USM
COLLECTIONS & CASH APPLICATION PROCEDURE
DOCUMENT No. TMP-8303-AD-0016
1.0
PURPOSE

To provide the actions and methods for collecting receivables

To define accountability and the responsibilities for collections of A/R

To define the actions and methods for applying cash receipts and for managing deductions

To define the procedure for processing unapplied cash
2.0
SCOPE
These procedures apply to the Collections group within the Accounts Receivable department,
Operations responsible for processing customer invoices that are called upon to assist in the
customer’s understanding of their invoice and Account Management who is accountable for payments
to be received from the customer.
3.0
DEFINITIONS
N/A
4.0
PROCEDURE
Mission: The Collections Group in the Accounts Receivable department is responsible for collecting
our investment in accounts receivable. It is our responsibility to see that payments are made within
terms. We will advise account management of customers who fall beyond payment terms and will
advise senior management of all significant collection issues that impact cash flow from operations
and bad debt expense.
Goals: The Collections Group strives to meet goals, established by senior management, which
relate to bad debts, aged accounts receivable, and Days Sales Outstanding. It is our goal to
maximize cash collections by meeting or exceeding cash targets, minimize bad debt expense and
consistently reduce past due accounts receivable balances.
Policy: Collections
All open receivables will be handled in a timely and effective manner to ensure maximum collections
and an optimum day’s sale outstanding.
CONTROLLED COPY NO.:
Issue Date:
Issued By:
[Uncontrolled unless numbered and dated (in red)]
Approved by:
Name: Tom Donnelly
Position: Vice President Finance & Accounting
Checked by:
Name/Position: : Chuck Shevick/ Director Credit &
Collections
© USM 2010
This document is the property of USM (TIN 23 2522463). This document must not be copied or reproduced in any way whatsoever, and must
not be passed on to any third party without the written authority from USM.
Date: July, 2010
Revision: 0
Page 1 of 5
USM
COLLECTIONS & CASH APPLICATION PROCEDURE
DOCUMENT No. TMP-8303-AD-0016
Account Management is ultimately accountable for collecting past due balances from their assigned
customers.
Cash Application
o
Cash receipts are applied timely and reconciled to cash posted daily
o
Deductions are identified, researched, and resolved timely
o
Overpayments are researched and processed appropriately
Responsibilities:

The A/R Manager prepares weekly, consolidated A/R Aging reports and alerts the Director of
Credit and Collection of any negative payment behavior or other collection concerns.

The Collections Specialists, with guidance from the A/R Manager and the Director of
Accounting Operations, and Account Management review all AR Aging reports on a regular
basis (minimum weekly) in order to assist in facilitating the payment of accounts in a timely
and effective manner.

The Collection Specialists are responsible for making all initial contacts with the customer to
determine the status of pending payments.

Account Management assists with the collection of outstanding A/R when the efforts of the
Collection Staff are unsuccessful.

The Collection Specialists prepare weekly cash projections used to forecast cash receipts.

The Cash Application Specialist applies all cash receipts to customer invoices, identifies
deductions, and reconciles cash received to cash posted daily.

The Credit Manager is responsible for the timely resolution of all Deductions. Deductions are
to be processed cost efficiently. Collections of invalid deductions are to be maximized and
frequency of deductions should be minimized.

The Credit Manager, with support from the Cash Application Specialist, is responsible for data
collection, analysis, and reporting to enable monitoring of processing, identification of trends,
root causes, abusive customers, and pricing errors that cause Deductions.
4.1
Collection Process
4.1.1
Preparation of Management Aging Reports
4.1.1
Preparation of Management Aging Reports – JDE Balances. The Finance Collections
Team accesses the JDE Accounting System on a daily basis in order to run reports pertaining to
customer balances. This report is used on a daily basis by the Finance Collections team as they
pursue receivable balances and facilitates conversations between USM Operations and individual
clients.
The Credit & Collections team stewards the collection efforts by facilitating the collections process
between the USM account managers and the end customer. This facilitation includes the weekly
distribution of aging reports to the USM Operations team who prepares the invoices and Account
Management, and communication with the customer with respect to open balances. It is the
Revision No: 0
© USM 2010
This document is the property of USM (TIN 23 2522463). This document must not be copied or
reproduced in any way whatsoever, and must not be passed on to any third party without the
written authority from USM.
Date: July, 2010
Page 2 of 5
USM
COLLECTIONS & CASH APPLICATION PROCEDURE
DOCUMENT No. TMP-8303-AD-0016
responsibility of both the Collections Dept. and Account Management to assess the methods of
collection efforts on a customer by customer basis. In general, the Collections Dept. contacts the A/P
department of the customer to request payment status. Escalations are handled on a case by case
basis with a consideration to the customer relationship. The Collections Staff handles all customers
with extreme care to avoid a customer satisfaction issue. The Account Management team is highly
relied on for this reason and ultimately responsible for resolving all collection related issues.
4.2
Resolving Receivable Balances.
4.2.1
General Receivable Balance Management.
The Finance Collections team “works” the
receivable balance in advance of the receivable balance coming due. On a day-to-day basis, the
Finance Collections team focuses “from right to left” in descending order. This process keeps the
team focused on the largest and most delinquent balances. At the same time, the team is focused on
balances in the “current column” that are coming due or will come due shortly, in order to collect these
balances in a timely manner. The Director of Accounting Operations also holds weekly meetings with
the Operations and Account Management team to review the current week’s aging report. These
meetings keep Finance and Operations up to date and help to keep open lines of communications on
an ongoing basis.
4.2.2
Past Due Balance Management. When a receivable balance becomes past due, the
Finance Collections team will make an initial contact to the customer’s accounts payable department
to request a payment status. If the Collections team does not receive an answer or if they learn that
there may be an issue, they will then notify the USM Account Manager to solicit their direct
involvement.
On a weekly basis, meetings are held to review the aging reports with the Credit Director and/or
Credit manager and Account Management teams from Operations. Those customers that were
identified as “high risk” are given first priority during these meetings but all past due balances are
discussed.
For high risk accounts with past due balances >31 days, depending on the materiality of the past due
amount, the Director of Accounting Operations notifies the Key Account Manager. A detailed aging
report for the high risk customer is emailed to the Key Account Manager along with any status
updates obtained by the Collections Specialist or other client relationship representatives involved in
the collection efforts. These accounts are handled on a case by case basis and recommendations
and plans of action are discussed.
4.3
Writing off Uncollected Balances (TMP-8303-AD-0027)
4.4
Cash Application Process
4.4.1
Process. On a daily basis, the A/R Manager logs into the Wachovia Website to view all
incoming wire payments from the previous day. An email is then sent to USM Wires (members of this
mailbox include the cash application specialist and the collections team) with a cc: to the G/L staff
accountants.) Generally, customers who send payments by wire will email the remittance detail to the
collection specialists and the cash application specialist. If remittance detail is not received the
collections team will contact the customer to obtain it.
Revision No: 0
© USM 2010
This document is the property of USM (TIN 23 2522463). This document must not be copied or
reproduced in any way whatsoever, and must not be passed on to any third party without the
written authority from USM.
Date: July, 2010
Page 3 of 5
USM
COLLECTIONS & CASH APPLICATION PROCEDURE
DOCUMENT No. TMP-8303-AD-0016
Customer credit card payments are also received by USM via wire by a third-party processing
company (Elavon).
On a daily basis, the Cash Application Specialist view all checks received in the lockbox and prints a
copy of the check and remittance detail.
Cash is then applie to the appropriate invoices.
4.4.2
Deductions. Partial payments and deductions are identified by the Cash Application
Specialist who provides the detail to the Credit Manager. The Credit Manager is tasked with
identifying trends with deductions, identifying abusive customers and minimizing the recurrences of
deductions by seeking the root causes. This is accomplished through the following critical success
factors:

Appropriate Reason Codes – once deductions are received they are identified by reason code
to facilitate corrective action.

Reason Codes include: PD (Pricing disrepancies), BE (Order entry/Billing error), DS (Disputed
Services), TD (Tax deduction), AD (Allowance/Discount), NC (Non-compliant to customer
requirements), OD (Other).

Timely Deduction Reporting – The Cash Application Specialist adds all deductions to the
Deduction Activity Report as they are identified. The customer and the amount are listed and,
if known immediately, the amount is properly coded. If the deduction reason is not known, the
Credit Manager will properly classify the deduction upon review.

As Deductions are resolved they are identified as Paid, Credited or written off.

All transactions are dated when identified and when resolved for tracking purposes and the
Director of Accounting Operations reviews Aged deductions on a monthly basis.

Effective Management of Customer Compliance Requirements – Most USM customers have
documented compliance and invoice routing requirements. For deductions taken due to a
failure to meet the customer’s requirements, it is the Credit Manager’s responsibility to
document the findings and work directly with the appropriate USM personnel and, if necessary,
customer to resolve.

Routine Cross-Functional Deduction Meetings – On a monthly basis the Director of Accounting
Operations reviews a Deduction Analysis by Type and Top 20 Deduction Problem Customers
which is prepared by the Credit Manager. Following this review, meetings are set up with
Level 4 Account Managers to discuss how to prevent and resolve deductions for their
customers.

Strong Customer Relationships – The Credit Manager is responsible for having a full
understanding of the customers’ billing requirements. When contacting the customer to
discuss chargebacks, the Credit Manager has performed the necessary due diligence to be
able to confirm the deduction is invalid and to clearly identify the validity of the original invoiced
amount.
4.4.3
Management Reports – The Director of Accounting Operations distributes a monthly
reporting package to USM Sr. Management, Account Management, VP and Directors of Operations
Revision No: 0
© USM 2010
This document is the property of USM (TIN 23 2522463). This document must not be copied or
reproduced in any way whatsoever, and must not be passed on to any third party without the
written authority from USM.
Date: July, 2010
Page 4 of 5
USM
COLLECTIONS & CASH APPLICATION PROCEDURE
DOCUMENT No. TMP-8303-AD-0016
and the Accounting Operations group that summarizes the performance and activities of the
Accounting Operations group for the month.
5.0
REFERENCE DOCUMENTATION
TMP-8303-AD-0027
Revision No: 0
Credit & A/R Reserves/Bad Debt Procedure
© USM 2010
This document is the property of USM (TIN 23 2522463). This document must not be copied or
reproduced in any way whatsoever, and must not be passed on to any third party without the
written authority from USM.
Date: July, 2010
Page 5 of 5