Accounts Receivable Policy Template

1. Purpose and Scope

1.1 Purpose

This policy establishes the procedures and standards for managing accounts receivable at Acme Corp. Its objectives are to: - Maximize cash flow by ensuring timely collection of amounts owed - Minimize bad debt write-offs through proactive collection practices - Maintain positive client relationships throughout the collection process - Ensure consistent, fair treatment of all clients - Comply with all applicable federal and state regulations

1.2 Scope

This policy applies to all invoiced revenue for products and services delivered by Acme Corp. It covers all departments that generate invoices, all personnel involved in billing and collections, and all customer accounts regardless of size or history.

1.3 Authority

The Director of Finance has overall authority for this policy. Day-to-day management is delegated to the Accounts Receivable Manager. Exceptions to this policy require written approval from the CFO.

2. Credit Approval and Terms

2.1 Standard Payment Terms

- Default terms: Net 30 (payment due 30 days from invoice date) - New clients (first 90 days): Net 15 or payment in advance - Enterprise clients (annual contract > $100K): Net 45 (requires CFO approval) - Early payment discount: 2/10 Net 30 (2% discount if paid within 10 days)

2.2 Credit Evaluation for New Clients

Before extending Net 30 or longer terms to a new client, the AR team must: 1. Run a Dun & Bradstreet credit report (minimum PAYDEX score of 50) 2. Verify the business is registered and in good standing with the Secretary of State 3. Request two trade references for orders exceeding $10,000 4. Set an initial credit limit equal to the lower of: 2x the first order value, or $25,000 5. Document the credit decision in the client's account file

2.3 Credit Limit Adjustments

Credit limits are reviewed quarterly. Increases require: - 6+ months of payment history with no delinquencies - Updated credit report showing stable or improved score - Written approval from the AR Manager (up to $50K) or CFO (above $50K) Credit limits are decreased immediately when: - A client has two or more late payments in a rolling 6-month period - The client's credit score drops below 40 PAYDEX - The client is the subject of a legal judgment or bankruptcy filing

3. Invoicing Procedures

3.1 Invoice Timing

- Invoices must be issued within 2 business days of service delivery or milestone completion - Recurring invoices are generated on the 1st of each month for the prior month's services - Invoices are sent electronically (email) with a PDF attachment

3.2 Required Invoice Elements

Every invoice must include: - Unique invoice number (format: INV-YYYY-NNNN) - Invoice date and payment due date - Client's legal business name and billing address - Itemized description of services or products delivered - Quantity, unit price, and line totals - Applicable taxes - Total amount due - Payment terms (e.g., "Net 30") - Accepted payment methods and instructions - Late payment terms (reference to Section 5 of this policy) - Contact information for billing inquiries

3.3 Invoice Delivery Confirmation

- All invoices must be sent to a confirmed billing email address - The AR team must verify receipt within 3 business days - If the client has an AP portal, invoices must be submitted through the portal in addition to email

4. Collection Procedures and Escalation Timeline

4.1 Pre-Due Reminder

- Day -7: Automated email reminder that payment is due in 7 days - Includes link to payment portal and attached invoice copy

4.2 Stage 1: Friendly Follow-Up (Day 1-14 Past Due)

- Day 1: Automated email — "Your invoice is past due" with invoice attached - Day 5: Manual email from AR coordinator — friendly check-in - Day 10: Phone call from AR coordinator — confirm receipt, ask for payment date - Owner: AR Coordinator - Escalation trigger: No response by Day 14 moves to Stage 2

4.3 Stage 2: Active Collection (Day 15-30 Past Due)

- Day 15: Email from AR Manager — references prior attempts, requests written commitment - Day 20: Phone call from AR Manager — direct conversation, offer payment plan - Day 25: Formal collection letter via email - Owner: AR Manager - Escalation trigger: No payment or plan by Day 30 moves to Stage 3

4.4 Stage 3: Formal Escalation (Day 31-60 Past Due)

- Day 31: Late fees begin accruing (see Section 5) - Day 31: Email from Director of Finance — formal notice with consequences - Day 35: Phone call from Director of Finance - Day 45: Final demand letter via certified mail and email - Owner: Director of Finance - Actions: Services may be suspended. Client account flagged in CRM. - Escalation trigger: No resolution by Day 60 moves to Stage 4

4.5 Stage 4: External Escalation (Day 61+ Past Due)

- Day 61: Account referred to third-party collection agency or outside counsel - Day 61: Delinquency reported to Dun & Bradstreet and Experian Business - Day 90: If no collection agency recovery, evaluate for legal action or write-off - Owner: CFO - Decision required: Pursue legal action, continue agency collection, or write off

5. Late Fees and Interest

5.1 Late Fee Schedule

- Day 1-30 past due: No late fee (grace period to preserve relationship) - Day 31+: 1.5% per month (18% APR) on the outstanding balance - Late fees are calculated on the first business day of each month on any balance 31+ days past due

5.2 Late Fee Waivers

Late fees may be waived under the following circumstances: - First-time late payment by a client with 12+ months of on-time payment history - Client enters into an approved payment plan (fees waived as long as plan is followed) - Client demonstrates the delay was caused by Acme Corp (e.g., invoice sent to wrong address) - Waiver authority: AR Manager (up to $500), Director of Finance (up to $2,000), CFO (unlimited)

6. Payment Plans

6.1 Eligibility

Payment plans may be offered to clients who: - Owe $2,500 or more - Communicate proactively about cash flow difficulties - Have not previously defaulted on a payment plan with Acme Corp

6.2 Standard Terms

- Maximum duration: 6 months - Minimum monthly payment: 15% of the outstanding balance or $500, whichever is greater - Requires a signed Payment Plan Agreement (see our payment plan template) - Late fees are waived for the duration of the plan, contingent on compliance - Missing two payments triggers the acceleration clause — full balance becomes due immediately

6.3 Approval Authority

- Plans under $10,000: AR Manager - Plans $10,000-$50,000: Director of Finance - Plans over $50,000: CFO

7. Dispute Resolution

7.1 Dispute Handling

When a client disputes an invoice: 1. The AR team must acknowledge the dispute in writing within 2 business days 2. Collection activity on the disputed amount is paused immediately 3. The AR team coordinates with the relevant department to investigate 4. A resolution must be provided within 10 business days 5. If the dispute is valid, a credit memo is issued and the invoice adjusted 6. If the dispute is invalid, the client is notified in writing with supporting documentation 7. Collection activity resumes on undisputed amounts immediately

7.2 Partial Disputes

If a client disputes only part of an invoice, collection continues on the undisputed portion. The disputed portion follows the process above.

8. Write-Off Criteria

8.1 Conditions for Write-Off

An account may be written off as bad debt when ALL of the following conditions are met: - The account is 120+ days past due - At least 4 collection attempts have been made across multiple channels - The account has been referred to a collection agency for a minimum of 60 days - The debtor is unreachable, insolvent, or the cost of further collection exceeds expected recovery - The write-off has been documented with a Bad Debt Write-Off Request form

8.2 Approval Authority

- Write-offs under $1,000: AR Manager - Write-offs $1,000-$10,000: Director of Finance - Write-offs over $10,000: CFO - Write-offs over $50,000: CFO + Board notification

8.3 Accounting Treatment

- Write-offs are recorded against the Allowance for Doubtful Accounts - The Allowance is reviewed quarterly and adjusted based on the AR aging report - Written-off accounts remain in the collection system — if payment is later received, it is recorded as a recovery

9. Roles and Responsibilities

AR Coordinator - Issue invoices within 2 business days - Execute Stage 1 collection activities (Day 1-14) - Maintain accurate client contact information - Run weekly AR aging reports AR Manager - Oversee daily collection operations - Execute Stage 2 collection activities (Day 15-30) - Approve payment plans under $10,000 - Approve write-offs under $1,000 - Review and approve late fee waivers up to $500 Director of Finance - Execute Stage 3 collection activities (Day 31-60) - Approve payment plans $10,000-$50,000 - Approve write-offs $1,000-$10,000 - Present monthly AR metrics to leadership CFO - Approve Stage 4 external escalation decisions - Approve payment plans over $50,000 - Approve write-offs over $10,000 - Set and review overall AR policy annually

10. Reporting and Metrics

10.1 Weekly Reports

- AR aging summary (current, 1-30, 31-60, 61-90, 90+ days) - New overdue accounts this week - Accounts escalated to next stage this week - Payments received this week

10.2 Monthly Reports

- Days Sales Outstanding (DSO) — target: under 35 days - Collection Effectiveness Index (CEI) — target: above 80% - Bad debt as percentage of revenue — target: under 1% - Aging bucket distribution and trends - Payment plan compliance rate - Top 10 delinquent accounts by dollar amount

10.3 Quarterly Reports

- Allowance for Doubtful Accounts adequacy review - Credit limit reviews for all active clients - Policy effectiveness review and recommended adjustments - Write-off summary and recovery analysis

11. Policy Review

This policy is reviewed annually by the CFO and updated as needed. Interim updates may be made in response to: - Changes in applicable laws or regulations - Significant changes in business volume or client base - Material changes in DSO or bad debt trends - Feedback from the AR team based on operational experience Document Control Version: 2.0 Effective Date: January 1, 2025 Last Reviewed: January 1, 2025 Next Review: January 1, 2026 Approved By: [CFO Name], Chief Financial Officer