COLLECTION

PROCEDURES
 Collection Procedures
It is utterly meaningless, if not senseless, to classify accounts of customers without any valid purpose or
philosophy behind, such as for instance, "honest" or "dishonest" or as "prompt payor" or "slow payor" and the
like. Rather, such a 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 acomodation or grant extension of credit.

The Collection Functions

Proper management of the investment in receivables implies the existence of a collection function. Collection
work is, at times, done directly by the credit department. At times, by an independent agency which offers and
renders collection service for a fee.
A collection department is charged with the task and responsibility of insuring the earliest possible payment on
receivables without any customer losses through ill will. Needless to state, prompt collection or payment tends to
reduce the investment required in receivables and its associated capital costs and also tends to reduce incidence of
losses in accounts receivable investment.
 The Collection Department
To say that collection is a major and important activity of any credit-granting concern is to elaborate on the
obvious. In fact, so important is it that the success of the credit-granting concern hinges, by and large, on the
efficient functioning of its collection machinery. Collection is really a part of the credit function although it
should be placed in the charge of a separate individual or subordinate division. Collecting is almost a
psychological task a task for someone who has, at least, a deep and usable know- ledge of human nature.

Qualities of a Good Bill Collector

Just as the manager of a collection department is competent and capable, so must the men
under his charge be those who possess certain desirable qualities to be assets to their
department in particular and to the company in general. Doubtlessly, they must develop every ounce of their
mental, moral and physical equipment in order to acquit themselves creditably to their task and occupation.
 • Industry
While industry alone does not guarantee the success of man in his
undertaking, nevertheless, it brings commensurate rewards.
As one writer said:

"The heights by great men reached and kept Were not attained by sudden
flight But they, while their companions slept, Were toiling upward in the
night." Edison put it very simply when he described success as 99%
perspiration (meaning industry and hard work) and 1% inspiration.
To the individual who possesses this invaluable quality, there is no half-way measure. Neithe
here room for procastination.

2. Persistence
Persistence is the twin brother of indus try. 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. Persistence is the nemesis of the words of
Shakespeare: "Much rain wears the marble.
 3. Tact
The job of a bill collector is both taxing and 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,
if this is possible. Thus, he should possess tact - prudence and
good judgment.

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. This may be considered as
synonymous with the need for achievement, or the so-called nACh, for short.
 The Collection System
While it is to be admitted that no single collection system can exactly fit the needs of every kind of
business nevertheless one that is expressive geared to the business enterprise that is flexible and changing
as needs arise should be devised and installed.

The collection system should be anchored on helping preserve the goodwill of its customers just as
accounts are collected when due from them. By establishing close rapport with its customers, collection
efforts should be exerted as to induce the customers to settle their accounts willingly on their own initiative
and thus devoid of the necessity of any reminder from the creditor company. While this is not always
possible, its attainment helps cement close relationship bet- ween the company and its customers.
 Collecting Delinquent Accounts
Notwithstanding the extreme care adopted in the grant of credit, there are occasions when some borrowers get into financial trouble and
thus find it difficult, if not impossible, to discharge their obligations. Indeed, the same laws of probability which govern the percentage of
good loans also govern the percentage of slow and troublesome loans.

Also for as long as the borrower responds in a spirit of cooperation; as long as he tries to exert conscientious efforts to pay his
indebtedness rather than evading his responsibility, it is necessary that the creditor must exercise some compassionate understanding with
his debtor as circumstances would indicate. But when the opposite is true, or when the debtor tries not only to avoid meeting his
obligations even if he could but also displays an air of arrogance, then, the creditor must avail and use all the resources and power under
his command to collect, whether it be repossession, foreclosure or court action. It goes without saying that laxity in collection would
merely serve to invite more difficulties in collection and, at the same time, helps convert potentially good custo- mers into poor ones -
poor for the creditor and poor for everyone else who would extend him credit in the future. Even after a loss is established and a note
charged off, col- lection efforts should not stop. Indeed, it is a good collection policy to continue devising ways and means directed
towards the collection of receivables as long as there still appears some good chances of collection.
 Collection Department Procedures
1. Not all customers pay their bills without being asked to do so. This is the rationale for the existence of a collecting arm.
2. The primordial responsibility of every collecting department is to bring in the money owed the company with the least costs and efforts
3. It is imperative as well as sound practice to bill customers as soon as their obligations become due. This will help reduce the required
investments in receivables.
4. Collection efforts should be always in line with company policy: pegging down collection costs within reasonable limits; preserving good
will of customers; and minimizing risks.
5. In a very subtle and tactful manner, the collection department should be able to show to the customers that it is to their advantage to pay
their obligations to the company and thus avoid the attendant embarrassment of court suits and impaired reputation.
6. Collection letters should be worded in a personal fashion and make customers feel that they are important and moreover friends of the
company with whom they transact business.
7. Every collection effort should be properly recorded in the credit file so that a complete his- tory is available at all times and, moreover, kept
up to date.
8. The collection department should periodically review its policies and procedures and evaluate against results.