Management of Accounts Receivable
The management of accounts receivable is an essential component of financial management
and good business practice. Generally accepted accounting principles and internal control
standards establish the framework for an agency's accounts receivable system. Accounts
receivable are often a significant part of an agency's financial statements and will be
audited in its annual audit.
Each agency should establish an accounts receivable system to assure that all charges
are billed promptly and recorded accurately and that adequate collection efforts are made.
Agencies may find the list general criteria below for effective management of
accounts receivable useful when they are assessing their accounts receivable policy and
- Accuracy of Information: Each agency (a) should have an accurate count of who
owes the agency what amount of funds and (b) the subsidiary ledger of accounts receivable
should be updated on a timely basis.
- Policies and Procedures: Each agency should have written collections policies
and procedures which (a) comply with applicable federal and state requirements, (b) are
clear and understandable to all relevant parties, and (c) are likely to promote efficient
and effective collections.
- Compliance to Policies and Procedures: Each agency should document that (a)
policies and procedures are routinely followed and (b) departures from established
policies and procedures are infrequent and can be adequately explained according to
unanticipated, unique circumstances.
- Collections Priorities: Each agency should demonstrate that it has reasonable
collections priorities. In the event that resource limitations prevent exhaustive pursuit
of every account, the agency should establish and consistently follow reasonable
- Timely Actions: Each agency should have timeliness standards for action at each
step of the collections process which are reasonable and which are followed.
- Defining and Measuring Success: Each agency should have established
"benchmarks for success," or critical measures that the agency carefully tracks
to monitor its success in accurately establishing and collecting accounts receivables.
(e.g., percent of accounts meeting timeliness standards; trends in amounts collected as a
percent of total outstanding; average time taken to fully collect from accounts; amount
collected per dollars spent by the agency to collect from accounts; etc.)
- Self-Improvement: Each agency should demonstrate that it routinely reviews these
measures (and other relevant information, such as information on collection activities in
use or being experimented with by other agencies) to identify areas where improvements
could be made.
- Prevention: Each agency should review patterns in the number, type, and causes
of receivables as a means of identifying areas where the agency might pursue initiatives
to prevent over-payments to begin with.
- Contract Monitoring: If the agency contracts for collections services, it should
(a) clearly articulate enforceable standards of performance the contractor is expected to
achieve, (b) monitor whether contractor performance is satisfactory, and (c) act
appropriately according to the results of its monitoring efforts.
- Writing Off Receivables: Each agency should write off receivables only after
fully documenting that: (a) rigorous collection efforts were pursued, (b) all activities
were consistent with established policies and procedures, and (c) it is unlikely that the
benefits to be gained from continued pursuit of the account will meet or exceed the costs
of additional collections efforts.
- Accounts Receivable Reports: The agency should demonstrate that it maintains
effective and timely reports and communications with all parties that the agency needs to
work with in order to achieve its objectives.
Last Revised: May 30, 2014