Accounts Receivable Collection Process Pdf

Standard Operating Procedure: Accounts Receivable (AR) Collection Process

1. Document Control & Revision History

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2. Executive Summary & Scope

This SOP defines the standardized protocol for the systematic recovery of outstanding accounts receivable. The scope encompasses all B2B and B2C commercial credit portfolios. This procedure adheres to GAAP revenue recognition principles, Sarbanes-Oxley (SOX) compliance requirements regarding financial reporting integrity, and the Fair Debt Collection Practices Act (FDCPA) where applicable. Operational boundaries terminate upon successful fund settlement or account write-off/transfer to third-party collections.

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3. Prerequisites & Tool Requirements

• Software Access: ERP (e.g., NetSuite, SAP, or Microsoft Dynamics 365) with 'Finance-AR' security clearance.
• Data Access: Read/Write access to the Customer Master Database and Centralized Ledger.
• Certifications: Completion of "Enterprise Financial Compliance & Data Privacy" training module.
• Infrastructure: Secure, encrypted terminal with multi-factor authentication (MFA) enabled.
• Documentation: Access to current Customer Credit Agreements and signed Service Level Agreements (SLAs).

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4. Roles & Responsibilities (RACI Matrix)

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5. Step-by-Step Operational Procedure

Phase I: Pre-Due Date Validation

• Verify invoice delivery via electronic portal or designated EDI channel.
• Confirm receipt of "Purchase Order Acknowledgement" by the client.
• Execute automated "Courtesy Reminder" 5 business days prior to maturity.

Phase II: Active Collection Protocol

• Run "Aging Summary Report" to identify accounts 1-30 days past due (DPD).
• Initiate documented outreach (Email/Portal notification) for 31-60 DPD accounts.
• Escalate to telephone collection efforts for 61+ DPD accounts.
• Log every interaction in the CRM/ERP "Communication History" module.

Phase III: Delinquency Escalation

• Apply "Credit Hold" status to the account in the ERP once DPD exceeds 90 days.
• Issue "Formal Notice of Default" via registered mail or certified digital equivalent.
• Prepare "Bad Debt Provision" report for review by the Controller.

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6. Quality Assurance & Verification Criteria

• Documentation Integrity: 100% of collection actions must contain a timestamped, authored note in the ERP.
• Dunning Accuracy: Automated dunning emails must match the invoice amount and reference specific PO numbers.
• Tolerance Thresholds: Unreconciled variances exceeding $50.00 must be escalated to the AR Manager within 24 hours.
• KPI Benchmark: Maintain "Days Sales Outstanding" (DSO) at or below 45 days.

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7. Practical Troubleshooting Scenarios

Scenario A: Disputed Invoice

• Failure: Client claims services were not rendered or goods were damaged.
• Corrective Action: Immediate "Pause" on automated dunning. Transfer account to the Sales Liaison for dispute resolution. If unresolved after 10 business days, file an internal Credit Memo or escalate to Finance leadership for formal resolution.

Scenario B: Systemic ERP Sync Failure

• Failure: Payment is received via bank transfer but does not auto-match in the ERP ledger.
• Corrective Action: Manually reconcile the bank statement against the "Unapplied Cash" report. Verify the remittance advice provided by the client. If the reference number is missing, contact the client’s AP department for clarification and complete manual application.

Scenario C: Client Bankruptcy Filing

• Failure: Notice of Chapter 7/11 bankruptcy received.
• Corrective Action: Immediate cessation of all collection attempts. Flag account as "Bankruptcy Proceeding" in ERP to prevent automated dunning. Forward all documentation to Legal/Compliance Counsel for inclusion in the Proof of Claim filing.