Billing, Receivables and Bad Debt
Presented by:
Tanya Paul, Vanderbilt University
Zach Belton, Huron Consulting Group
Agenda
• Objective
• Define Accounts Receivable
• Typical Steps & Cycle Times for Accounts
Receivable
• Alternate Reasons for Outstanding Accounts
Receivable
• What Do You Do when Problems Occur???
• AR Scenario
Learning Objectives
• General understanding of key day-to-day
financial processes which are critical to the
successful management of accounts receivables
on sponsored programs to minimize deficits and
bad debts.
• Best practices for invoicing, cash management,
invoice follow-up procedures and managing bad
debts.
• Strong receivable aging process for collections
are necessary.
Accounts Receivable
What is Accounts Receivable?
• Accounts Receivable is one of a series of
accounting transactions that involve pursuing
the collection of payments from sponsoring
agencies for which costs were incurred or
services were performed on the funds.
What is the Objective of A/R?
• To get paid!
• Minimizing cash outstanding
• It involves:
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Creating and tracking invoices
Tracking collections activity
Running receivables reports
Following up on outstanding payments
Identifying potential risks to your institution’s cash stream
Identifying problematic or slow-paying sponsors
Attributes of Effective AR Management
• Having a clearly defined AR process
• Clear understanding of roles and responsibilities
• Central Offices
• Principal Investigators
• Department, Unit, or other
• Business Office Support Personnel
Identify AR
Items
Prepare Tracer
or Dunning
Letters
Send Letters
with a Copy to
PI/Dept.
Refer to
General
Counsel
Provide a Copy
to Director,
VPR, Dean,
• Provost, Deans, and Chairs
• VPR, VPFA, Controller, etc.
• Legal Office
• Organized and accessible documentation
• Escalation procedures
Where to Start?
• The typical trigger is month-end close, although the
AR process never truly starts and stops.
• At month-end, the individual(s) responsible for AR
follow-up run an AR aging report and begin to look
into invoices that are outstanding in a particular
date range. For example:
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Invoices < 60 days outstanding
Invoices between 61 and 90 days outstanding
Invoices between 91 and 120 days outstanding
Invoices between 121 and 180 days outstanding
Invoices over 180 days outstanding
Where to Start?
• Initial Steps (Analysis):
• Review status of open receivables
• Determine what type of receivable they are:
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Cost reimbursement invoices
Milestone payments
Schedule payments
Other
• Determine what information is already known or
collected about the receivable:
• Past collections efforts
• Information from the PI or department
Where to Start?
• Initial steps (Analysis):
• Create follow-up action plan for past-due balances
• Institute escalating follow-up actions, based on age of
outstanding payment.
• Inclusion of additional and increasing authorities on correspondence
• PI
• Department representatives
• Director
• Business manager
• VPR or Controller
• Provost
• Dean or Chair
• Legal
• Make sure to document all actions taken!!!!
Typical Steps & Cycle Times
for
Accounts Receivable
Invoices < 60 days outstanding
• Usually no action required at this time:
• Don’t panic
• At this point, outstanding invoices are not abnormal and
your time may be better spent focusing on older items or
other institutional priorities
• Consider the drain on your internal resources to pursue
outstanding items that may get paid regardless
• Consider what the normal pay times are for the sponsor in
question
Invoices between 61 – 90 days O/S
• Submit a second copy of the invoice
• Prepare and send a signed dunning letter with a copy
of the invoice attached
• Consider utilizing email as another easy and effective mode
of communication with the sponsor (invoice can be scanned
and included as an electronic attachment)
• Provide copies of all communications, along with the
invoice in question, to the applicable Department
Business Manager, PI, Grants Accountant, etc.
• File copies (e-version or hard copies) for future
reference
Invoices between 91 – 120 days O/S
• Call sponsor directly by telephone
• Document the conversation in the correspondence section
of the file, including:
Date and time of the conversation
The name of the individual you spoke to
The individual’s contact information
Reasons for the non-payment, if any other than a clerical error
Anticipated pay date, assuming the sponsor is not waiting for
additional information
• The agreed upon date for an follow-up action items
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• Send follow-up letter (via certified mail or FedEx) or
email (summarize the conversation)
Invoices between 91-120 days O/S
• Begin considering the future actions that may need to
be taken:
• Suspend or “freeze” the project (account/award)
• Slow down spending
• Coordinate with the department/unit to slow the rate of
spending, if possible, and if determined that the expenditures
may not be covered by the sponsor
• Determine if the PI/department would want to pursue legal
action
• The PI may be inclined to cover the outstanding balance rather
than pursue legal action against a collaborator’s institution
• Determine to what non-sponsored account/project
may be used to cover a future write-off
Invoices between 121-180 days O/S
• Escalate!
• Prepare a summary aging report for the sponsored
projects (post-award) Supervisor, Manager, or
Director
• Emphasize invoices that are 120 days or more overdue and
may require escalation to resolve
• Send follow-up dunning letter, signed by a supervisor
or manager
• The tone of the letter will change
• Legal consequences may be mentioned if the invoice is not
paid within a certain timeframe
Invoices over 180+ days O/S
• Escalate again!
• Include copies of correspondence history (letters and
telephone calls)
• Leadership will determine if the matter needs to be
referred to the legal office and/or if a bad debt
reserve needs to be established
• Alternatively, the department or unit may be made
responsible to cover the outstanding balance
• If matter is referred to the university’s legal office,
provide them with all documents including
correspondence history and detail summary
What Else???
Importance of Documentation
• It is critical to keep a thorough record of ALL
correspondence with a sponsor agency, including:
• Copies of invoices
• Including second or third follow-up invoices
• Copies of signed dunning letters
• Email correspondence
• Notes from telephone conversations
• Including names
• Contact information
• Dates
• Promised actions
• By both the institution/unit and sponsor
Consider Alternate Reasons
for the Outstanding A/R
Why is the Invoice Outstanding?
• When an invoice goes unpaid for an extended period
of time, there is usually a good explanation (in most
cases)
• One important component of a the AR process is
understanding what some of those reasons are so
that you can be better prepared to take immediate
action or design procedures to prevent these
instances from occurring in the first place
Possible Reasons for Past Due Invoices
• The invoice was rejected by the sponsor because the
invoice:
• Was issued in the wrong format, and/or had the wrong
dates of service or contract dates
• Was issued after the invoice due date, per the award
agreement
• Incurred expenses that were not according to budget, were
unapproved, inappropriate, or not sufficiently described
• Failed to provide financial backup data
• Billed expense exceeded the authorized budget
Possible Reasons for Past Due Invoices
• Other Reasons:
• Outstanding or incomplete deliverables
• (e.g., missing technical reports)
• Change of address or sponsor contact
• The sponsor could have disencumbered the funds
prematurely or closed the books on their end
• The sponsor could be insolvent or bankrupt
• If this is determined to be the case, spending should halt to avoid
further loss
• The payment was made by the sponsor, but misapplied
• Proof of payment should be obtained, e.g., the check or ACH date,
amount, check copy (front and back), and /or ACH copy
What Do You Do When
Problems Occur???
Overcoming Problems with AR Process
• Accessing data
• Determining when to send an item for collection or
legal action?
• When a write-off is required, determining what unit
is responsible for it?
• Should your institution establish a reserve?
• What you do when the sponsor refuses or is unable
to pay the invoice?
Questions for Discussion
• What are some of the root causes for AR
issues/problems faced at your institution?
• What are potential solutions?
AR Scenario
AR Scenario
• A $125,000 subcontract has been awarded to Dr. PI.
• The prime sponsor is NIH and the pass-through entity
is an institution where Dr. PI worked.
• There are two outstanding invoices totaling $75,000.
The oldest is 6 months and the most current is 4
months. No invoicing has been completed since,
though another $25,000 has been incurred since the
last invoice was issued.
• Follow-up letters have been sent, but have been
unsuccessful (so far).
• Three voice messages were left for the contact listed
in the file.
AR Scenario
• What approach would you take to resolve this AR
matter?
• What are some of the key issues to consider?
In Closing
• Summary
• Questions - ???
“Creditors have better memories than debtors”
--Benjamin Franklin