Allowance for Doubtful Accounts Policy: Sample 2

Prepared By:

Approved By:

Revision Date:

Effective Date:

PURPOSE

This policy provides guidelines for reviewing, monitoring and communicating with delinquent or past due
customers and their payments to the company. It also addresses the procedures for establishing an
allowance for doubtful accounts reserve at the company.

SCOPE

The company’s allowance for doubtful accounts reserve policies are in compliance with all applicable
accounting principles generally accepted in the United States of America. The company reserves for
uncollectable customer cash payments when invoices are over <X> days past due. The company
receivable payment terms are predominately net 30 days with other payment terms being net <X> days,
net <X> days or cash-in-advance (CIA).

The collection of accounts receivable is an important process in the overall revenue cycle that directly
impacts cash flow. The formal collections process occurs when a customer’s account becomes past due,
based on the invoice date.

Customer service, sales managers and credit analysts shall review a System <X> accounts receivable
aging report on a weekly basis to identify past due account(s) and to begin contacting the corresponding
customer(s).

GENERAL ALLOWANCE FOR DOUBTFUL ACCOUNTS POLICY

The company maintains allowances for doubtful accounts for estimated losses resulting from the inability
of our customers to make required payments. We analyze, review and monitor accounts receivable and
the composition of the accounts receivable aging report on a weekly basis.

Based upon the analysis of the un-collectability of our accounts receivable, we record an increase in the
allowance for doubtful accounts when customer invoices become <X> days past due. The company
records recoveries of accounts previously written off as uncollectible as increases to the allowance for
doubtful accounts.

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 COLLECTION ACTIVITY

• Weekly, company accounting personnel create and issue a <System X> accounts receivable aging
report to identify past due accounts. The aging report is issued to customer service personnel, sales
managers, the business unit general manager, the accounting manager, the controller and the chief
financial officer. The accounting manager and the controller review, scrutinize and request follow-up
tasks of accounting and sales personnel, such as:
− Contact customers for the first time with overdue payments.
− Re-contact customers with payments over X and X days past due.
− Determine reasons for customers not paying invoices that have become past due.
− Ascertain when and if these customers will make their payments to the company.

• The company’s accounts receivable personnel place a phone call to the customer when the initial
payment is overdue. When a customer account becomes past due, it is at the discretion of the
accounts receivable personnel to determine the frequency of customer contact.

• The company has set up <System X> to place on hold any future customer sales orders where just
one invoice is past due.

• When company accounts receivable personnel have made a reasonable attempt to collect past due
invoices, are unable to resolve the issue, and after the account is <X> days past due, the customer
account shall be escalated to the respective business unit’s general manager. The general manager
shall contact his or her customer’s management contact for payment escalation and to ascertain why
the customer’s payment is past due. The general manager will communicate the findings to the
company controller.

• If customer payment has not been received by <X> days past due, the invoice amount will be reserved
for against the company’s allowance for doubtful account reserve.

• When collection activities are unsuccessful due to bankruptcy or the inability for a customer to pay,
customer accounts will be placed for collection with an outside agency with authorization from the
company controller and CFO. Potential future action may involve a lawsuit that can be initiated with
the authorization of the company COO, president or CFO.

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