Issue Date: June 2013
Effective Date: June 2013
Responsible Executive: Michael Riley - Controller & AVC
Responsible Office: Controller’s Office: Accounts Receivable
Contact: Questions about these guidelines may be directed to the Accounts Receivable Manager at 510-642-4177 or firstname.lastname@example.org(link sends e-mail).
In Brief: This document provides operating guidelines to departments extending credit to third-parties upon the delivery of goods or services.
A.1. UC Accounting Manual Receivables Management R-212-2 states, “The granting of credit is not a primary function of the University…” Therefore, campus entities providing goods or services in advance of receiving payment must do so in a manner that makes good business sense. When agreeing to extend credit, the campus entity conducting the business activity should ensure that it supports the mission of the campus, is a worthwhile and value added effort, and operates in an efficient and cost effective manner.
A.2. These guidelines apply to debts owed to the campus generated from:
- Revenue generating activities
- Recharge to external parties
- Business contracts / agreements
- Agency funds / sub-awards
- Acceptance of a purchase order
- Recurring activities (e.g., memberships, subscriptions)
These guidelines do not apply to financial transactions from:
- Recharge to internal campus departments
- Inter-campus transfers
- Student receivables
- Loan programs
II. BILLING PRACTICES
A. Creating the Receivable
A.1. Business transactions requiring payment in exchange for goods or services should be conducted on a cash basis whenever possible. Accepting cash and/or cash equivalents at the time of the sale lowers the risk of financial loss and reduces the administrative burden of the transaction.
A.2. When justified by business need, there may be situations when the campus will agree to provide goods or services with payment deferred for a short period of time. A receivable obligation is established immediately upon delivery of a goods or services for which payment has not yet been received.
A.3. The receivable is an asset to the campus and must be reflected accurately and timely on the University’s financial records. Campus entities extending credit to customers will record the transaction in the BFS Billing/AR (BFS:AR) system. The transaction should be entered within three (3) business days of recognition that a receivable situation has occurred.
A.4. An ‘Invoice’ is an official demand for payment that may only be issued from the central BFS:AR system. The BFS:AR system will produce an invoice within five (5) business days or at the end of a 30-day period if a month-end or recurring billing cycle is appropriate. Invoices will be mailed and/or available for on-line viewing.
A.5. Prior to providing the goods or services, campus departments are expected to:
- Assess the credit worthiness of their customers
- Identify business transactions that are receivables
- Secure sufficient documentation in order to enforce collections
- Obtain accurate bill-to addresses from their customers
- Inform their customers of campus billing and payment terms, conditions and protocols
- Communicate the terms and conditions of the purchase to their customers (e.g., price, exchanges, refunds, consequences of failure to pay)
- Ensure the transaction is executed in compliance with these guidelines
B. Terms of Credit
B.1. Payment by the customer is due immediately upon receipt of the invoice unless otherwise negotiated with the initiating department and configured accordingly in the BFS:AR billing record. Under no circumstances should a department agree to accept payment beyond 30 days from the invoice creation date. Requests for extension of credit beyond 30 days may be approved by the Controller’s Office based on circumstances.
B.2. Installment payments may be agreed to in situations where goods or services are provided over an extended period of time. For example, a customer may be invoiced for a deposit, mid-way through delivery, and upon completion. Payment in full is expected within 30 days of delivery of the final good/service.
B.3. Departments may not agree to accept installment payments on past due receivables. Refer to Section IV for collection.
C. Billing Adjustments
C.1. Departments are responsible for maintaining accurate invoice detail. Credit adjustments for returned items, unfulfilled deliveries, early-pay discounts, and similar occurrences must be entered in the BFS:AR system timely and accurately.
III. PAYMENT HANDLING PRACTICES
A.1. Customers may remit payment on BFS:AR accounts via check, money order, wire transfer, e-check or other method acceptable to the Controller’s Office: Accounts Receivable. Payments to BFS:AR accounts will be posted and deposited by Accounts Receivable within one business day of receipt.
A.2. Departments are discouraged from accepting payments on billed items directly from their customers.
A.3. If a payment is received but the intended receivables account cannot be identified, Accounts Receivable will contact the remitter for additional information. The remitter may be the payer listed on the check or the bank if the payment was submitted electronically. Unidentified payments will be held in a suspense account or returned to the payer.
A.4. To ensure proper posting, the customer should be instructed to indicate the invoice number(s) on their remittance. If it cannot be determined which invoice the payment is intended to pay, the payment will be posted to the account as an unapplied credit. Accounts Receivable and/or the campus department should communicate with the customer to identify appropriate application of the payment. It is a best practice to minimize unapplied credit transactions.
A.5. Payments not honored by the bank will be reversed from the BFS:AR account. A returned check fee will be assessed by the BFS:AR system to the customer’s receivables account. The department may not charge the customer an additional returned check charge.
A.6. Customers should be instructed to remit payment in U.S. dollars. Departments should not agree to accept payment in foreign currencies. Due to conversion rate fluctuation and bank fees for currency conversion, payments in foreign currency will not pay the receivable in full and will result in a financial loss to the department.
A.7. Payments will be handled in compliance with UC Business and Finance Bulletin BUS-49 ‘Policy for Cash and Cash Equivalents Received.’
A.8. Campus departments are expected to:
- Instruct their customers to remit payment directly to Accounts Receivable
- Immediately direct any payments received in the department to Accounts Receivable for proper posting
- Assist Accounts Receivable with identification of proper payment application
- Promptly enter adjustments to invoice amounts, if warranted
B. Credit Balances and Refunds
B.1. Overpayments or payments for invoices that are subsequently fully or partially canceled will create an account balance with a credit due to the customer. Either the customer or the campus department may request Accounts Receivable generate a refund to the customer. Accounts Receivable monitors credit balance account routinely and will make attempts to refund the credit balance to the customer. Refunds will be managed in accordance with UC Accounting Manual C-173-78 – Cash: Unclaimed and Uncashed Checks.
IV. PAST DUE ACCOUNT AND COLLECTION PRACTICES
A.1. In general, if an invoice is not paid within 30 days of the create date, it is considered delinquent. The BFS:AR system will generate a reminder notice to the customer. Accounts Receivable will attempt to contact the customer between 45 and 60 days if a telephone number is available. A second notice of delinquency will be sent at 60 days past due. A final demand letter with notice of possible escalation to an external collection agency will be issued at 90 days past due. Alternative collection procedures may be conducted as appropriate to the type of receivable.
A2. Once an account becomes delinquent, at any time an account may be placed in one of the following statuses:
- Promise to pay – negotiated payment terms approved by an Accounts Receivable collector
- Assignment to a professional collection agency
- Dispute – customer initiated disagreement with invoice amount for goods/services provided
- Write-off pending – determined that further collection efforts will not be worthwhile
- Eviction – applies to housing rental agreements
A.3. Accounts may be assessed a late fee on delinquent balances according to business rules programmed in the system. Exceptions to late fee assessment rules may be approved by the Controller’s Office. Income from late fee assessments will be managed by the Controller’s Office.
A.4. The BFS:AR system provides reports detailing aging transactions. Departments should review the aging reports on a regular basis and take appropriate action to address receivables that remain unpaid beyond 30 days. Customers often respond more timely to prompts for payment when coming from departmental contacts with whom they wish to maintain a positive business relationship.
A.5. Accounts may be assigned by Accounts Receivable to a professional collection agency contracted with the campus. In order for the agency to accept the assignment, the following information should be provided:
- Customer name and contact information
- Customer Social Security Number or Taxpayer Identification Number
- Documentation substantiating the receivable terms and conditions
- History of billing and collection efforts
A.6. The collection agency may maintain the account in its portfolio for up to 9 months, or longer if an active repayment arrangement is underway. While placed with the agency, the campus may not pursue separate collection efforts or accept payments from the customer.
A.7. Debts recovered by the collection agency will bear an agency fee at a flat percentage rate per the campus contract. The net amount collected will be applied to the outstanding receivable. The amount equal to the agency fee will be charged to the department.
A.8. Campus departments are expected to:
- Review reports of aging departmental receivables on a regular basis
- Reassess the credit worthiness of their customers
- Suspend credit arrangements with customers who fail to honor their debt to the campus
- Partner with Accounts Receivable to coordinate collection activities
- Accept cash payments at the time of purchase whenever possible
- Resolve disputes with customers in a good faith and timely manner
V. ACCOUNTING PRACTICES
A.1. The BFS:AR system interfaces financial data to the general ledger on a daily basis.
A.2. Each invoice transaction will be associated with a valid chartstring comprised of the required general ledger fields of business unit, account, fund, department ID; optional chartfield values may also be recorded. Chartstrings used for billing purposes will be maintained in the BFS:AR system by Accounts Receivable.
A.3. Upon creation of the invoice, a credit will post to the campus department’s ledger. The department will have use of the credit on its books while the billing and collection process is performed.
A.4. In general, credits will post to a revenue account. Recharge departments invoicing outside entities will recognize the income as revenue. In certain cases, an expense or balance sheet account may be credited if approved by the Controller’s Office.
A.5. A bad debt reserve is withheld on invoice transactions at a rate of 1% of all receivables billed unless analysis of actual recovery rates indicates a rate of more or less than 1% is appropriate. The bad debt reserve rate analysis will be performed by Accounts Receivable on an annual basis.
A.6. On a periodic basis, but no less frequently that twice per year, Accounts Receivable will execute the write-off process. Receivables will be reviewed prior to write-off to determine the likelihood of collectability.
A.7. Upon write-off, the receivable will be removed from the customer’s billing account. No further collection action will be pursued.
A.8. Write-offs result in a financial loss to the department. If insufficient funds exist in the bad debt reserve account, a revenue account will be debited. The revenue account may not carry a deficit balance. If the overall fund balance is in deficit, the department must provide an alternative funding source to cover the loss.
UC Accounting Manual R-212-2: Receivables Management –
http://policy.ucop.edu/doc/3410298/AM-R212-2(link is external)
UC Business and Finance Bulletin BUS-49: Policy for Cash and Cash Equivalents Received –
http://policy.ucop.edu/doc/3420337/BFB-BUS-49(link is external)
UC Accounting Manual C-173-78: Cash: Unclaimed and Uncashed Checks –