- Before a company grants credit to a customer it should ensure, as far as possible, that the customer is worthy of that credit and that bad debts will not result. Checks should continue to be carried out on existing customers as a company would like to have early warning of any problems which may be developing. This is especially true for key customers of the company.
- Once the decision has been taken to grant credit, then suitable credit terms must be set and the receivables that arise must be monitored efficiently if the costs of giving credit are to be kept under control.
- A key area of the management of accounts receivable is the final collection of cash from customers. Any company must have a rigorous system to ensure that all customers pay in a timely fashion as, without this, the level of receivables and the cost of financing these receivables will inevitably rise, as will the risk and cost of bad debts. http://www.accaglobal.com/ca/en/student/exam-support-resources/fundamentals-exams-study-resources/f9/technical-articles/arm.html
Day 1: Issue invoice and send to customers Day 15: Call customers to check for receipt of invoice Day 31: Call customers and ask for payment Day 45: Send demanding payment letter Day 50: Call customers to chase for debt Day 60: Send 2nd demanding payment letter Day 90: Pass issue to legal department to chase for debt