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The Procedure For Recovery Of Customer’s Outstanding

Sales is always an integral part of the business because when there is sale there is business and growth.  Many times in the enthusiasm of selling to customer business end up blocking funds by not performing the right collection process. Customer takes advantage of our weaknesses and keeps blocking the money with no timeframe to release.  Many times it becomes bad and doubtful debts which are a loss to the company. Some of the common mistakes made by the business for non-recovery are:

  • Improper collection policies and procedures;
  • Incomplete or no structured collection process;
  • Improper sales policies;
  • No formal customer due diligence process;
  • An improper team who is handling collections;
  • No formal documentation trails for customer onboarding and ongoing transactions.

With over dependence on a few people and not putting up a formal collection process, companies end up blocking their profits in the form of debts not recovered.  The philosophy is “A Sale is not considered a Sale until it is not recovered in full”.

To cater to the needs of an overgrowing recovery market and funds getting blocked with wilful defaulters a need to have a structured process governed through law is felt.  So in the year December 2016 “The Insolvency and Bankruptcy Code 2016” launched by the government of India to cater to all insolvencies and reorganization taken in our country.   

A “Financial Creditor” is the person who has provided goods or services to a company who has accepted, used and accounted for him as a creditor in the books.  In technical terms to whom a financial debt is owned and includes a person to whom such debt has been legally assigned or transferred files.

A Financial Creditor either by itself or jointly with other financial creditors can initiate a corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred.

In this process, financial creditors put forward corporate insolvency of the company who is not able to pay the debts of the company along with interest and outstanding.  

PROCEDURE FOR ROBUST COLLECTIONS

  • Set up a collection team or outsource who have domain knowledge and should work with great conviction;
  • Draw detailed policies and procedures keeping the collection framework in mind and overall business requirements;
  • Draw detailed step by step approach on how collection to be performed from the day of sales and include;
    • Account for all previous day collections and include the current invoices reported;
    • Bucket the outstanding as per 0-30, 30-60, 60-90, 90-120 120-180 and >180;
    • Collect the outstanding invoice wise from the system duly bucketed;
    • Do a collection review with the concerned collection executive
  • A detailed process of onboarding customers with checking profile, creditworthiness, financial condition and past history and ensure;
    • Past history of the customer and reference check with similar history before offering a credit;
    • Relevant customer documentation is collected including financial statement, residence proof, place of business, incorporation certificates, Tax registration certificates and other things to establish the identity of the customers;
    • Use an independent agent who can do the credit rating of the customer;
    • Get into a written contract with the customer including credit days, mode of payment, and a crossed undated cheque.
  • The timely legal process for check bounce;
  • Follow the additional legal process through IBC act when mandatory recovery process has failed;
  • File for a legal case and recover money partially or in full.

At CFO Angle, we help businesses with a collection of their money by:

  • Setting up collection process including setting up the policies, process, and procedures to be followed on each collection outstanding for any customer;  
  • A step by step approach keeping the business nuance’s in mind is developed to ensure it is relevant for the industry type;
  • Develop Dunning processes for structured follow-up on outstanding collection;
  • Develop the legal framework and help to expedite the collections;
  • Send an email and other communications to help expediting collection within the credit period;
  • Negotiate credit period on behalf of the customer using industry dynamics and business strengths;
  • Collection banking, accounting, invoice wise matching, reconciliation and sending a balance confirmation letter to the customers;
  • Help to project timely business exposure for the outstanding nonrecoverable beyond control and all the measurements taken as above;
  • Ensuring the books are cleaned and clear position of Accounts receivable is visible by identifying and Write off the amount not recovered.

KEY DOCUMENTS REQUIRED TO FILE THE CASE:

For a case to be initiated against the wilful defaulter it is important that the company has kept all the base documents for goods and services supplied:

  • Customer purchase order: Business must implement a process to ensure all goods and services are through a purchase order system.  Insist your customer for issue a purchases order (it shows their commitment and intent to take your services).  
  • Written contract: It is advised to have a contract signed up with the company on the rates, product and services to be supplied.  An exhaustive contract covering basic terms and condition binds both the parties and makes it a legal commitment.  
  • Acknowledged sale invoices/delivery challans:  All deliveries of goods and services should be acknowledged by an authorized representative of the receiving company.  A seal and stamping is a must on all the invoices. Insist on sample copy of authorized signatory signatures.
  • Statement of Accounts:  Monthly once a statement of accounts with pending invoices is circulated to all the clients on emails stating clearly on email message the total amount outstanding as on date.
  • Quarterly and yearly Confirmation:  A balance confirmation statement is circulated to all the client each quarter and a physical sign off is taken once in twelve months.
  • Retain email communication on payment follow-ups:  All emails communications must be retained for all collections follow-up done with the client.  It is important to retain this communication to ensure legal support documents are build up in case the relationship is strained.

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