Extension of Credit and Collection Procedures

Financial Management Operations has prepared a guide to assist departments in the development of extension of credit and collection procedures to ensure proper internal controls, segregation of duties, and adequate safeguards of University assets. Departments are responsible for complying with extension of credit policies and procedures outlined, and also for developing detailed written departmental operating procedures. Financial Management Operations will review the procedure documents and make any appropriate recommendations at the request of the department. Please review System Regulation 21.01.04 Extension of Credit.

Internal controls are necessary to prevent mishandling of funds to safeguard against loss. Strong internal controls also protect employees from inappropriate charges of mishandling funds by defining responsibilities in the extension of credit and collection process.

Segregation of duties is essential to prevent one individual from having responsibility for more than one component. Components of extending credit are creating invoices, collecting payments and clearing invoices, depositing and reconciling.

When developing extension of credit procedures departments should always take under consideration the importance of internal controls and segregation of duties and implement these two concepts into the procedures.

Procedures should be detailed steps of departmental processes. These detailed steps should map out the course of action so that persons not familiar with the process can follow them to perform the duties when necessary.

Below is an outline of suggested information to include in procedures.

Departments processing ARs through FMO or FMS

  • Approval to Extend Credit
    • Departments must have approval to extend credit
  • Establishing/Updating Customer Accounts
    • Customer numbers are 13 digit accounts designed to permit multiple payments or transactions.
    • TAMUS customer accounts are set up using the TAMU System Customer Form.
      • Includes SOFC 68 accounts for TAMU
      • Includes SORG 88 accounts for TAMUG
    • External customer accounts require the customer to complete the Customer Information Form.
      • This form must be faxed to FMO by department
      • This form must be used to create and/or modify customer accounts
      • Department section must be completed by department
      • Customer number should be established prior to providing goods or services to customer
    • Should include reference to Texas A&M University's and Texas A&M University at Galveston's Identity Theft Prevention Program
      • Should list the department's responsibilities
      • Should list the department's red flags
      • Should include notification policy
    • Should include checking payment history on established customers
      • Should state the department's policy on continuous late payments or returned checks
      • Should state the policy on when credit will no longer be extended to a particular customer
    • Should include collecting sales tax exemption certificates if you sell taxable goods/services
  • Invoicing
    • Should include billing cycle (daily, monthly, etc)
    • Should include when the invoices are sent and by what means (mail, email, fax)
    • Should include reference to departmental procedures on creating invoices via iPayments
  • Payment Policy
    • Payments are remitted to and invoices are cleared by FMO Sales and Receivables
    • Should include what to do with payments to ARs received by your office
      • Cash should be hand delivered to Cashiers
        • Must provide invoice number
      • Checks can be sent in the mail to FMO or FMS but must be properly endorsed
        • Make sure the invoice number is listed on the check
    • Credit Cards are not accepted by FMO or FMS. If the customer wants to pay via credit card and the department has the means, the AR will have to be canceled.
  • Collection Efforts
    • FMO and FMS mail past due notices generated by FAMIS to customers monthly
    • FMO and FMS email customers monthly (30 days, 60 days, 90 days, 120 days, etc)
    • At 90 days past due, FMO and FMS send billing department a notice of all customers that will need to be placed on State Hold if payment is not received before invoices reach 120 days past due
      • Should include department's response time to requests in assistance from FMO or FMS
      • Should include review of past due invoices so that appropriate decisions can be made on extending credit to customers approaching poor standing
    • FMO and FMS notify billing departments of any disputed invoices
      • Unresolved disputes will be reversedafter 3 months if TAMUS member
    • FMO and FMS provide collection efforts for up to 8 months
      • FMO and FMS notify billing departments of invoices 8 months old or older approaching reversal
        • Departments are asked to assist in collection efforts
      • Should include procedures on collection efforts once an invoice is reversed back to department by FMO (240 days past due and up)
      • Should include policy on contacting customer and by which means (mail, email, phone) and should reference links to templates for letters, emails, and/or phone dialogues.
      • Should be in compliance with Fair Debt Practices Act
      • Should include how to document collection efforts (call logs, copies of collection letters, etc)
      • Should include notifying FMO or FMS if payment is received by a customer that has been placed on State Hold
  • Write-Off Policy
    • Should include the decision process for writing off past due invoices
    • Should take into consideration the current activity on the account and if you are currently conducting business with a customer that has an invoice approaching write off
    • Should include when invoices can be written off and which invoices can be written off
    • Should include anticipated write off amounts and what to do if that amount is exceeded
    • Should include who has the authority to approve and how to complete the required documents
    • Should include when to submit write off forms to FMO
  • Documentation
    • Should include location of approved extension of credit and annual certification letter
    • Should include location of department's copy of the Red Flag Rule
    • Should include location of collection efforts (online and/or hardcopy) for each invoice/customer account

Departments NOT processing ARs through FMO or FMS

  • Approval to Extend Credit
    • Departments must have approval to extend credit
  • Establishing/Updating Customer Accounts
    • Should include decision process and steps to create accounts for TAMUS customers
    • External customer accounts require the customer to complete the Customer Information Form.
      • This form must be faxed to FMO by department
      • This form must be used to create and/or modify customer accounts
      • Department section must be completed by department
      • Customer number should be established prior to providing goods or services to customer
    • Should include reference to Texas A&M University's and Texas A&M University at Galveston's Identity Theft Prevention Program
      • Should list the department's responsibilities
      • Should list the department's red flags
      • Should include notification policy
    • Should include checking payment history on established customers
      • Should state the department's policy on continuous late payments or returned checks
      • Should state the policy on when credit will no longer be extended to a particular customer
    • Should include collecting sales tax exemption certificates if you sell taxable goods/services
  • Invoicing
    • Should include billing cycle (daily, monthly, etc)
    • Should include when the invoices are sent and by what means (mail, email, fax)
    • Should include reference to departmental procedures on creating invoices
  • Payment Policy
    • Should include expected time of payment (30 days from receipt of invoice in most cases)
      • Special circumstances must be approved
    • Should include responsible party
    • Should include reference to departmental procedures on clearing invoices and making deposits
    • Should include payment methods your department will accept
    • Should include policy on duplicate payments, short payments, and overpayments
  • Collection Efforts
    • Should include your collection schedule and your response at each stage (30,60,90,120, 120+ days past due)
    • Should include your policy on contacting your customer and by which means (mail, email, phone) and should reference links to templates for letters, emails, and/or phone dialogues.
    • Should be in compliance with Fair Debt Practices Act
    • Should include how to document collection efforts (call logs, copies of collection letters, etc)
    • Should include your policy on disputed invoices
    • Should include procedures on how to place a customer on State Hold
      • 120 days past due owing $100.00
      • Only external customers
      • Form must be submitted to FMO
      • If payment is received after customer is placed on State Hold, FMO must be notified so they can be removed.
  • Required Reports
    • Must submit a report of aged receivables to FMO for review
      • This report is required by the 25th of each month for the previous month's business
      • Email report to FMO for TAMU or FMS for TAMUG
      • Must include a minimum of customer, amount due, and aging (30, 60, 90, 120, and 120+ days past due)
  • Write-Off Policy
    • Should include the decision process for writing off past due invoices
    • Should take into consideration the current activity on the account and if you are currently conducting business with a customer that has an invoice approaching write off
    • Should include when invoices can be written off and which invoices can be written off
    • Should include anticipated write off amounts and what to do if that amount is exceeded
    • Should include who has the authority to approve and how to complete the required documents
    • Should include when to submit write off forms to FMO
  • Documentation
    • Should include location of approved extension of credit and annual certification letter
    • Should include location of department's copy of the Red Flag Rule
    • Should include location of collection efforts (online and/or hardcopy) for each invoice/customer account