TEMPLATE Credit Policy and related SOPs PDF (1)

XXX Ltd..- Credit Dept. Credit Process: Policy & Procedure 29/04/2015

Version 1.0 : Prepared by: Peter Joseph. Date of Release : 15th January 2015 Page 1

CREDIT CONTROL: POLICY & PROCEDURE



Credit Process: Policy & Procedure Index

1. XYZ LTD. a Corporate Overview ( Pg#: 03) 2. XYZ LTD. Business Summary ( Pg#: 12) 3. Role of Credit Control Function ( Pg#: 12) 4. Existing Customer’s Master Creation ( Pg#: 13) 5. Existing Legal Cases Master ( Pg#: 13) 6. Customer Acquisition and Registration ( Pg#: 14) 7. Credit Rating and Credit limit setting ( Pg#: 17) 8. Order Vetting ( Pg#: 30) 9. Invoicing ( Pg#: 30)

10. Issuance of Corrective Notes ( Pg#: 31) 11. Collection Target Setting ( Pg#: 33) 12. DSO Target Setting and application ( Pg#: 35) 13. Collection forecasting ( Pg#: 34) 14. CASH Flow forecasting ( Pg#: 36) 15. Collection Follow up and Dunning Letters ( Pg#: 37)

16. Receipt Accounting ( Pg#: 42) 17. Allocation of Receipts ( Pg#: 46) 18. Transfer of cases to Legal Dept. ( Pg#: 46)

19. Blocking / Blacklisting ( Pg#: 46) 20. Bad Debt provisioning ( Pg#: 47)

21. Write off of provided debts ( Pg#: 47) 22. Trade credit insurance ( Pg#: 47) 23. Incentive scheme ( Pg#: 49)

24. Factoring / ( Pg#: 49)

25. Balance confirmation ( Pg#: 49) 26. Receipt analysis ( Pg#: 49)

27. Cheque return ( Pg#: 49) 28. FAQ ( Pg#: 52)



XYZ LTD. a Corporate Overview



Credit Process: Policy & Procedure



XYZ LTD.’s Current Business Summary:

XYZ LTD. is currently one among the select few organizations in India to be directly involved in the

Research, Development, Manufacturing, Marketing and Sales of High quality stents in India

The Manufacturing facilities are currently located in ___ near _______, State of _____ , India.

There is reasonably good demand for XYZ LTD.’s products in the Indian and overseas market.

The Sales of XYZ LTD.’s manufactured goods are conducted through the following Sales Channel:

1. Distributor / Dealer

2. Consignee Sales (Direct to _______) 3. Agency Sales

The Revenue for FY 2013-14 is valued close to ________ crores

The standard credit that these channels enjoy from XYZ LTD. is around 90 days

The Distributor channel’s recovery of outstanding is relatively hovering around 90 days post date of invoice

The challenge today is to recover the outstanding generated vide the Direct / Consignee channel within

the agreed 90 day

The 90 day cycle too is stretched considering the working capital pressure that is generated with a

company as complex as XYZ LTD. with its involvement in R&D, Manufacturing, Marketing and Selling

The role of the credit control and collections function is to:

1. Create an awareness of the importance to collecting outstanding to all stake holders involved in

the Finance, Sales, Operation and associated Support functions (viz. HR etc.)

2. To create simple business friendly tools whereby the quality of XYZ LTD.’s customer base (w.r.t

collection efficiency) is improved in a participative, structured and progressive manner

3. To garner the support and positive participation from the sales and marketing function

4. To reduce the DSO (Days of Sales Outstanding) to match the targeted DPO of XYZ LTD.

5. To identify commercial risks in advance and suggest / implement mitigation



Existing Customer database development:

There need to be a standard format of CUSTOMER MASTER bearing the following details:

1. Customer Name

2. Registered office address 3. Business office address

4. Shipping / Delivery address 5. Customer category (corporate/government/private limited company/partnership/proprietorship)

6. Principal officers / directors / partners / proprietor of the customer

7. Channel in with the customer is associated with XYZ LTD. 8. Credit limit allocated to the customer

9. Credit tenor allocated to the customer 10. TOP (Terms of payment) agreed upon

11. Actual payment days taken by the customer on an average to pay XYZ LTD. 12. Status of Agreement entered between the customer and XYZ LTD.

13. The expiry of this agreement

14. Collateral held for this customer in terms of Bank Guarantee and security cheques 15. Expiry dates of these collaterals

16. Contact persons of this customer in their Purchase / Stores / Finance 17. Contact numbers (both landline and Cellular) and email IDs of these above mentioned contact

persons 18. DSO of this customer in the last quarter

19. Legal cases if any with the customer

20. Current AR balance of this customer updated on periodic intervals (monthly suggested)

Existing Legal Cases with XYZ LTD. Customers :

There need to be a standard template / format of LEGAL CASES with XYZ LTD. CUSTOMERs bearing the

following details:

1. Name of the customer

2. Type of case filed (Sec138 NI Act / Winding up petition / Summary suit etc.)

3. Case filed in which court (Name, number and Address of the court) 4. The sitting judge / magistrate’s name

5. The judicial clerk’s name and contact terminals 6. The police station’s address in with the case is under judicature

7. The stage of case (filing of vakalatnama, Summons, Bail able warrant, Non bail able warrant, argument, cross examination, settlement vide Lok Adalat etc

8. Delivery and service Status of summons and warrants

9. The next date on which the board is to be published for hearing 10. Advocate’s name and contact terminals

11. Fees involved in the case 12. Other costs involved in the case (travelling, boarding, TPC etc.)

13. Outcome of the case / Judgment /verdict

14. Appeal status (in case we are going for an appeal) 15. The document details and when sent / served (retuned cheque, notice under Sec 138 NI Act

etc.) 16. Sales personnel servicing the customer’s account



1.0 Customer Acquisition / Acquirement:

(Customer Registration / K.Y.C – Know your Customer Form )

1.01 All prospective Customers that initiates business with XYZ LIMITED shall need to fill in

the “CUSTOMER REGISTRATION FORM” / K.Y.C before the customer’s purchase order is processed

1.02 In case there is a month end situation wherein due to the volume it becomes non

feasible complete process indicated in 1.01, then the same shall be done within the 1st week of the succeeding month.

1.03 Even if the business prospect with the Customer is just a ‘one time’ one; the one page

“CUSTOMER REGISTRATION FORM” has to be filled.

1.04 This form has to be proposed by the XYZ LTD. Sales / Marketing Personnel, approved for

proposal by the XYZ LTD. Sales / Marketing Personnel Head, reviewed by the Credit manager and approved for registration by the CFO

1.05 It is MANDATORY to have following documents / information in case we are extending

credit to the Customer:

o Last 3 years Audited Financial Results

o Address Proof (MOM /AOA) and Latest Government Utility Bill (MTNL / BSES…) o PAN card

o TIN o VAT Registration Certificate

o Drug License

o Distributor / Dealer / Agency / Consignment Agreement o Contract performance Bank Guarantee equivalent to the credit exposure

intended OR o Post dated Security cheques 3 numbers duly filled in all respects valued at the

credit exposure intended o Declaration of any pending cases where the prospective customer is involved

Note of caution : Please do not take any blank cheques as keeping blank cheques as a collateral,

indicating the same in the agreement and subsequent banking of these blank cheques with details regarding amount, date and favoring to written by XYZ LTD. may attract

provisions of IrPc (Refer FAQ for case precedents on this matter)

1.06 The Credit Control Manager shall use his discretion to speak to the prospective customer

based on the information provided by the XYZ LTD. Sales / Marketing Personnel’s vide the “CUSTOMER REGISTRATION FORM”.

1.07 Only post completion of the activity mentioned in 1.04 and 1.05 The “CUSTOMER REGISTRATION FORM” shall be handed over to the HO Finance Team for opening of

Customer Account.



SPECIMEN 1: Credit Registration Form:

XYZ Ltd.

Customer Registration Form

(To be filled by FINANCE)

Customer Code :

SAP code No.:

A/c. opening Dt.

A/c. opened by

Client Information (to be filled online by Sales / Marketing personnel)

Requisitioning CHANNEL ( Pls. use drop down)

Distributorsh

ip

Client Business Category ( Pls. use drop down)

Private

Sector Pvt.

Ltd. Co. Work order / Quote status ( Pls. use drop down)

Tender / Work order Received

Prospective Client Name Blue Star Ltd. Registered Office Address Blue Star House, Saki Naka, Andheri - East State : Maharashtra City : Mumbai

Pin code : 400 054 Landline : 022 - 40037445 Fax:022-28784141

Billing and Correspondence Address Blue Star Ltd. Blue Star House, Saki Naka, Andheri - East State : Maharashtra City : Mumbai

Pin code : 400 054 Landline : 022 - 40037445 Fax:022-28784141

Email ID : [email protected] Contact Person Details

Name & Dept.: Mr. Harsha Pandit

Dept.

Procurement (2nd Floor)

Address: Blue Star House, Saki Naka, Andheri - East State : Maharashtra City : Mumbai

Pin code : 400 054 Landline : 022 - 40037445 Ext. 2342

Fax:022-28784141

Cellular No. OR other personal contact details : 09240187836

Email ID : [email protected]; [email protected]

Designation : Manager - Projects (Mumbai Metro project)



Existing Customer : with sister concern / Associate

concerns Details

Name & Previous A/c code: 1600C00226

Outstanding Amt. INR: 1,25,456

Age of A.R : 2 yrs and 8 months

Expected date of collecting the existing O/s. :

The major portion of O/s. pertains to TDS shall be collected by SEP09

CREDIT REQUEST

(Days) 90

CREDIT GRANTED (Days)

(Value Rs.) 25,00,000 (Value)

Next Review

Weekly

Monthly

Quartley

Semi Quartley

Annually

Statutory Registration information

Particulars Regn No

Regn Location Eff. Date

Remarks / Values in crores

Sales Tax : Central & Local

Tax Identification Number (TIN)

PAN No.

Total Purchases as on 31.03.09 (MANDATORY)

578 crores

Total Creditors as on 31.03.09 (MANDATORY)

82 crores

Facilities enjoyed with Banker

Name of Bank

ICICI Bank Ltd.

Branch The Bandra Kurla Branch

Account No. 12753112553 Vendor regn. For RTGS / NEFT remmittances (EMPANELMENT STATUS) NO CC (Value in INR) 15,00,000.00

OD (Value in INR) 17,00,000.00

Payment behaviour of customer

Settle's account before the time.

Pay's on reminding

Pay's in time X

Habitually delaying or postponing.

Requesting Channel : Industrial

Requesting Location : Bangalore, Karnataka

Requesting SBU :

Signature



Prepared By Business Head

Head Credit Control

CFO

Names: Peter Joseph

Notes:

Comments by FINANCE: The DPO is very good i.e : 52 days; the sector needs to shrink the credit requested to 30 day The OD & CC limits enjoyed by the customer seems very low in comparision with the volume of business; hence there is a roubust recovery system and sales are also good W.C is well managed and hence has good cash flow COMPARATIVE BALANCE SHEET DETAILS (for previous 3 y ears) TO BE AVAILED FOR BETTER ANALYSIS (pls. refer te mplate)

2.0 Credit Rating and limits (Days & Value)

2.01 The company offers credit facility to some of our valued and selected Customers and they are expected

to make the payments within the stipulated period for the services rendered.

2.01.0 The credit limit for existing Customers is determined in the following manner Credit limit (value) = 60 days of Annual Turnover (Annual revenue last period / 365) x 60

days

Credit limit (days) = Max 15% of credit limit can exceed 90 days (No invoice shall be outstanding more than 150 days, else the customer account shall be blocked for further invoicing, till the time the customer effects payment)

Post activation of credit limit, as a practice Credit Manager will review the form and in need of clarification Credit Manager will speak to the Business Director / XYZ LTD. Sales / Marketing Personnel

Head

For prospective Customers:

Prospective customer profiling using the following techniques:

1. Customer Registration Form (Know your Customer / Customer empanelment)

2. Trade Reference Form and Banker’s Reference form



SPECIMEN : BANK REFERENCE FORM: Template for Review:

Bank Reference Sample Document from Credit Guru ABC Bank [Your Bank]

Branch #:

Address

Please respond within 48 hrs and return completed form to:[Your Name, Phone and Fax number]

XYZ Bank: [Customer's Bank] Address: Phone No: Fax No: Account No: Tr No: Company Name: [Customer's Name] Address: Requesting Client Name: [Your Name] Address: We require information in confidence on your customer indicated above. Please check the appropriate boxes below and return to our branch.

Not authorized to Respond No Record Account Closed Non Borrowing Account Account Open For: Under 1 Year 1-3 Years Over 3 Years Operating Loans: Secured Unsecured

Authorized Limits: Low Medium High 4 figure 5 figure 6 figure 7 figure 8 figure

Now Owes : Low Medium High 4 figure 5 figure 6 figure 7 figure 8 figure

Term Loans: Secured Unsecured

Authorized Limits: Low Medium High 4 figure 5 figure 6 figure 7 figure 8 figure

Now Owes : Low Medium High 4 figure 5 figure 6 figure 7 figure 8 figure

Average Balance: Deposit Accounts Low Medium High 4 figure 5 figure 6 figure 7 figure 8 figure

NSF Activity [last 3 months] No Record None Infrequent (less than 3) Frequent (more than 3)

Repayment History:

Previous (31- 365 days) As Agreed : Yes No

Current (last 30 days) Up to Date : Yes No

The information in this report is confidential and may not be disclosed to any other person other than the requesting bank and the requesting client. Neither the responding bank nor the requesting bank or any of their employees assumes any responsibility for the accuracy and completeness of the information in this report. Any person relying on this information does so entirely at their own risk. The requesting client indemnifies and saves harmless both banks and their employees and the requesting bank, if requesting the report for its own uses, indemnifies and saves harmless the responding bank and its employees from any liability incurred as a result of this report. Receipt of this information constitutes agreement to the above. Date: ____________________________

AuthorizedOfficer:______________________



SPECIMEN : TRADE REFERENCE FORM : Template for Review:

Credit Reference: Sample Document from Credit Guru STRICTLY CONFIDENTIAL

Date: To, Name of the company providing the Credit Reference

Please respond within 48 hrs and return completed form to:[Your Name, Phone and Fax number Email]

We require information in confidence on the following referenced customer. Please check the appropriate boxes below and return to

our office: Company Name: [Customer's Name on whom the Reference check is being done] Address: Requesting Client Name: [Your Name] Address: We require information in confidence on the above referenced customer. Please check the appropriate boxes below and return to our branch.

Not authorized to Respond No Record Account Closed Non Active Account Active Account Doing Business For: Under 1 Year 1-3 Years Over 3 Years Credit Limit in the past 1 year has: Increased Decreased Remained the same 3 figure 4 figure 5 figure 6 figure 7 figure

High Credit given: $_______________________________________________________________________________________

Low Credit given: $_______________________________________________________________________________________

Current Outstanding: $_______________________________________________________________________________________

Amount Overdue: $_______________________________________________________________________________________

Payment Terms: _______________________________________________________________________________________

Average Payment Performance: _______________________________________________________________________________________

Industry Your Company belongs to: _____________________________________________ SIC Code: _______________________________

Any other Comments:

The information in this report is confidential and may not be disclosed to any other person other than the requesting client. Neither the responding party nor the requesting party or any of their employees assumes any responsibility for the accuracy and completeness of the information in this report. The requesting client indemnifies and saves harmless the responding party and their employees from any liability incurred as a result of this report. Receipt of this information constitutes agreement to the above. Name: Title: Date: Signature:



3. Ratio Analysis

CUSTOMER CODE:

COMPANY NAME CITY STATE

Paras PVC Pipes & Fittings

CONTACT IN A/P : EMAIL:

DATE OF INCORPORATION BUSINESS: CIN NO. (For Private

& Public Limited Co.)

CONSTITUTION GROUP COMPANIES:

Private Limited Company

Rs. In

Lacs

Financial Statement Date 31.03.2012

31.03.2

011

% Change

YOY

TOTAL CURRENT ASSETS

998

1,013 -1%

TOTAL CURRENT LIABILITIES

529

659 -20%

WORKING CAPITAL

469

354 32%

LONG TERM LIABILITIES

194

117 66%

INVENTORIES

340

448 -24%

RECEIVABLE

451

368 23%

PAYABLE

272

373 -27%

CURRENT RATIO 1.89 1.54

QUICK RATIO 1.24 0.86

AVG. COLLECTION PERIOD (DAYS) 43 42

AVG. PAYMENT PERIOD (DAYS)

33

47

INVENTORY TURN OVER (DAYS) 40 60

YEARLY SALES

3,788

3,188 19%

MONTHLY SALES 316 266 19%

COST OF SALES

3,094

2,706 14%

YEARLY PURCHASES

2,994

2,863

GROSS PROFIT 44%



694 482

NET PROFIT

42

58 -28%

DEPRECIATION

37

38

CASH PROFIT

79

96 -18%

GP % 18.3% 15.1%

NP % 1.1% 1.8%

NET WORTH

610

568 7%

TOTAL LIABILITIES

723

776 -7%

NET WORTH/TOTAL LIABILITIES 84% 73% 15%

Key Points:

(Rs. In

Lacs)

Turnover Method

7% of

Turnover

265

223

Net Worth Method

25% of Net

Worth

153

142

Net Working Capital Method 25% of NWC

117

89

Gross Profit Method 50% of GP

347

241

Recommendation:



Ratio

Analysis of

ABC Ltd.

Year 2013-14

Value in INR

Sales

5,88,95,600

Debtors

10,88,638

Purchases

5,78,26,150

Creditors

7,56,231

Stock/Inven

tory

1,57,73,200

COS(Op.Stk

+Pur-

Cl.Stk.)

5,30,37,535

Current

Assets

1,69,72,021

Current

Liabilities

1,45,59,685

Quick

Assets

11,98,821

Gross Profit

54,63,505

Average

Sales

1,61,358

DSO

7

Recove

ry

Cycle is

Good,

we can

reduce

credit

tenor

to 30

days

Average



Purchases 1,58,428

DPO

5

Average

COS

1,45,308

DIO

109

Very

high

Invento

ry

Holdin

g

CCC(DIO+D

SO-DPO)

111

Quick Ratio

0.08

Very

Poor

(CAN

RUN

INTO

FINANC

IAL

CASH

CRUNC

H)

Current

Ratio

1.17 OK

Debtors

Turnover

54

Inventory

Turnover

3.73

only 4

times

churn

of

invento

ry per

year

(low)

Net

Working

Capital

24,12,336 CA-CL

Net Worth 31,75,699

Capital

+

Reserv

es &

Surplus



Credit Limit

as 25% of

NWC

6,03,084

Credit Limit

as 25% of

NW

7,93,925

Credit Limit

as 3% of

Sales

17,66,868

Credit Limit

as 25% of

GP

13,65,876

Bank Fund

Operations

:

Credit Limit

sanctioned

by BOB

1,20,00,000

Credit

Turnover of

Limit with

BOB

2,12,57,000

Debit

Turnover of

Limit with

BOB

2,18,80,000

Exposure to

CC Limit

6,23,000

% of

Exposure to

CC Limit

5.19 %



(Co Name) Customer Code:

Customer Name: Location: Contact Person in A/P: Email:

Date Established: Nature of Business:

Ownership: Others:

FIN. STAT. DATE 31/03/2010

Current Assets = Total Current Assets Current Liabilities = Total Current Liabilities Working Capital = Total Current Assets - Total Current Liabilities Long Terms Liabilities = Long term Liabilities Inventories = Inventories A/R = A/R A/P = A/P Ac. Collection Period (Days) = (AR*360)/Yearly Sales Av. Payment Period (Days) = (AP*360)/Yearly Purchases Inventory Turnover (Days) = Cost of Sales / Inventory x 360 Yearly Sales = Total Sales Monthly Sales = Yearly Sales / 12

Cost of Sales / Cost of Goods Sold = Op. Stock + Purchases - Clo.Stock (or) Sales - G.P.

Yearly Purchases = Cost of Goods Sold + Clo. Stock - Op. Stock GP% = Gross Profit / Yearly Sales (%) NP% = Net Profit / Yearly Sales (%) Net Worth = Capital + Reserves & Surplus

25 % of Net Worth = 25 % of Net Worth (C/L generally not to exceed this figure)

Total Liabilities = Long Term Liabilities + Current Liabilities Net Worth / Total Liabilities = Net Worth / Total Liabilities (%)

Today's Date:



Credit Scoring Model-Details of Parameters and respective weightage

Parameters

Business Score Weightage

1 Business in Existence (In Years) Minimum 10 years 10 5%

Minimum 6 years 7

Minimum 3 years 4

Less than 3 years 2

2 Business Premises Owned 10 5%

Rented 5

Security

3

Post Dated Cheque/Filled in Security Cheque /

Bank Guarantee Available 10 15%

Not available 0

Management

4 Constitution Limited Co. 10 5%

Private Limited Co. 8

Partnership 6

Proprietorship 4

HUF 2

5 Trader Reference Excellent 10 17.50%

Good 7

Average 4

6 Market Reference Excellent 10 7.50%

Good 7

Average 4

Financials

6 Financial Analysis Good Financials 10 25%

Moderate

Financials 6

Weak Financials 2

No Financials 0

Past History

7 Business relationship with XYZ LTD. (In Years) Minimum 5 years 10 5%

Minimum 3 years 7

Minimum 2 years 5

Less than 2 years 3

New Customer 0

8 Past Payment Track



On Due Date Excellent 10 10%

Due date+Grace Period Good 7

Due date+Grace Period+5 days Average 4

More than above Bad 0

New Customer 0

Industry

Outlook

9 Industry outlook Excellent 10 5%

Good 7

Average 4

FILE NO:

COMPANY NAME CUSTOMER CODE:

ABC LTD 116091

STATE CITY

Parameters Score

Weight

age

Weightage

Score

Business in Existence (In Years) Minimum 10 years 10 5.00% 0.5

Business Premises Owned 10 5.00% 0.5

Post Dated Cheque/Security Cheque Available 10 15.00% 1.5

Constitution Private Limited Co. 8 5.00% 0.4

Trader Reference Good 10 17.50% 1.75

Market Reference Good 10 7.50% 0.75

Financial Analysis No Financials 6 25.00% 1.5

Business relationship with OPPL (In Years) New Customer 10 5.00% 0.5

Past Payment Track New Customer 7 10.00% 0.7

Industry outlook Average 10 5.00% 0.5

91 100.00% 8.6

Credit Limit Assigned (In Lacs)



FINANCIAL RATIOS THAT NEEDS CONFRIMATION:

a. Quick Ratio = >1.0 b. Cash Conversion Cycle = DIO+DSO-DPO should be < 50

c. DSO of the prospect d. DPO of the prospect

e. AP to Sales ratio = not more than 20%

f. Stock turnover ratio should be at least 5 times

Risk categorization (Rating):

Customer registration form is mandatory Customer categorization is based on:

- Rating done by credit rating agency(Coface, TCM)

- Customer registration details

Based on financials and credit rating agency feed back all prospective Customers will be given a gradation / status.

There shall be 4 categories of Customer gradation/ status:

Excellent

Good Moderate

Poor

Credit limit offered to Customer shall be based on its category

CONTRACTUAL AGREEMENTS WITH PROSPECTIVE CUSTOMERS: There are THREE channels of Sales that XYZ LTD. engages in. These are broadly categorized as

under:

1. Distributor Channel 2. Agency Channel as Direct Sales HUB ( for better managing the Consignee Sales business)

3. Consignment Sales Channel

For each of these Channel Partners there needs to be a contractual agreement. The Distributor channel partner and the Agency Sales partner needs to enter into a contractual agreement on

judicial stamp paper

The Consignment Sales partner needs to enter into a formal signing off of product delivery, stacking

and invoicing protocol / norms.

The standard templates for these agreements / protocol forms are produced below. Any deviation from the standard TERMS and CONDITIONS in these forms will require a prior sanction in writing

from the CEO

STANDARD TEMPLATE FOR DISTRIBUTOR AGGREMENT:

STANDARD TEMPLATE FOR AGENT (as a HUB for Consignee Business / Sales):

STANDARD TEMPLATE FOR CONSIGNEE BUSINESS:



Basic credit rule:

2.01.01 The company offers 60 days credit from the date of invoice against

post- dated cheques (only to few customers). This facility is for the selected Customers & will be continued to Customers who strictly adhere

to the norms set. No deviation on this is allowed.

2.01.02 In case of new Customer, the first three transactions will be done

against current dated cheques from a nationalized bank or a demand

draft from any bank. For future transactions, the Business Head will take

a decision.

2.01.03 On completion of 60 days credit, the post-dated cheques will be

presented to the bank without any recourse to the Customer in this matter.

2.01.04 The company reserves the right to initiate legal action in case of cheques

bouncing under section 138 of negotiable instruments act & section 420 of the Indian Penal Code.

2.01.05 An amount of Rs.500 will be debited & recovered along with other costs if involved over & above an interest of 18% will be debited to the

Customers account & recovered from the date of cheques till actual date of recovery.

2.01.06 Fresh supplies will not be provided in cases where overdue outstanding

are not cleared or in cases where the outstandings are exceeding the

allotted credit limits, which will be fixed on the basis of business planned

For all orders wherein credit is to be extended and the value of such credit extended is greater than INR1,00,000 the value and no. of days of credit has to be indicated. The

same shall be jointly approved by the CEO and the HEAD FIN.

The above shall be in addition to the complying of process mentioned under section

1.0 above.

2.02 Existing / Prospective Customers that have an AR balance OR whose sister concern has an existing AR balance with XYZ LTD. shall need to have the credit control manager’s vetting of the

order and also a prior approval from the AGM - Finance & Accounts before the XYZ LTD. Sales / Marketing Personnel accepts the order (This is being taken care by the Customer Registration

form).

2.03.1 Existing Customers who have an overdue outstanding in a particular XYZ LTD. Sales / Marketing

CHANNEL and places an order in a different XYZ LTD. Sales / Marketing CHANNEL, the customer shall have to clear the existing outstanding first and only then the PO shall be accepted.

The exceptions to this would need the prior approval from the XYZ LTD. Sales / Marketing

CHANNEL Head in whose CHANNEL there is a current overdue outstanding; jointly with the AGM -

Finance & Accounts.



3.0 Order vetting by Finance (Credit control): set order value cutoffs

3.01 All Customer orders valued above INR_____ on credit basis shall need the credit control

manager’s review and sign off before the same is accepted.

The noting of the Head Credit in the “Customer Registration Form” shall be forwarded

as a foot note for the CFO & Account’s approval

3.03 All Tenders needs to be commercially and legally reviewed by the credit control team and the Tender conditions have to be plotted in a Tender Term sheet vetting model. The

risks involved in such tender conditions needs to be highlighted and mitigation methods’ needs to be suggested.

3.04 The tender risk and suggested mitigation tools shall be reviewed by the CFO and will

need the approval of the CEO prior to bid

3.05 A draft Tender term sheet vetting model in the lines of FIDIC contact is attached which encompasses all possible legal / commercial clauses

4.0 Invoicing

4.01 The prerequisites for Invoicing are as listed below:

1. Written Order / Formal Purchase Order

This should have a clear indicator as to who is the Customer and who is the

supplier

The products requisitioned with a clear product description and quantity is a pre-requisite

Verbal orders are NOT to be processed

2. Supply Offer / Quotation

This should be offered to the Customer

The offer should also mention clearly on whom to raise the invoice and also it

should state clearly from whom the payments to be recovered (This information is mandatory and is not being currently followed by the XYZ LTD. Sales /

Marketing Personnel’s).

3 Acceptance from the prospective Customer

The offer should be formally accepted by the prospect

3. Delivery Challan

This is a mandatory requirement for all dispatches whether FOC or Value invoiced

Person responsible for invoicing at locations shall ensure that the above documents / process is

followed and only post following the process the invoice be generated.



Invoicing (Process):

Currently, the deliveries to Distributors are auto generated on the basis of appropriate delivery

challan and subsequent invoicing

With respect to Agency invoicing and Consignee Sales / Consumption these data are relayed to the HO (Finance Department : __________) by the sales personnel / Sales Agent.

This transmission of kardex / stock consumption for a billing cycle ( having monthly rests :

beginning from the 1st calendar day of each month to the last calendar day of each month) is transmitted to HO Finance team by the Field staff from the 1st working day of the SUBSEQUENT

month till the 7th working day of the SUBSEQUENT month

This span of 7 working days needs to be shrunk and all kardex consumption details should reach

HO Finance latest by the 2nd WORKING DAY of the subsequent month.

THERE SHALL BE NO EXCEPTIONS TO THIS RULE

On receipt of these consumption details HO Finance shall generate appropriate invoices and generate the sales data for the preceding month and share these with Credit department on the

3rd working day by EOD (End of the 3rd working day)

This process will be followed so long as a robust kardex and invoicing software is installed which

ideally would be a web based software that can be operated directly by the field staff from the

operational locations

5.0 Issuance of correction notes (Credit Notes / Debit Notes)

5.01 In case there is an incorrect invoice generated wherein there is REVENUE LOSS / GAIN the same shall be corrected only by way of Debit Note / Credit Note.

Under no circumstances there shall be any alteration to the already generated and

accounted sales invoice

Customer requests for excel edited invoices to alter rate / price, delivery / shipment

details shall not be entertained

Any deviation on the above will be needed to have a prior written sanction from the CFO / CEO

5.02 All credit notes to pass on trade discounts should be raised latest by 2 working days of

having generated the associated invoice

5.03 A listing of such credit notes for each invoicing cycle should be published by the HO Finance to all stakeholders including Credit Control department on the 3rd working day by

EOD (End of the 3rd working day)

5.04 All credit notes issued shall be allocated to the appropriate Invoice immediately on

posting the credit note / debit note. There shall be no unallocated credit notes



The process for issuing a credit note is detailed below:

The broad classification of Credit Notes is as follows:

1. NO REVENUE LOSS

In case of no revenue loss, FULL invoice needs to be reversed by way of issue of credit note and in

case of revenue loss credit note will be issued for the differential amount.

No Revenue loss

:Reason codes

Revenue loss :

Reason codes

Wrong billing address Rate difference

Wrong product Wrong tax code

Debts w/off

Others

The further segregation of the same is based on the reason for issuance of the credit note.

Brief description of the same is given below which will facilitate correct selection of the reason code.

1) Wrong billing Address: If the billing address is wrong, then select this credit note reason

and fresh invoice to be generated for correct billing address. Depending on the date of the invoice, select correct reason code e.g. if the date of original invoice is 1st June 2014 and we

are issuing the credit note in Feb 2015 then select the reason code “ wrong bill address – 6-12 Months “. Please ensure that credit note and fresh invoice is raised in SAME MONTH.

2) Wrong Product/Customer: If we have selected wrong product code/Customer and we

need to issue the credit note then select these reason code. E.g. We raised the original

invoice for product code X and we need to raise it for Product code Y

2. REVENUE LOSS a. Rate Difference: Rate difference may arise on account of price, discounts; rebates,

etc. Please select this reason code if the credit note is required to be issued for the reasons

mentioned herein.

b. Debts written off: Due to double invoicing or debts are not collectable then select this reason code.

c. Others: As far as possible, we should desist from using this reason code but in case we need to

issue the credit note which is not falling in any of the categories mentioned above then we

should use this reason code.

Reason codes under “No Revenue Loss” as available

Non Revenue Loss Category Code Description NR01 Wrong Bill Add - < 6 Months NR02 Wrong Bill Add - 6-12 Months NR03 Wrong Bill Add - 1-3 Years NR04 Wrong Bill Add - > 3 Years NR05 Wrong Customer NR06 Wrong Product (Non Rev Loss) NR07 Others



Reason codes under “Revenue Loss” as available in SAP

Revenue Loss Category Code Description RL01 Rate Diff - Price RL02 Rate Diff-Wrong Prod(Rev Loss) RL03 Rate Diff - Discount Rebate RL04 Wrong Tax Code - Zero Billing RL05 Debts w/off - Double Invoicing RL06 Debts w/off - Not Collected RL07 Others - Order Cancelled RL08 Others - Damaged RL09 Others - No Reason

In no case the corrective notes (credit notes) shall be raised for the previous financial year as that

would reduce the current years revenue to the extent of the credit note value.

6.0 Collection Target setting

6.01 Based on the existing outstanding, the monthly revenue target and on having

considering the average “number of day’s credit” availed by the Customer, the collections: monthly modular target is set for each XYZ LTD. Sales / Marketing

Personnel.

AR Age

buckets

(Value)

%

colle

ction COLLECTION TARGET % Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15

7,27,76,

782 100

GREEN ZONE : 0-120

days (As per due date) 65 15 10 10

1,29,36,

757 95

YELLOW ZONE : 121-180

days 20 20 20 20 15

70,93,14

9 80

RED ZONE : 181-360

days 15 20 15 15 15

6,28,000 85 PINK ZONE : > 361 days 10 10 15 10 10 10 10 10

COLLECTION TARGET

VALUE Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15

GREEN ZONE : 0-120

days

2,54,71,

874

2,54,71,

874

72,77,67

8

72,77,67

8

72,77,6

78

YELLOW ZONE : 121-180

days

25,87,3

51

25,87,35

1

25,87,35

1

25,87,35

1

19,40,5

14

-

-

-

RED ZONE : 181-360

days

10,63,9

72

14,18,63

0

10,63,97

2

10,63,97

2

10,63,9

72

-

-

-

PINK ZONE : > 361 days

62,800

62,800

94,200

62,800

62,800

62,800

62,800

62,800

COLLECTIONS FROM AR :

2,91,85,

997

2,95,40,

655

1,10,23,

202

1,09,91,8

02

1,03,44,

964

62,800

62,800

62,800



BUDGETED SALES

5,00,00,

000

5,00,00,

000

5,00,00,

000

100

Collection from Jan-15

Sales

10

30

35

20

5

100

Collection from Feb-15

Sales

10

30

35

20

5

100

Collection from Mar-15

Sales

10

30

35

20

5

COLLECTIONS FROM

SALES :

-

50,00,00

0

2,00,00,

000

3,75,00,0

00

4,25,00,

000

3,00,00,

000

1,25,00,

000

25,00,00

0

TOTAL COLLECTION

TARGET

2,91,85,

997

3,45,40,

655

3,10,23,

202

4,84,91,8

02

5,28,44,

964

3,00,62,

800

1,25,62,

800

25,62,80

0

6.02 Credit control department shall update the collections effected against these targets on a daily basis and flash the achievement against these targets on MTD & YTD basis;

XYZ LTD. Sales / Marketing Personnel wise and location wise at regular intervals during

the month.

7.0 Collections forecasting

7.01 A Collection forecasting input report shall be sent to all the XYZ LTD. Sales / Marketing Personnel on the 7th working day of the succeeding month.

The report will be at the customer / document level with details pertaining to open items

(both debit and credit)

The Collection forecasting will be a simple, yet effective tool for gauging the trend of

collections: XYZ LTD. Sales / Marketing Personnel wise / location wise.

The collection forecast shall be duly filled by the XYZ LTD. Sales / Marketing

Personnel in its entirety and sent to Credit control department latest by the 9th

working day of a given month.

The forecast shall have the next three months forecast for each customer / document

The current month’s forecast shall be split into weeks (four weeks) In the subsequent two month there shall be month wise forecast (week wise forecast is

not required)

Any change in the forecast values for the next month can only be done in the 1st week

all the next 3 weeks shall remain as forecasted.

A SPECIMEN Collection Forecast File is appended

The age buckets are now redefined to indicate the following:

O/s. Age in Days

Redefined Age buckets

0 to 90 GREEN ZONE

91 to 180 YELLOW ZONE

181 to 365 RED ZONE

> 365 PINK ZONE



The ‘Collections Forecasting Report’ shall indicate the following:

Age buckets

Forecasted month and associated week

The nature of O/s.: if fully collectable OR partly collectable OR to be written off The reason for Outstanding

A prototype excel model of collections forecast is attached for reference

7.02 The XYZ LTD. Sales / Marketing Personnel wise / Location wise aging shall be sent to all

divisions on the 5th working day of the succeeding month.

7.03 Credit control Personnel shall closely monitor the forecasted values with the actual collections and send a weekly collections report to the MANAGEMENT team on every

Saturday morning (post the 10th of each month) along with reason for shortfall.

The deficit in forecasted values shall be queried by the credit control department at

Regular intervals

7.0A Performance Linked Variable Component (PLVC) linked to achievement of TARGETED

DSO

Target DSO days will be published in the beginning of every financial year i.e. April

The targeted DSO will be derived from the budgeted sales and targeted collections mentioned earlier

The targeted DSO will be at the enterprise level and at the sales personnel level

The PLVC / Variable component of Sales and Credit / Collection function will be factored on achievement of the targeted DSO

The target v/s. achievement of DSO target will be published at the beginning of each calendar

quarter

7.0B CASH FLOW AR INPUT via Collections forecasting

The basic idea of generating a pragmatic collections target and following it up with a robust and workable collection forecasting is to enable the TREASURY department get a futuristic roll out of

funds availability from the AR funnel

Accordingly the collections target file values will be linked to a cash flow statement which will give a cash flow estimate roll out for the next 4 months on a continual basis



A SPECIMEN of the CASH FLOW AR INPUT file is appended CASH FLOW : A.R INPUT FILE

RUN MONTH

31 January 2015

PARTICULARS / MONTHS JAN15 FEB15 MAR15

APR15

MAY15

JUN15

JUL15

AUG15

SEP15

As per collection TARGET (linked to the collection target file) 2,56,023 1,17,260 74,739

74,739

74,739

32,521

17,118 0 0

Revenue TARGET : JAN15 4,20,000

Revenue ACTUAL : JAN15 4,67,216

Variation in previous months REVENUE : TAR v/s. ACH (Prior month's revenue variation to be Derived) 47,216

Variation in Targeted Collections (based on the collection estimates model worked on REVENUE : refer adjoining GRID) 4,722 18,886 14,165

4,722

2,361 0

Adjusted TARGET 2,60,744 1,17,260 74,739

As per forecast received from CHANNELS (3 months moving ) 2,39,000 1,12,000 68,000

Channels forecast as a % of Collection Target (As an indicator only) 93

Projected Surplus / Deficit in % -8.34 -4.49 -9.02

Projected Surplus / Deficit in VALUE -21,744 -5,260 -6,739

Projected Collections for the month 2,39,000 1,12,000 68,000 0 0 0 0 0 0

Projected Surplus / Deficit in TARGET -17,023 -5,260 -6,739



8.0 Collections / Follow up process / dunning letters

8.01 Collections follow up shall be based on the “Collections Forecast Report” and the

“Aging report “ that is sent by the credit control department. XYZ LTD. Sales / Marketing Personnels are primarily responsible for Collections and credit control shall act as a

supporting function towards resolving impediments concerning collections.

8.02 A Daily collections report for each day shall be sent on the succeeding day by

the XYZ LTD. Sales / Marketing Personnels at the HO.

The XYZ LTD. Sales / Marketing Personnel coordinator in HO shall consolidate the “Daily collections report” from all locations and forward the same to the Credit Control

Manager for the previous day; latest by the 11.00 AM on the succeeding day.

8.03 The forecasted figures shall be closely monitored by credit control department

as indicated in 7.02 and 7.03

8.04 Dunning letter 1 shall be sent by the credit control department to all Customers whose outstanding is greater than 75 days.

Dunning letter 2 shall be sent by 120th day of the unpaid invoice date

The notice to pay dunning letter / Dunning letter 3 shall be sent on the 151st day from the date of the unpaid invoice

All dunning letters in the 3rd category will be sent ONLY AFTER REVIEW AND ASSENT BY

THE C.E.O

The process post sending the legal dunning letter is:

Please note that the legal letter needs to be sent vide registered AD / courier wherein

the acknowledgement / POD has to be documented. Post having sent the legal letter we need to wait for 7 days (reasonable time towards

postal receipt and Customer understanding).

After the 7th day; calls can be made on the Customer (telephonic / personal).

If in review, there is no progress; post the 14 day; you need to send us a detailed drossier on:

1. The facts of the case as a top sheet (Case history; Customer details; relevant

information)

2. All communications ensued with the Customer 3. Returned cheques if any

4. Invoices / credit notes raised

Credit Control shall vet these documents and forward the same to legal department for initiating onward legal process.



SPECIMEN LETTER indicating XYZ LTD.’s INTENTION TO

INITIATE LEGAL ACTION : By Registered A.D. / Fax / Courier Date : TO: Customer name and registered office address RE : Intention to Initiate Legal Process SUB : AMOUNT LONG OVERDUE TO XYZ Ltd.Ltd. Dear Sirs, This refers to the work orders placed by you with XYZ Ltd.(“XYZ LTD.”) for supply of our products. Pursuant to your said orders, we supplied in accordance and in conformity with your said order/s. Subsequently, our Invoices were submitted to you; which you duly accepted without any dispute whatsoever.

For the supplies effected as aforesaid, the following invoice/s were raised and issued by us :

Sr. No. Date

Invoice No.

Amount (Rs.)

Attached statement

TOTAL

In spite of our several, follow up telephonic calls and personal meetings requesting you to make the payment of the said outstanding sum of Rs. due to us, you have till date failed and neglected to pay the same to us. As you are aware, the above sum is pending from you for over _____years in spite of our various reminders and your assurances that the said amounts will be paid shortly. If the aforesaid payment along with interest @18% per annum is not made to us within seven days of the receipt of this letter by you, we will have no alternative but to take such steps and adopt such proceedings, including legal, as we may be advised to protect our interests and recover the monies due to us. Yours truly XYZ Ltd. AUTHORISED SIGNATORY

The monthly / specific updates on the case shall be sent by the legal department.

This activity shall not be a substitute to the Balance confirmation activity.



Dunning letter specimen’s are Appended

EXHIBIT :

January 03, 2015

The Manager – Accounts Payables

M/s………………………………………………

Address: ………………………………………

Tel. # :_______________________ Fax #:____________________ E-mail:______________________

Kind Attn.: Ms. / Mr. _____________________________ Cellular # : ________________________

Dear Sir/Madam:

Re: Overdue Invoice # ________ Amount: ___________________________________________________________

We are writing this letter to call your attention to the above referenced overdue account with us. As you are aware our 'Terms of Sale' are Net 90 days and we are still anxiously awaiting your payment.

If you wish to discuss any issues please call the undersigned immediately otherwise we look forward to getting paid at the earliest.

Please ensure that payment of Rs.________ reaches us, latest by January 31, 2015.

Thanking you for your business and anticipating a prompt response.

Yours sincerely,

for XYZ Ltd.

Peter Joseph

Head – Credit

Tel: ++ Fax: Email:



EXHIBIT

February 20, 2015


M/s………………………………………………

Address: ………………………………………

Tel. # :_______________________ Fax #:____________________ E-mail:______________________


Dear Sir/Madam:

Re: Second Reminder - Overdue Invoice #: ________ Amount: __________________________________________

Recently your attention was called upon regarding the above referenced account via our letter dated January 03, 2015. The amount of Rs._________ is now considerably past due and what concerns us; that to date, we have not heard back from you.

We must receive payment immediately to keep your credit in good standing with us. Please courier your payment today or alternatively send us a 'wire transfer'. The details for electronic transfer of funds are as under:

Name of the Beneficiary

Address of the Beneficiary

Name of the Bank & Branch

Account No.

Account Type

11 Digit RTGS IFSC Code

11 Digit NEFT IFSC Code

We sincerely hope and expect that your payment be on its way so that there is no disruption to our business partnership.

Yours truly,

for XYZ Ltd. Peter Joseph Head – Credit

Tel: ++ Fax: ++ Email:

Cc: CFO



EXHIBIT :

March 03, 2015


M/s………………………………………………

Address: ………………………………………

Tel. # :_______________________ Fax #:____________________ E-mail:______________________


Dear Sir/Madam:

Re: FINAL NOTICE - Overdue Invoice # ________ Amount: _______

You have been given more than ample time and notices regarding your now seriously overdue debt of

Rs._____________ with us.

We have instructed our offices to stop all services to your company till this account is cleared.

Your immediate attention is sought to this urgent matter.

Please understand that this is our final notice to you. However, we give you one last opportunity to clear the account

by March the 3rd, 2015. After this date it is our normal policy to pass-on seriously delinquent accounts to a third

party collection agency or/and our legal counsel. This could further jeopardize you credit rating in the industry.

We trust that this will not be necessary

Once again, this is our Final Notice.

Yours truly,

for XYZ Ltd.

Peter Joseph

Head – Credit

Tel: ++ Fax: ++ Email:

Cc: CFO

CC: Collection Agency/Legal Counsel



9.0 Receipt Accounting

All Cheques collected at outstation locations need to be deposited in XYZ LTD. Bank Account, either in ICICI Bank or INDUSIND Bank.

Prior to deposit of these cheques, a COLLECTION INTIMATION NOTE (CIN) needs to be sent to HO

Finance (Mr. Shital)

The CIN shall bear the following details:

Customer Details

Cheque Details Invoices against which this cheque is issued by the customer

Deduction details in case any

A SPECIMEN copy of CIN is appended

Collection Intimation Note

Branch : Chennai

CIN NO. Person responsible for collection : Mukundan Iyer

Receipt no.: =========> Customer Code: 1600A10009

Ch. # Ch. Dt. Ch.Amt Bank & Branch CIN dt. Inv. # Inv. Dt.

Inv. Amt. to be allocated

123456 02/08/20

09 1,43,930.

70 SBT, Chennai main

04/08/2009

Division

DISTRIBUTOR D711201797 4-Feb-

09 40,000.00

D711201798 2-May-

09 50,000.00

AGENCY D711201799 3-Apr-

09 30,000.00

CONSIGNEE D711201729 3-Mar-

09 9,000.00

D711201730 3-Mar-

09 6,000.00

D711201741 4-Mar-

09 15,000.00

Total Gross 1,50,000.

00 Deduction details / ( TDS CATEGORY) =============>

CONTRACTORS

PROF. fees

CONTRACTORS

Sectors USE DROP DOWN ==========> DISTRIBUTOR AGENCY CONSIGNEE Total

Rate % Value Value Value Value Value

Gross Amt ========> 90,000.00 30000 30000 1,50,000.

00

TDS Contracto 2.266 2,039.40 2,039.40



rs

TDS Proff. Fees 11.330 3399 3,399.00

TDS Contractors 2.266 679.8

6,069.30 630.00

Retention 0.00

Other deductions 0.00 0.00

Total Deductions 2,039.40 3,399.00 679.80 0.00 6,069.30

Net Cheque Amt. 87,960.60 26,601.00 29,320.20 0.00 1,43,930.

70

Remarks :

The client will want us to give his statement of A/c. as appearing in our books.

The idea of this process is to have details of cheques collected and deposited in the bank each day,

which will be a control on tracking its credit in our bank statements

On instances wherein a cheque deposited returns (bounces) then the detailed procedure is elucidated in

point 20 later in this document

NEFT / RTGS / EFT / IMPT mode of payment / remittance by customer:

For NEFT / RTGS fund transfers / remittances made by customer’s directly into our bank account XYZ

LTD. will start a virtual sub bank account with XYZ LTD. bankers that will be dedicated to these customers and the bank will periodically upload unpaid invoices pertaining to such customers

In this procedure the customer is provided with a link and each time the customer intends to pay he has

to follow his pre defined link which will lead the customer to XYZ LTD.’s bank’s payment gateway where the customer can get a listing of all his unpaid invoices with XYZ LTD.

The customer can pick the invoices he chooses to pay and effect this payment In doing so XYZ LTD.’s bank will generate a remittance advice which will be sent to both the customer

and XYZ LTD.

This process will resolve the challenge currently faced by HO Accounts team for identifying credit directly made in XYZ LTD.’s bank account thought NEFT / RTGS

We will have drastically reduced our unallocated credits lying in customer’s account or lying as unidentified advances in debtors account



Scope Defined for proposed online / web based application:

All receipt preparation that is done manually will be replaced with the online receipt module. Receipt shall be prepared and finalized by the designated person (will be referred as Cashier

henceforth)

Location details Authorized ID for preparation – This person to be designated as Cashier

XYZ LTD. Sales / Marketing Personnel-wise Email IDs – This will be used to send Receipt PDFs Bank Account (Number and SAP Account) – Multiple accounts

Cash Account (Number and SAP Account) – Petty / deposition

Pickup location code and address

Types of receipts

- As trade receivables from Customers - Customer related (as a single entry / combined with above)

o Only Cheque Bounce charges

o TDS refunds

o EMD refunds

- Customer related o Spot payments (accounted to revenue & service tax)

- Settlements of Employee’s advances - Other income (e.g. sale of scrap)

- FIN HO related

o TDS on gratuity

o Interest on FDs

o DD cancellations (reversal from SAP referencing bank voucher number and date)

Customer details

Code: will be fetched from SAP, (Multiple Customer codes in single receipt)

Name: 1st one in case of multiple codes / Editable in case of 3rd party

Address: Editable in case it’s a first time Customer, In case of Customers whose account

is not reflected in SAP then the same will be available as a type field.

Accounting details

Generally considered as two sections: Invoice and Deduction

Document details (to be filled in by Cashier)

Instrument type: Local / Outstation / EFT / Cash Cheque Number / Advice Number

Cheque Date Bank

Cheque Amount

Invoice Number (selection) Invoice Date (auto)

Gross Amount (auto) Description: for short payment etc.

SBU (auto pick up T0) XYZ LTD. Sales / Marketing Personnel (auto pick up T1)

Location / Branch (auto pick up T2)

Inspection / Lab (auto pick up T4)

Note: � In case of invoice number not available, the details starting from Invoice

Number can be manual imputed

� Advances to be specified



� Additional Cheque Bounce charges to be specified

Deduction details (to be filled in by Cashier)

TDS deduction (as a gross value) Other deductions - Bank charges

Other deductions (remarks to specify)

Deposition details

A deposit slip will act as a summary for all receipts prepared for the day, besides fulfilling the task for depositing these cheques in the bank. Receipts prepared of the type

Local / Outstation and Cash only will be selected for deposition. A formatted deposit slip

for each account will be generated and sent to the bank with the following parameters:

Deposit Slip Reference no. : Imputed by the cashier Deposit Sslip date : System date (by default)

Customer name : XYZ LTD. India Pvt. Ltd. Bank Name : Citibank

Bank Account No. : XYZ LTD.AACH

Pickup point : appropriate location

Serial No. : Internal Branch serial number

Cheque No. Cheque Date

Drawn on Branch

Cheque Type : Local / Outstation / Cash

Receipt Number

Date of deposit

Total Amount XYZ LTD. cashier’s signature

Bank representatives’ signature

Cheque Return

Audit trails by Receipt number and date

� For the cheque bounce, the date and reason will be stamped � If a receipt is freshly issued against the cheque bounce, the number and date of

the reissued receipt will be stored � The freshly issued receipt will have a track of the previous receipt number and

date

Reversal entry

� Presently the online bank statements give a report of the cheque reversals. This can be used to electronically intimate the respective branch and the reversal can

be effected. The following details to be mentioned: o Customer code, name and address

o Cheque details

o Reason for cheque bounce Historical data usage for re-issuance

� It is convenient to reissue the receipt by using historical data / duplicating data already present in the previous receipt for which the cheque bounce entry has

been made.

PDFs (Daily / Periodic)

� Receipt – Single / Selected o Option for emailing to concerned persons

� Deposit Slip o Option for emailing to concerned persons



Reports (Daily / Periodic)

� Receipt – Single / Selected � Deposit Slip

� Collection o on Bank accounts

o on Instrument type

Details required are as follows: o Location

o XYZ LTD. Sales / Marketing Personnel o SBU

o Receipt No. o Receipt Date

o Customer Code

o Customer Name o Invoice no.

o Invoice Date o Gross Invoice Amount

o TDS o Other deductions (remarks to specify)

o Net Invoice Amount paid

o Inspection / Lab

o Cheque No.

o Cheque Date o Bank

o Cheque type: Local / Outstation � Deviation Analysis

� Cheque return by location / consolidated

10.0 Allocation / Referencing of receipts

10.01 All cheques received shall be allocated to a particular invoice. Ideally there shall be no cheque that would be lying unallocated in the customer’s account.

10.02 The allocation details as mentioned in the CIN shall be carried out by Branch credit

coordinators and the credit control Personnel in HO.

11.0 Transfer of delinquent cases to Legal Dept.

11.01 XYZ LTD. Sales / Marketing Heads shall be responsible for transferring a delinquent

Customer’s case to the legal department for initiating legal process.

11.02 As far as filing case under section 138 of the Negotiable Instruments Act is concerned

the required process is explained in point 20.0

11.03 All documents that are being forwarded to the Legal department shall be done under

an IoM (Inter office Memo) a prototype for which is as attached

12.0 Blocking of Seriously Delinquent Customers



12.01 All Customers whose outstanding is greater than ONE year and valued greater than

Rs.100,000/- shall be black listed.

12.01 Blacklisting would indicate that the Customers order shall not be entertained and XYZ LTD. shall not continue business with the Customer unless the OLD outstanding is

cleared.

12.03 In case the XYZ LTD. Sales / Marketing Personnel needs deviate from point 11.02 they

would need prior approvals from the following offices:

CEO XYZ LTD. Sales / Marketing Head

CFO

13.0 Bad debts provisioning

13.01 As a group financial policy all debts that remain outstanding greater than one year need to be 100% provided for in the month the debt becomes greater than one year.

13.02 Any specific debts which has become bad will be provided in the books based on the

follow up action and feedback from Business Head

13.03 Forward age report will be send at the start of the month indicating the debts which will

be provided as at month end if the collection is not made in the month.

13.04 At the end of the month, debts which have been provided in the books (due to non

collection) will be informed to Business Head latest by the 6th day of the following month.

14.0 Trade Credit Insurance

XYZ LTD. intends to insure its Trade Debtors, whereby in case the customer defaults in making

the payment post 60 days after the invoice due date, XYZ LTD. can exercise our right to claim the invoiced and unpaid amount from the insuring company

This arrangement of insuring Trade Receivables comes at a nominal cost in the form of

insurance premium

The insurance premium ranges between 0.40% to 0.60% of the invoice value

Please note that XYZ LTD.’s bad debt provision for F.Y 2014-15 hovered around 2.76% of sales

for the said F.Y

Hence insuring our debtors will definitely increase our profit margins



15.0 Write off of bad debts provision

CRITERION FOR WRITE OFF:

15.01 Where it is deemed that a certain value in the Customer account is not collectible and where legal action towards collecting these values is not warranted due to of age of the

transaction i.e. invoice date > 3 years customer (commercial decision) OR

15.02 Where Customer goes into liquidation or business is closed down as is evidenced OR

15.03 Where the amount is uncollectible due to errors / omission (operational errors only) on

our part OR

15.04 Any other specific request

Following procedure to be followed for ALL Write off cases:

All Bad debts write off request needs to be initiated with all supporting communications and documents.

1.01.1 In case of Bad Debt write off request is sent regarding point no 14.01 then the

requisition form must be approved and signed off by the Business Head (Refer

detailed process below : Based on the authority matrix)

1.01.2 In case of Bad Debt write off request is sent regarding point no 14.02 then form must be evidenced by Liquidators Letter / Winding up petition as registered with

ROC and accompanied by confirmation evidenced by returned acknowledgement dispatch note with remark “ address(‘ee) not found and must be signed by

Business Head (Refer detailed process below).

1.01.3 For any case other than the above two, substantial evidence to be provided along

with Bad Debt write off requisition and should be signed by Business Head (refer detailed process below).

1.01.4 The authorization matrix will be applied for approval limit upon recommendation

from Business Head

AUTHORITY MATRIX FOR WRITE OFF PROCESS:

CONDITION APPROVER AUTHORIZER

Value of write off per Customer > 50K per

Customer OR GROUP of Customer OR GROUP OF SISTER

CONCERN

Of the Customer

XYZ LTD. Sales

/ Marketing

Personnel

Head: Jointly

with CFO

CEO

Value of write off per Customer < 50K per

Customer OR GROUP of Customer OR GROUP OF SISTER

CONCERN

Of the Customer

XYZ LTD. Sales

/ Marketing

Personnel

Head: Jointly

with Finance

Controller

CEO



The detailed process is as enunciated below :

Conditions to be fulfilled for presenting a debt for write off:

1 The debt has to be greater than three (3) years old.

2 There has been reasonable follow up towards collecting that debt.

3 The reasonable follow up has to be documented for an Audit Trail (Letters / E-mails

sent to the Customers towards follow up / recovery)

4 The supporting documents should speak of having a reasonable follow being done

on various occasions.

5 Also, it should be proved that these reasonable follow ups have not yielded any

results (i.e. recovery of debt)

6 These debts are not cases were we (XYZ LTD.) are to raise credit notes and

thereby rectify the account (i.e. the debt is not some wrong invoicing that we have

raised and needs rectification via a credit note)

7 All write offs are cases were we have raised legitimate invoices and these are

recoverable from the Customer yet the Customer has not paid these invoices for

certain documented reasons.

8 THE STANDARD WRITE OFF REQUISITION FORM HAS TO BE FILLED AND SENT TO

CREDIT CONTROL FOR ONWARD VETTING.

16.0 Incentive scheme for collections of outstanding already Provided for

16.01 Outstanding greater than two years can be proposed for a collection incentive scheme.

The scheme would be bifurcated in % to collections effected. The % of incentive shall be communicated to the XYZ LTD. Sales / Marketing Personnel prior to launch of

scheme.

16.02 In case there are collections effected wherein it’s a project outstanding and the

collection follow up is done by multiple Personnel then the Branch Manager’s

decision shall be binding.

17.0 Factoring of Debts (Purchase of Bills by Bank)

16.01 Invoices pertaining to regular and credit worthy Customers would be factored with the bank without recourse to XYZ LTD.. (This option is being scouted)

Discounting charge : 09.50%

Facility set up charges : 0.40 to 0.80% of the facility amount Process charge per transaction : INR 25

Insurance charges : 0.40% Stamp duty : 0.10% or max INR 500K

Funding amount : 85% to 90% of invoice

In case we insure our debtors the factoring will be done without recourse to XYZ LTD.



18.0 Balance confirmation of TOP 50 Customers ( As per AR value each Quarter End)

17.01 The TOP 50 Customers in terms of A.R balance shall be confirmed for their A.R balances with us.

This exercise has to be done twice a year for AR Balances as on 31st March

and as on 30th September

17.02 The standard letter would be sent by the FIN dept.

A specimen is appended

19.0 Receipts analysis: delay in payment by Customer

19.01 A report indicating delay in collecting outstanding for top 5 Customers from each

division shall be carried out, wherein all payments released by the Customer against a

particular invoice shall be plotted to analyze the number of days the Customer actually takes to pay an invoice completely.

20.0 Cheque return : Accounting process and procedure

20.01 A cheque forwarded by the Customer and banked by XYZ LIMITED when returns for

whatsoever reason shall be intimated to the Customer at the first instance vide a letter (draft attached).

The Customer shall have to give a written instruction to redeposit the cheque of shall

have to Handover, a fresh instrument, preferably a Demand draft / Bankers cheque, within 4 working days of the cheque return memo date.

20.03 In case, we do not receive a fresh instrument from the Customer in lieu of the returned cheque; within the stipulated 4 (four) working days, then the Notice under Sec138 of

the Negotiable Instruments Act shall be sent under the hand of the Branch Manager.

The process for initiating the legal process is a indicated hereunder.

On receipt of a cheque return from the Bank, the following documents as received from

the drawer’s bank shall be forwarded to the Branch cashier (person who is preparing bank receipts):

a. The ‘returned cheque’ in the original

b. The original ‘cheque return memo’ from the drawer’s Bank

20.04 Branch Cashier shall take copies of the following documents in two sets:

a. The returned cheque in the original

b. The cheque return memo from the drawer’s Bank. c. The copy of receipt.

The above set shall be forwarded as follows:

i. One complete set will be sent to Finance – HO for data entry : Reversal of

Receipt and charge of penalty @ Rs. 500/- per return.

ii. One complete set will be sent to concerned XYZ LTD. Sales / Marketing Personnel (commercial person).

Original set will be kept with the branch for further action.



20.05 HO FIN will pass a receipt reversal entry, immaterial of the fact that,under exceptional circumstances, the returned cheque is to be re-deposited.

20.06 The commercial person on receipt of documents as mentioned in point two shall intimate

the Customer and avail an immediate response with only two options:

a. Re-deposit of the return instrument in 4 working days of the receipt of the

returned cheque. OR b. Collect a fresh, current dated instrument within 4 working days of the receipt of

returned cheque.

In case there is not positive response from the Customer within these 4 working days then the notice under Sec 138 of the N.I Act shall be sent by the Branch to the

Customer.

The notice shall follow steps as elucidated in the 30-15-30 principle as detailed below:

The 30-15-30 principle is further explained in detail below:

a) Within 30 days of the cheque return memo date (as received from the

drawer’s Bank) the notice has to be received by the Customer.

(This means that within 26 days of the date of “cheque return memo” the notice has to be sent to the Customer: considering 4 days for postage)

Also please note that the notice has to be sent by Registered A.D.

b) There is a cooling period of 15 days wherein the Customer is given allowance

to pay the returned amount / reply to the notice.

c) In case the payment / reply is not received within the above 15 days (cooling period) then we need to file a case against the Customer within 30 days

post the above mentioned 15 days.

20.07 The notice has to contain copies of the returned cheque and the cheque return memo from the bank (make sure that you DO NOT send the originals to the Customer).

20.08 The above file shall be sent to FIN so as to verify if all cheques returned as indicated in

the Bank statement are correctly reflecting in the excel statement.

If there are cheque return details appearing in the Bank statement / ‘cheque return statement’ in CMS and these are not reflecting in the excel file, the same shall be

indicated / intimated to credit control

The Credit control department shall send this file on a fortnightly basis.

20.09 When it is instructed by XYZ LTD. Sales / Marketing Personnel / commercial person to redeposit the returned cheque, Branch cashier will redeposit the cheque and issue a

fresh receipt.

20.10 Returned cheque is the property of the Branch and the returned chequewill be given

back to the Customer only after realization of fresh cheque along with cheque return

charges Rs 500/-

The levy of penalty on cheque return @ Rs. 500/- per cheque is a RULE and any exceptions / wavier WILL require a prior sanction from the CFO

20.11 For cheques returned twice only a demand draft / Banker cheque will be accepted. The cheques thus returned for the second time shall immediately be sent to FIN:

Credit Control and a notice under Sec 138 of the N.I Act to the Customer will

immediately ensue.



21.0 FAQ

Banks can't prosecute if collateral cheque bounces: Bombay HC Shibu Thomas, TNN | Feb 20, 2010, 01.32AM IST

inShare

MUMBAI: Bombay HC has ruled banks cannot prosecute borrowers under the stringent anti-

cheque bouncing laws if blank post-dated cheques issued by them as collateral security are

dishonoured.

''It is doubtful if the provisions of Section 138 of the Negotiable Instruments Act can apply to a

case in which a blank or post-dated cheque is obtained by a bank or money lender before or

while sanctioning or disbursing loan amounts as security for the loan,'' said Justice P R

Borkar. The order is likely to come as a huge setback to lending agencies who ask borrowers to

deposit blank post-dated cheques as security. ''Law-makers must not have intended or

imagined that money lenders or banks would obtain blank or post-dated cheques while

sanctioning/disbursing loans as securities and would use them to make debtors/borrowers

repay the loan under threat of prosecution and punishment (under the cheque-bouncing

law),'' added the judge.

The court upheld the acquittal of Ahmednagar resident Rajendra Warma, who was prosecuted

after a blank cheque issued by him for a loan was dishonoured. Ramkrishna Urban

Cooperative Credit Society (RUCCS) had given a loan of Rs 2 lakh to Warma in 2000. Warma

had issued 10 blank post-dated cheques at that time as security. One of these cheques, dated

January 2008, bounced, following which RUCCS lodged a criminal complaint against

Warma.

NOTES:

A blank cheque is taken as a collateral and at the time / instance of submission of these blank cheques there is no legally enforceable liability created on the Distributor / Dealer (as these cheques are kept for futuristic purchases). Hence some legal experts say that it is applicable. CASE LAWS:

BLANK CHEQUE Respondent issued a blank cheque without mentioning the date and amount and sent it with a letter

requesting complainant to present it after a month – Question whether blank cheque will come within

the definition of cheque? – If the cheque is not drawn for a specified amount it would not fall within a

definition of bill of exchange – Act of complainant in filling up amount portion and date was a



material change and it could not be enforced even though it was issued for a legal liability – Alteration

without the consent of the party who issued the cheque rendered cheque invalid.

2004 (1) CRIMES 567 (AP)

Accused entered into security arrangement with complainant for sale of its product – Accused issued

blank cheques as security to security agency agreement – No debt or liability existed when cheques

were handed

over to drawee complainant – Complaint based on blank cheque issued towards security is not

maintainable.

AIR 2007 (DOC) 269 (DEL); 2 (2007) B C 69

TEMPLATE Credit Policy and related SOPs PDF (1)

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Transcript of TEMPLATE Credit Policy and related SOPs PDF (1)