ups, accurate data and billing, clear credit policies, and consistent collection efforts.

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Llyod Daniel Paulo
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358 views10 pages

Chapter 02: Credit and Collection Operations: Lesson 02

This document discusses the key roles and activities within the credit and collections function of a business. It outlines five main roles: the credit manager, credit clerk, collections manager, collector, and skip tracer. It also identifies some common risks if the credit and collections function is not properly managed. Finally, it lists five main activities: customer credit approval, customer master data management, invoicing/billing automation, cash application process, and collection process. It emphasizes the importance of timely follow-ups, accurate data and billing, clear credit policies, and consistent collection efforts.

Uploaded by

Llyod Daniel Paulo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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CHAPTER 02: CREDIT

AND COLLECTION
OPERATIONS
LESSON 02
THE CREDIT AND COLLECTION FUNCTION
Persons involved in Credit and Collection
Operations
Credit manager. Responsible for the entire credit granting process, including
the consistent application of a credit policy, periodic credit reviews of existing
customers, and the assessment of the creditworthiness of potential customers,
with the goal of optimizing the mix of company sales and bad debt losses

Credit Clerk. Responsible for not only reviewing credit applications from new
customers, but also monitoring current customers to see if their credit levels
should be re-examined
Collections Manager. Responsible for all collection activities, including
collection interactions with customers and the management of collection agencies
and collection attorneys.
Collector Position. Responsible for collecting the maximum amount of overdue
funds from customers, which may include a variety of collection techniques.
Skip Tracer. A private investigator who locates people who do not necessarily
want to be found
Receivables Aging Personnel. Lists all unpaid invoices.
Common Risks
• Fail to follow up with customers in a timely manner
when payments are past due
• Allow sales representatives to override credit limits and
end up suffering losses from bad credit risks
• Neglect to provide staff with appropriate training on
how to deal with late paying customers
• Don’t pay sufficient attention to the accuracy of their
bills, invoices or credit terms
• Allocate cash payments incorrectly, making it harder to
figure out which payments are outstanding
Activities within the Credit
and Collection Function

1. Customer Credit Approval

Set responsibilities
Determine when to assess credit limits
Commit to approving or rejecting credit applications within a certain time
period
Regularly review the credit approval process
2. Customer Master Data
Centralize the master data process and identify who
should ultimately manage customer data
Conduct regular audits of master data to identify
customers with abnormal credit limits, payment terms,
and/or discount rates
Document and communicate all changes to customer
data. Changes should be approved by Finance and
Operations as they can have a significant impact on
cash-flow forecasting
Implement controls to ensure data accuracy and permit
read-only access to staff to ensure they can’t override
customer data without proper sign-off
3. Invoicing/ Billing
Automation
Timely/effective invoice generation and reporting
Electronic Billing Systems
Exception Reports
Customer Portal
4. Cash Application Process.
Allocate payments to specific invoices rather than simply crediting the
customer account
Apply payments to the appropriate invoices, not just the oldest invoices
Apply payments to each account on the day they’re received, to maintain
system accuracy.
Post journal entries well before system cut-off dates
Reconcile accounts on a timely basis
5. Collection Process

Engaging in frequent and consistent collection efforts


Negotiating payment plans that align to corporate collection policies
Ensuring any discounts offered benefit the company
and are implemented accurately
Strengthening processes to permit accurate
reporting
Automating processes to avoid manual entry
errors
End of Lesson 02
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