As for the Credit policy, the Business Policy of the Firm defines the Collection policy. We will here discuss the Collection policy as a separate document from the Credit policy. However, in various firms, the two are combined and depend on the size and structure of the firm.
Collections Policy guidelines
Like the Credit Policy, the Collection policy should allow acting within a shared and uniform vision of all firm processes linked to the collection from customers. Since a part of the Collection policy is to apply sanctions or even end the relationship with existing customers, it has to be:
- available to all;
- clear and unequivocal;
- consistent;
- adapted to the market;
- executable;
- backed up by management;
- comprehensive;
- written and explained in procedures;
- accepted by and adapted to all actors of the Firm;
- Moreover, of course, it fully conforms to the business policy.
The collections policy and procedures have to provide clear instructions to all the following:
- The purpose of the Collection policy document;
- The collection processes for payments in at or before due date and for late payments;
- The detailed escalation process when a customer does not repay in time, including all actions timeline;
- The collections targets and KPIs;
- The training and knowledge needed for all type of collection agents (manager, team leader, collector, back office, skip tracer, etc.);
- Authority levels to take decisions on rebates, credits, interruption of service, etc.;
- Communications scripts and templates;
- When a customer is transferred to legal, and who makes the decision;
- Preparation guidelines for legal action;
- Management information and control reports;
- Responsibility and accountability;
For Consumer credit:
- How to identify financial difficulties and vulnerability;
- Treatment of customers in financial difficulties;
- Treatment of vulnerable customers;
- Interest, arrears, and forbearance.
Collections procedures
Procedures have to be clear. Unclear procedures will not be appropriately applied. They have to be understood and used by all employees of the firm. The collection manager will be responsible for auditing their consistent and proper execution. The collection manager has an essential role in any firm, large or small, as he oversees all operations and their direct impact on collections.
In a large firm, the finance, marketing, sales, customer service and logistics departments cooperate to write the collections procedures.
Next article: Collections corporate culture