Is Collections Accounts Receivable

Standard Operating Procedure: is collections accounts receivable

1. Document Control & Revision History

2. Executive Summary & Scope

2.1 Operational Boundaries

This Standard Operating Procedure (SOP) defines the operational, administrative, and compliance framework for managing Collections Accounts Receivable (A/R) within the enterprise financial architecture. Collections A/R encompasses the systematic identification, tracking, communication, and recovery protocols associated with delinquent commercial and consumer accounts. The boundary of this process initiates the moment an invoice transitions from "current" to "past due" (Aging Day 1 post-term) and concludes with either full financial settlement, formal write-off, or placement with external legal counsel.

2.2 Regulatory Standards & Compliance

All operational activities executed under this SOP must strictly adhere to statutory and professional frameworks, including but not limited to:

• Generally Accepted Accounting Principles (GAAP): Specifically ASC 606 (Revenue Recognition) and ASC 326 (Financial Instruments—Credit Losses / CECL model).
• Fair Debt Collection Practices Act (FDCPA): For consumer collections, dictating permissible communication windows, disclosure requirements, and harassment prohibitions.
• Telephone Consumer Protection Act (TCPA): Regulating automated dialing systems and electronic communication methodologies.
• Health Insurance Portability and Accountability Act (HIPAA): Where applicable, safeguarding Protected Health Information (PHI) within medical or healthcare-related financial workflows.

3. Prerequisites & Tool Requirements

3.1 Software & System Access

• Enterprise Resource Planning (ERP): Read/Write access to financial ledgers (e.g., SAP, Oracle Financials, NetSuite).
• Accounts Receivable Automation Suite: Access to dedicated collections platforms (e.g., HighRadius, Quadient AR, Chaser) for automated dunning and tracking.
• Customer Relationship Management (CRM): Integration access (e.g., Salesforce, Microsoft Dynamics) for logging debtor communications and dispute annotations.
• Secure Communication Channels: Encrypted email gateways and compliant VoIP dialer systems with call-recording capabilities.

3.2 Certifications & Training

• Internal Compliance Certification: Completion of annual FDCPA, TCPA, and data privacy training modules.
• Professional Designations (Preferred): Certified Collection Professional (CCP) or Credit Business Associate (CBA) credentials for senior operational staff.

4. Roles & Responsibilities (RACI Matrix Table)

Legend: R = Responsible, A = Accountable, C = Consulted, I = Informed

5. Step-by-Step Operational Procedure

Phase 1: Aging Analysis & Portfolio Triage

• 1.1 Execute the daily aging report extraction from the ERP at 06:00 local time to categorize all unpaid invoices into standard buckets: 1-30, 31-60, 61-90, 91-120, and 120+ days past due.
• 1.2 Cross-reference the aging output with the unapplied cash ledger to ensure all incoming wire transfers, ACH payments, and checks are fully posted.
• 1.3 Segment delinquent accounts by risk profile, credit score, historical payment behavior, and outstanding balance value.
• 1.4 Place a temporary administrative hold on high-risk accounts (exceeding 60 days past due or $10,000 in outstanding liabilities) within the ERP to prevent new order fulfillment.

Phase 2: Structured Outreach & Communication Cadence

• 2.1 Initiate automated soft-dunning email reminders via the A/R automation platform at Day 5 past due.
• 2.2 Execute direct phone outreach and issue formal demand letters for accounts reaching the 30-day past-due milestone, documenting all interactions within the CRM/ERP ledger within 2 hours of contact.
• 2.3 Verify that all debtor communications comply strictly with statutory calling hours (08:00 to 21:00 local time) and include mandatory regulatory disclosures.
• 2.4 Evaluate incoming payment dispute claims and route them to the appropriate internal department (Billing, Sales, or Operations) with a mandatory 48-hour resolution SLA.

Phase 3: Settlement Negotiation & Payment Plans

• 3.1 Review formal payment plan requests against pre-approved financial thresholds (Maximum installment period: 6 months; Minimum down payment: 25% of total balance).
• 3.2 Draft and secure execution of a formal, legally binding Promissory Note or Payment Plan Agreement for any structured settlement exceeding 30 days.
• 3.3 Process negotiated settlements or payment plan installments through the secure merchant gateway, ensuring immediate posting to the correct sub-ledger.

Phase 4: Legal Escalation or Write-Off Execution

• 4.1 Identify accounts deemed uncollectible after exhausting all internal recovery protocols (typically 120+ days delinquent with zero debtor responsiveness).
• 4.2 Compile comprehensive account dossiers—including invoice histories, communication logs, and signed contracts—and transfer files to pre-vetted external collection agencies or legal counsel.
• 4.3 Prepare formal write-off documentation requiring dual-authorization (A/R Manager and CFO) in accordance with ASC 326 bad debt provisioning policies.
• 4.4 Adjust the General Ledger by debiting the Allowance for Doubtful Accounts and crediting Accounts Receivable, updating the balance sheet accordingly.

6. Quality Assurance & Verification Criteria

6.1 Audit Checklist

• Ledger Accuracy: Monthly reconciliation between sub-ledger A/R balances and the General Ledger control account with zero variance tolerance.
• Communication Compliance: Random quarterly audit of 10% of recorded collection calls and email logs to ensure total adherence to FDCPA and enterprise communication standards.
• Dispute Resolution Speed: Average time to resolve customer billing disputes must not exceed 5 business days.

6.2 Tolerance Thresholds & Acceptance Benchmarks

• DSO (Days Sales Outstanding): Must remain within +/- 5 days of the rolling 12-month industry benchmark.
• Collection Effectiveness Index (CEI): Target threshold must exceed 85% monthly.
• Bad Debt Write-Off Ratio: Must not exceed 1.5% of total annual gross credit sales.

7. Practical Troubleshooting Scenarios

Scenario 1: Debtor Files Formal Dispute Over Pricing Errors Mid-Collection Cycle

• Immediate Symptom: Customer refuses to pay 90-day past-due invoice, claiming contracted pricing terms were violated by the billing department.
• Corrective Action Protocol:
  1. Immediately suspend outbound collections activity and automated dunning for the disputed line items to maintain regulatory compliance.
  2. Issue a formal "Notice of Dispute Receipt" to the customer within 24 hours.
  3. Pull the original executed contract, purchase order, and historical invoices; transmit them to the Billing Manager for root-cause audit.
  4. If an error is verified, issue a corrective credit memo within 48 hours and resume collection efforts on the residual undisputed balance. If the billing is verified correct, provide documented proof of authorization to the customer and set a strict 7-day payment window before resuming escalation.

Scenario 2: Payment Plan Default by Enterprise Account

• Immediate Symptom: A debtor operating under a signed 6-month payment plan misses the second consecutive monthly installment.
• Corrective Action Protocol:
  1. The A/R automation system automatically flags the broken agreement on Day 1 post-missed payment.
  2. The assigned Collections Specialist places an immediate telephone call to the corporate controller or accounts payable lead to ascertain the operational cause of the default.
  3. Issue a formal "Notice of Default and Acceleration," revoking the installment privilege and demanding payment of the entire remaining balance within 10 business days.
  4. If payment or a viable restructured agreement is not secured within the 10-day window, immediately transition the account from internal collections to Phase 4 (Legal Escalation and Agency Placement).