Q. Formulation of Collection Policy ?

Formulation of Collection Policy:- The third characteristic of the receivable management is to formulate a collection policy. Collection policy is required for the reason that all the customers do not pay in time. Some customers pay subsequent to the due date and some do not pay at all. If collection is belated additional funds are needed during the period in-between to pay for wages, purchase etc. Delay in collection as well increases risk of bad-debts. Collection policy lays down the collection process followed to collect the amounts from the customers who don't pay within credit period allowed to them. Subsequent to the expiry of credit period the firm must initiate collection procedures to make collection from debtors. The efforts must be polite in the beginning however with the passage of time they should be made strict. The efforts more often than not made by the firm include:

(i) Reminder Letters

(ii) Telephone Calls

(iii)Personal Visits

(iv) Engaging collection agencies.

(v) Settlement at extended payment period.

(vi) Legal Action.