A Self-Examination of Your Credit and Accounts Receivable Operation

Attainment of goals and objectives of any credit operation are predicated upon the proper execution of specific administrative functions within the organization. To optimize the flow of work, a credit operation should be organized in such a manner that the entire company will receive maximum benefit from the varied talents and experiences of its members. The management of credit takes place at two principal levels: general policymaking and control; and day-to-day administration of the operation.


When valid, endorsed procedures are followed, they should provide a framework for consistent credit decisions directed towards attaining corporate objectives. The senior credit executive establishes these procedures with opinions from the heads of finance, treasury and sales/marketing. Among some of the administrative concerns to be considered are:

  • standards as they relate to the assignment of responsibility and the delegation of authority,
  • selling and credit terms,
  • the criteria that customers must meet to obtain credit within the terms and
  • the procedure to operate and measure the performance of the operation.

Other considerations may include the degree of automated processes, staffing requirements, technological requirements, and the management reporting system adopted to control the broad area of receivables portfolio management.

Senior credit executives may use the following checklist to gain a preliminary snapshot of their overall satisfaction with the condition of their own credit and accounts receivable function. The questions are structured to encourage concise responses, while at the same time, providing for an opportunity to recognize conditions or methods that could be reevaluated for improved performance.


Regardless of the technology employed by your organization, the following checklists are designed to evaluate the important procedures that may need improvement within the credit and accounts receivable function. Answers to the following questions will help you prepare a plan of action to keep your department in-check. This checklist is designed to promote awareness to situations that are too often overlooked or taken for granted particularly with the many distractions associated with managing a function in today’s business environment.

After you have responded to the checklist, you should prioritize the items that lack your satisfaction, to establish a short and long-range plan for improvement. Your responses to this checklist can assist you in the tedious task of establishing both short and long-range goals. This checklist intentionally avoids points relative to systems and technology and focuses more on procedures and methodologies, which are subject to your management and administration.

Rate each question for the level of satisfaction you would give it:

1, indicating not a problem 2, somewhat concerned 3, problem area

In the end, focus on the “low hanging fruit” – the three’s that can be accomplished easily with little cost, then work up a schedule (or set objectives) to improve the methods or performance in the remaining areas as required.

Analysis / Inquiry 1,2,3 Comments
1) Are you satisfied with the timeliness of credit decisions made in your organization?
2) Do guidelines specify the types and sources of credit information to obtain on prospective customers and routine, ongoing credit reviews?
3) Are the methods for evaluating credit information and making credit decisions reasonable and consistently applied?
4) Are adequate precautions in place to ensure consistent credit limit decisions with an appropriate level of approval?
5) Are there adequate safeguards in place to ensure customers are staying within established credit guidelines?
6) Has proper training resulted in a qualified staff to offer the most appropriate alternatives to open account credit terms when the situation warrants? E.g. letter of credit, guarantee, security agreement, etc.
7) Are all security documents (instruments) kept in a secure environment, easily retrievable and properly executed?
8) Are you satisfied with the levels of ratio and cash flow analysis performed at the customer or portfolio segment level?
9) Are you satisfied with your procedures for analyzing customers:
a) ratios vs. industry norms
b) comparative financial statements
a ____
b ____
10) Are the results of a customer’s financial analysis easily retrievable and clearly documented?
11) Are you satisfied with the procedures in place that promptly notify customers of credit decisions that may affect purchasing limits?
12) Are you satisfied with the level of customer visits performed by the credit personnel?
13) Are you satisfied with the level of acceptance or rejection of new customers?
14) Are you satisfied that your credit application is periodically reviewed for content and is easily understood?
15) Are all credit applications properly executed and easily retrievable?
16) Are you satisfied with the level of participation your credit operation gives in developing sales leads for your company
17) Are you satisfied with your organization’s ability to collect its receivables?
18) Is there a clearly defined process for collecting past due accounts?
19) Are you satisfied with the vigilance of collection activities?
20) Is there a satisfactory process in place for monitoring and evaluating the performance of third party collection activities? E.g. collection agencies and attorneys.
21) Are you satisfied with your organization’s ability to monitor deduction problems?
22) Do your receive the required support to resolve deductions on a timely basis?
23) Is the resolution of remittance exceptions (deductions and adjustments) handled in a timely and accurate manner?
24) Are you comfortable with the levels of write-off approval among your staff regarding resolution of remittance exceptions (deductions and adjustments)?
25) Are automatic write-off levels adequately set relative to the product line price; and are these levels reviewed periodically?
26) Is there appropriate security in place for the offering and acceptance of settlements and write-offs of invoices?
27) Are you satisfied with your company’s ability to process invoices accurately?
28) Are you satisfied with the accuracy and timeliness of your accounts receivable processing (cash application)?
29) Are standard terms documented and clearly stated on invoices?
30) Are sales terms (including procedures for handling requests for special credit terms e.g. extra dating) reasonable when compared to the general market, and are the requests clearly documented?
31) If your company offers early payment discounts, do you periodically consider the costs of such discounts?
32) Are you satisfied with the overall timeliness of your company’s invoicing?
33) If your company assesses late payment penalties, do the benefits appear to exceed the costs of calculating, billing and collecting the assessment?
34) Are you monitoring and comparing transaction level performance?
a) # of active customers per analyst
b) # of customers per collector
c) # of invoices per collector
d) # of invoices per cash applier
e) # of checks received per cash applier
f) # of deductions created per # of invoices
g) # of invoices per customer
a ____
b ____
c ____
d ____
e ____
f ____
g ____
35) Do you prepare reports (monthly or quarterly) that monitor the performance of the credit and accounts receivable functions by regularly analyzing key data compared to industry statistics and your previous results.
36) Are you satisfied with the reports detailing the condition of the receivables that are prepared routinely and sent to senior management
37) Do monthly reports explain the dollar impact on cash flow and related interest costs when accounts receivable turnover is above or below expectations?
38) If monthly sales fluctuate significantly, has the method for computing accounts receivable turnover (DSO, ADD, BPDSO, etc) been modified to improve their accuracy and consistency?
39) Do your reports compare the information to preceding periods and planned or targeted results?
40) Are you satisfied with the timeliness of responding to complaints about the credit function from:
a) customers
b) salespeople
c) management
a ____
b ____
c ____
41) Are you satisfied with the perception of the credit function from:
a) customers
b) salespeople
c) management
a ____
b ____
c ____
42) Are you satisfied with the controls in place to ensure competent customer monitoring?
43) Are you satisfied with the order controls to ensure customers are staying within their purchasing limits
44) Are you satisfied with the level of training provided for:
a) customer financial analysis
b) collection
c) secured transactions
d) leadership
e) conflict resolution (disputes)
f) legal matters (bankruptcy & insolvency)
a ____
b ____
c ____
d ____
e ____
f ____
45) Are you comfortable with the level of input from other key areas of the company into your credit and collection policies?
46) Do written policies & procedures fittingly cover:
a) your mission,
b) your goals,
c) responsibilities,
d) methods of operational evaluation,
e) credit terms,
f) collection activities and
g) credit extension guidelines.
a ____
b ____
c ____
d ____
e ____
f ____
g ____
47) Are the policies and procedures routinely revised to coincide with changing business conditions?
48) Are you adequately informed about your company’s state of affairs and changing business conditions?
49) Have you considered classifying customers into categories and tailoring policy and procedures for each category to ensure that the costs of the policies and procedures match the benefits? These classifications could be based on categories such as:
a) risk
b) sales volume
c) geography
d) sales territory
e) product line
f) divisional responsibilities
a ____
b ____
c ____
d ____
e ____
f ____
50) Is it clearly understood to sales personnel who has their corresponding customer responsibility in the credit operation?
51) Are you comfortable that your company (in particular your credit practices) do(es) not violate anti-trust laws such as the Robinson-Patman Act?

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