Management of Accounts Receivable
(Previously published in the Financial Management Manual Item
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 attached list of general criteria for effective management of
accounts receivable useful when they are assessing their accounts receivable policy and
MANAGEMENT OF ACCOUNTS RECEIVABLE
1. 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
2. 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.
3. 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.
4. 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 collection priorities.
5. Timely Actions
Each agency should have timeliness standards for action at each step of the collections
process which are reasonable and which are followed.
6. 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.)
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.
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.
9. 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.
10. 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
11. 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
Last Revised: July 12, 2010