Billing and Collection

Introduction
After establishing a good credit policy and gaining borrowers, then it is time to collect your
money back, it is best to know a well-thought-out collection plan. With this, you can
maximize the potential that you can collect all past due accounts that you have. Although
this can include lots of complicated procedures, everything will be worth it if you
succeeded in collecting everything in your list.
How does a billing statement work?
Billing statements are an essential piece of communication, providing a borrower with
the minimum monthly payment that they must pay to keep their account current. It
also includes other important information, such as the transactions that occurred
during the month, the total interest charged for the month, and any fees added to the
balance by the credit issuer. In addition, it shows the closing statement balance, which
can be paid off entirely by the borrower.
 Billing and Collection Services may include, but is not limited to, the following:

• processing of billing notices and invoices;

• processing and validation of payments received; providing a toll-free telephone number
to confirm and validate billing and payment status;
• maintaining customer billing and payment history information;
• providing reasonable information about payments if requested by third parties; prompt
resolution of unvalidated payments; automated feed to the general ledger of all due and
received premiums; reconciliation of deposit accounts and outstanding bills;
• maintaining mutually agreed upon detailed books and records; and maintaining a billing
and collection service disaster recovery program.
ROLE OF COLLECTIONS According to E-collect, credit
collection is the “general debt recovery process of reimbursing
unpaid and past-due credit loans from the costumer in debt, on behalf
of the lender.” This means that collection is the main process where
lenders get back the money lent to borrowers. This process is
normally conducted by specialized DRAs or Debt Recovery
Agencies,as requested by the lenders to provide them the service in
collecting their money, according to their policy and procedure.
Collections is a term used by a business when referring to money
owed to that business by a customer. When a customer does not pay
the business within the terms specified, the amount of the bill
becomes past due and is sometimes submitted to a collection agency.
Collection is vital for every company as much as a positive cash flow.
The role of credit collection may include:
1. Generation of positive cash flow as recovering debt means
money is flowing back into the company.
2. Slowing down the company’s cash outflow. The money to be
collected can be used to finance the company’s operations instead
of disbursing more money from the capital
.3. Reduction of business risks of incurring losses.
A. Collection Department
B. The role of the Collections Department in a company is to collect the product of sales owed by its
customers. It includes monitoring the daily and monthly volumes of collections and
maximizing efforts to collect receivables in due time (in agreement to the payment terms), the
reduction of outstanding payments, bad debt, and write-offs. These functions shall be performed while
keeping excellent relations with customers and treating them fairly, in accordance with the company
policy.
Additionally, the main objectives of the collections department are the following:
a. Customer’s satisfaction and retention
b. High level of cash-flow from customers
c. Reduction of outstanding debts
d. Reduction of bad debt and write-offset.

Reduction of the level of credits granted to customers due to poor quality assessment
 What Is A Collection Process?
A collection process is a series of events (e.g., letters, To Do entries) meant to
encourage an account to pay its delinquent debt. Linked to the collection process are the
specific service agreements that contributed to the delinquent debt
The typical collections process includes the following steps:

Overdue invoice is assigned. When an invoice becomes overdue for payment, it is

typically assigned to an employee for collection activities.

A. Verify past due amount. There may need to be some homework, and some
adjustment, to the past due invoice if there are deductions to account for, product returns,
or marketing promotions or special incentives that were offered.
B.Issue dunning letters. Dunning letters, notifications to a customer that
an account is past due, are usually sent at fixed intervals. Dunning letters
are generally printed and sent through the postal service.
C.Call the customer. In conjunction with the dunning letters, phone calls
are placed to customers to discuss the reasons for lack of payment.
D. Payment arrangements. This may take the format of instant payment
over the phone, or an extension of payment deadline, or new terms for the
payment arrangement.
E.Adjust credit limit. Depending on the customer’s payment situation and
history with the business, a review of their current credit limit may take
place, and adjustments made per the credit team’s discretion and policy
F.Monitor payments under settlement arrangements. If there are special payment
plans, businesses want to stay on top of the new arrangements and contact customers as
soon as it appears that they will miss a scheduled payment date. This level of monitoring is
required to keep customers from delaying their payments.
G.Refer to a collection agency. Once all other in-house collection techniques have been
attempted, many businesses shift invoices to a collection agency. At this point, the
customer is often placed on a credit hold list.
H.Sue the customer. If all other alternatives have failed, a business may authorize the
legal staff to proceed with a lawsuit against the customer in an attempt to reclaim the debt.
I.Write off remaining balance. If all collections techniques have failed, businesses may
write off the overdue amount as bad debt.
Credit and collection policies
credit and collections policy is a document that includes “clear, written guidelines that set
the terms and conditions for supplying goods on credit, customer qualification criteria,
procedure for making collections, and steps to be taken in case of customer delinquency”.

WHY IS IT IMPORTANT TO HAVE A CREDIT COLLECTIONS POLICY AND

PROCEDURES IN PLACE?
Along with cash and inventory, accounts receivable is one of the most important short-term
assets a company has. The more predictably and effectively you can convert your A/R, the
healthier your cash flow will be. One of the most important factors in effectively collecting
the money owed to you is through consistency. By having a formalized plan that your
employees follow and by documenting all steps and communications along the way, you’re
team will be much more consistent, effective, and efficient in collecting outstanding A/R.
 A well written and comprehensive credit collection policy will:

• Ensure continuity in the department in the event that key personnel

leave the credit department.
• Help make sure all customers are treated fairly.
• Ensure consistent credit decisions are being made.
• Be used as a training tool for new sales associates and the credit and
collections team.
Be used to ensure consistency of procedure and execution between the
credit department, sales, and management
Your policy can be as general or as specific as you would like,
just keep in mind that in order to protect your cash flow, arming
your employees with knowledge and predefined A/R best
practices and procedures is best so they always know what to
do in certain situations and can react quickly and confidently to
resolve any problems or answer any questions.
Role of collector in business
a. Keep track of assigned accounts to identify outstanding debts
b. Plan course of action to recover outstanding payments
c. Locate and contact debtors to inquire of their payment status
d. Negotiate payoff deadlines or payment plans
e. Handle questions or complaints
f. Investigate and resolve discrepancies
g. Create trust relationships with debtors when possible to avoid future
issues
h. Update account status and database regularly
i. Alert superiors of debtors unwilling or unable to pay when necessary
j. Comply with requirements when legal action is unavoidable
Collections Officer Responsibilities:
• Reviewing the company debtor list.
• Contacting customers and informing them of their overdue bills.
• Advising customers on their payment options and suggesting methods of payments.
• Negotiating suitable payment plans.
• Maintaining customer payment records.
• Preparing customer financial statements for banks and the state credit department.
• Writing final notice warnings to customers when payments are not being made.
• Instituting legal action when customers fail to pay their debt.
• Responding to customer queries.
• Contacting lawyers and insurance agencies to facilitate payments.
Collection Report means a report that provides the daily collection
activity detailed by transaction which is in form and detail satisfactory to
* , such detail to include the customer's name, payment date, invoice
number and amount of payment for each transaction.

What are the contents of a collection report?

Collection – Detailed Report provides detailed data of all collected
transactions received within a specific date range. The report contains
date collected, collection number, date paid, payment mode, bank, and
the total amount of money received.
Tools And Aids In Collection

A Notice or Reminder
Characteristics of a good collection notice :
• It must be of the proper size. It must be borne in mind that large things generally attract more
attention the small things , In this regard the size of the notice or reminder must be large enough to get
the attention expected.
• The message must be simple and written in such a way that the message of collection is clearly
understood by the debtor
• The notice reminder must be designed in such a way that it will command the receiver’s/debtor
attention and motivate him.
• It must contain an eye- catching object which can stand by itself to motivate command and prod the
debtor to react positively.
• The notice or reminder to be effective must also be designed to make it a novelty. This can be
achieved in the physical designed of the notion or in the use of catchy phrases
• The color of the notice must be appealing it must motivate and command the recipient to act positively
B. Letters
Kind of letter sent to debtor
Form letters
Personalized letter
Qualities of good form or personalized letter:
Concise
Use simple language that conveys “pay now” action
Leave the debtor a “way out” this allows the debtor to “save face” by giving him a convenient excuse for
his delay in paying
Use words with care never insult or threaten unless you are fully prepared for a hostile response from
your debtor, always highlight the main message of your letter through repetition
• It must in a very simple way tell the debtor how much he owes and he must pay
• It must always sound business like
• It must avoid sarcastic remarks
• It must motivate the debtor to pay
• It must diminish the debtor’s resistance to payment by
C. Third Party letters
Third party letter are usually written by a collection agency and /or an attorney on
behalf of the creditor. A third party may be written by anyone hired by a creditor to
collect an overdue account
The third party letter”
Must come from someone who has respect of both the creditor and debtor ( such as
an experienced attorney or a reputable collection agency
The writer must know what to do to collect
Must be persuasive to compel the debtor to pay his debt
Must be credible it should never threaten a debtor unless the creditor intends to carry
out his threat.
E. telegrams /cables (SMS (text collection)
Writing an effective collection telegraphs requires good writing skills, since the length
of any message is limited by the cost of the telegram Go straight to the point when
sending a telegram. Give the debtor all the necessary information he must know in
order to pay the debt and ask for payment now
Be concise and easily understandable
Avoid confusing words
’followed up(either by letter, telegram, by phone)
Short concise easily understandable and polite message motivating for payment.

F. Telephone
Your telephone voice or the way you sound on a telephone is powerful collection tool.
A pleasant telephone voice can help in convincing the debtor to come through his
payment. An irritating or insulting tome of voice may have the opposite effect
STRATEGIES AND TACTICS OF COLLECTION
Strategy a plan of action developed to achieve a goal or objective
Tactic the behavioral maneuvering one undertakes to carry out the strategy
Factors to consider in undertaking a collection tactical plan
The personality of the parties
Permissive ,tolerant or one who judge by result?
Highly authoritarian or the jealous type of a person?
Aggressive or hostile?
Placid or adventurous?
Compatible /incompatible in personality with the debtor?
Ways of collection strategy
The desire of every collection man to achieve positive
Will depend upon the extend of knowledge a collector has on the debtor’s personality and methods in
negotiating/strategizing it collection effort
Some of the generally sued strategy of collection negotiations are the following:
Confrontation
This may be in the form of a threat or coercion .confrontation generally does not work because it tends to
incite hostility in both the creditor and debtor. It generally leads to polarization of position
It takes less time to think right than it dos to explain why you did wrong
Concession of Compromise
Avoid giving the first concession
If concession must be given five the minor one first
In giving give slowly and grudgingly
Try not to give two concessions .in a row, because the debtor will feel and see eagerness to compromise
does not show any cooperation.