We started with an overview of collection functions on Tuesday.
To understand this process better, let us understand the business triggering it. We had earlier talked about sales / service offerings by your client. Once a sales is executed, customers will pay up, where you will apply the cash to the end customer’s account.
Based on the sales / regular customer sale contracts, there will be approved timelines / credit periods, within which the customers will pay up. To keep a check on timely payments, an ageing analysis is prepared. A statement is prepared, showing what payments are due for over a period of time, and this is where the follow up procedures start, technically the commencement of the actual collection activity.
Now, if you see your client’s processes, ideally, most of the clients prepare this from the date of the invoice. This is a big pit hole. The systems should actually take into account from the date credit period expires. Thankfully most of the ERP systems do provide for this, however, it is not configured.
Next post, I will talk about aging analysis and its complexities.
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