Devotional
“Beholding Him”
This day’s readings:
Isaiah 45:22
Collection and Repayments
School of Business | Credit & Collection | 2nd Semester 2022-2023 | Jimuel Faigao | February 21, 2023
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
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
Fundamental Principles
✓ 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
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.
