Credit and Collections Policy

Prepared By:
Approved By:
Revision Date:
Effective Date:

PURPOSE
To define credit and collection responsibilities and to establish minimum credit and collection guidelines.

SCOPE
This policy will be uniformly applied to both established and prospective customers.

POLICY
The intent of this policy is to provide for the credit and collection of accounts receivable in a
nondiscriminatory manner, while maximizing the companys profitability by maintaining a moderate level
of investment in accounts receivable, minimizing write-offs of bad debt and maximizing sales. This policy
may be modified to suit economic conditions, competitive situations or company strategy. It is the
responsibility of the credit and collections department to enforce this policy under the direction of the
corporate controller and chief financial officer.

PROCEDURES
Credit Approval: New Accounts
Credit approval must be obtained for all new customers prior to starting any services being rendered or
materials delivered. With that, the following information must be obtained from the customers and
submitted to the credit department along with a customer maintenance form:

A completed and signed credit application

A signed customer purchase order or contract

If applicable, a completed tax exemption certificate

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Full customer bill to, including physical address, phone number and contact name

If the customer is a sub-contractor, the name and address of the general contractor and owner

Copies of performance bond or name, address and phone number of bonding company, if
applicable

Payment terms under which the order is accepted, if different from Company Xs due upon receipt
policy

Appropriate approvals if special terms are being granted (see below)

Credit application and reference checks are not needed if the customer:

Has a Dun & Bradstreet rating of (Insert Rating) or better or is a division (not subsidiary) of a
company having such a rating

Is a government entity (local, state or federal) or educational institution

Is an existing Company X customer with sufficient history to justify the required credit limit

An estimate of the potential business volume or value of order or job (credit limit needed) should be
indicated on the form being sent to the credit department when requesting credit approval. If the job is to
be performed over a period of time, that information should also be included.
All billings are to be in U.S. dollars.
Whenever possible, all international sales are to be conducted under letter of credit terms (sight or time).
Letters of credit (domestic and international) are to be irrevocable and issued/confirmed by a U.S. bank.
Bank charges are to be paid by the customer. Any exceptions are to be approved by the corporate credit
manager.
The following approval levels apply to the establishment of credit guidelines:

Credit Guides

Approved By

Under $X

Corporate credit/collection manager

Between $1X & $X

The above plus the corporate controller. The credit line approval authorization
form is to be used.

Over $X

The above plus the chief financial officer. The credit line authorization form is to
be used.

Credit guides are to be reviewed on an annual basis and authorized, depending on the level of credit
extended, by the appropriate parties outlined above. Credit guides will be fully documented in the credit
file and in the accounting system.
As required, secured credit should be utilized. Copies of security documents should be maintained in the
credit file with the originals stored in the company safe.
A customers credit line will be set by the corporate credit department who will also monitor the companys
credit exposure relating to such customers.
Prior to shipment or the performing of services, the office designated credit personnel will be expected to
approximate the value of materials and/or services to be performed and add this value to the customers

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accounts receivable balance. This summed value is not to exceed the customers credit guide. If/when
this condition exists, the corporate credit department must be notified for resolution.
A courtesy credit limit of $X can be set up for new accounts without the need for an application or a formal
credit investigation and review, provided the appropriate form and physical billing address is provided.
This credit limit cannot be exceeded without conducting an appropriate credit investigation and will be
revoked if initial order is not paid within credit terms.
If the required information is not provided at the onset, the request for credit approval will be denied until
all necessary information is provided or other arrangements are made.
Credit Approval: New Orders for Existing Customers
All new work for existing customers over $X is to be approved by the credit department prior to setting up
a new job number in the accounting system. Depending on the customer, their history with Company X
and the nature of the new job, the credit department may need to update the credit files. With the
exception of the credit application, the office must also submit the same information as called for with new
accounts.
Credit Analysis
Prior to extending credit to any customer, a proper review of that customers financial condition must be
performed and a credit guide established by the corporate credit department. The extent of the analysis
should be commensurate with the dollar exposure involved. All credit-related information is to be
maintained in the customers credit file maintained by the credit department.

In general, a credit file must be established/maintained in the corporate credit department for all
customers regardless of terms or level of credit extended. Depending on the level of credit extended,
the credit file should include some or all of the following: a credit application, financial data, pertinent
collection correspondence (including handwritten collection forms), trade inquires, bank inquires and
agency reports.
In general, a collection file must be maintained by credit personnel and should contain: customer
address, contact, phone number and collection documentation.
Credit and collection files are to be kept on a confidential basis and updated on an annual basis or
sooner should credit exposures, payment trends or collection problems arise. Credit file/information
on customers is to be considered company confidential and not to be released to any party without
the approval of authorized personnel.

A credit guide will be established for all active customers. The present accounts receivable balance
plus the new orders value will determine the credit exposure. An over-the-credit guide condition is to
be addressed immediately by the office credit department and resolved via a credit line review by the
corporate credit department. No shipment of product or performance of services should occur until the
corporate credit department has approved the over-the-credit guide condition.
The purpose of establishing a credit guide is to avoid continual review of a customers credit file on
the occurrence of each order. The credit guide is to be considered a flagged condition and represent
the maximum amount a customers aggregate balance should be allowed to reach without having to
review their general credit standing.

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New Account Setup

Existing bill to information is not to be changed in order to process orders for the same customer having
a different bill to than the established customer number. Only credit personnel can change the bill to
information and only with written request or documentation from the customer.
If the ship to location for the new order or job is different than the existing one, the office needs to set up
a different ship to but still use the same bill to number.
Provided that adequate and correct information is provided when requests to set up an account are
received in credit, accounts can be set up within 24 hours of receipt but not without conducting
appropriate credit checks. Under emergency conditions this can be done in a shorter period of time.
Under no circumstances are such accounts to be set up without appropriate credit checks and approval.
Under no circumstances will new accounts be set up because material has already been shipped or
services have been provided.
Credit Limits
Credit limits are to be established for all accounts based on the customers overall credit worthiness and
not on a value of the initial order. Credit limits may be adjusted up or down by the credit department as
situations warrant. Such limits are to be based on sound credit practices and at the same time allowing for
the maximization of profitable sales. Amounts that are not being paid due to legitimate reasons are to be
excluded from existing debt when credit limits are being reviewed or decisions are being made to
temporarily increase exposure over the existing credit limit.
Payment Terms
Our objective is to maintain the shortest terms compatible with sound business practice, judgment and
competitive conditions. Terms of sale are to be communicated and documented with the customer.

Standard Terms: The companys standard payment terms are due upon receipt (domestic) and letters
of credit (international). Such terms will be published in company literature and shown on company
invoices and sales quotes. Special terms will be established as the situation dictates and as noted
below.

Special Terms: The corporate credit manager, controller, chief financial officer or their designate in
conjunction with the executive vice president of the respective business unit should, in all cases,
approve special terms or exceptions to standard terms. Special terms should only be considered
when competitive conditions mandate their use and these conditions can be documented. In all
cases, special terms or exceptions to standard terms must be approved and documented via an
extended terms request form. This form must be forwarded to the corporate credit department.

C.O.D./C.I.A. Terms: These terms will be applied to new or existing customers who, due to their
financial condition and/or credit standing, are determined by either the offices and/or corporate to be
an unacceptable credit risk. The exception to this is the courtesy limit of $X.

Matching of Customer and Vendor Terms: In order to maximize cash flow, payment terms with
Company Xs vendors should be matched with the payment terms granted to Company Xs customers
wherever practical. Specifically, payments to vendors who operate in a subcontractor capacity to
Company X on specific projects should not be paid until Company X has collected the accounts

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receivable from its related customer. In addition, whenever extended (i.e., non-standard) terms are
granted to a customer, payment terms to Company Xs vendors who are supplying products relating
to such sale/contract should be extended such that the payment to the vendor is made only after the
related accounts receivable has been collected.

For intercompany purchases, the office placing the order should notify the supplying office whenever
extended terms have been granted to an outside customer. The supplying office should, whenever
practical, attempt to extend its vendor payment terms to match those granted to the ultimate customer
(particularly when products are being purchased/produced specifically for such customer).
The extended terms request form includes a section that requests information regarding the actions
taken (or to be taken) to ensure that vendor payment terms are being matched with those granted to
the customer. It is the responsibility of the office manager to ensure that actions required to match
payment terms are being completed.

Written Purchase Orders

Unless a transaction is being prepaid, a written purchase order or contract must be obtained for new as
well as change orders. This information must be entered into the accounting system. If the order is a
contract and a purchase order number per se has not been issued, then the name of the signor should be
shown first followed by the words contract, quote and so on.
The office manager must review the customer purchase order and/or contract for non-standard payment
terms, penalty clauses or non-payment situations. After being reviewed, all purchase orders and/or
contracts are to be initialed, dated and filed for future reference by the office manager.
Any discrepancies from standard terms, agreed-to terms or payment conditions stated in the Company X
proposal or general terms and conditions of sales are to be immediately addressed with the customer via
letter. Prior to shipment of material or performance of any services, a written agreement from the
customer removing discrepancies from their purchase order must be obtained.
If, during the course of the project, additional work becomes necessary or is requested by the customer, a
change order referencing the original purchase order needs to be obtained prior to performing additional
work. The change order needs to be reviewed as an original purchase order as noted above.
In the event that a debt cannot be collected due to lack of appropriate purchase order or customer
authorization, the debt will be charged against sales.
Direct Shipments
All direct shipment orders are to be entered and processed through the accounting system prior to placing
the order with the supplier and allowing the product to be shipped. No orders for new customers are to be
placed with outside vendors until the credit department has approved the customer.
Collections of Receivables
Collection responsibility lies with the credit department. Office personnel will be utilized to assist with
resolving disputes regarding products and services provided. Collection of receivables will be
aggressively pursued and documented evidence of all collection activity (written and verbal) is to be
maintained for all customers.

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As general policy, customers with past due balances will be contacted for payment within five days from
the due date. At times (depending on dollar amounts and the customer's history with Company X) such
contacts may be made prior to the due date. The manner and frequency of contact is to be determined by
the amount of dollars delinquent, with greater efforts being directed at the larger balance accounts as well
as towards customers with a slow payment history. While judgment by the credit department is to be used
in establishing the priority and frequency of collection contacts, the first contact for all accounts past due
is to be done by telephone. Follow-up collections efforts are to be determined based on the results of the
previous contact. All customer contact, both written and verbal, is to be conducted in a professional and
courteous manner.
In cases where payment is being withheld due to problems that need to be addressed by Company X, the
credit department will notify the appropriate Company X personnel of the reason for non-payment and
follow up on a consistent basis until the problem is resolved and collection activity can once again be
initiated.
Please Note: In the interest of maintaining excellent customer service and in order to project a
professional image to customers, the credit department must be notified of any issues that may cause a
customer to delay payment. The nature of the problem and a time estimate as to its resolution should also
be provided. Such notifications may be via direct contact or by placing a notation in the accounting
system.
Collection of delinquent accounts must be aggressively pursued, and documented evidence of all
collection activity (written and verbal) is to be maintained for all past due customers.
All customers are to receive a monthly statement of account, which will identify past due balances. Select
accounts, identified by office personnel, are to be entered into the chase letter program within the A/R
system to ensure that regular contact is maintained with all past due customers.
All customers having balances in excess of X days overdue, regardless of the reason why, including but
not limited to ability to pay, credits due, disputed amounts or job problems, are to be placed on a credit
hold or suspense status. Future orders or work will not be allowed until the reason has been resolved or
without the corporate credit manager or his designees approval. Orders for accounts that have exceeded
their credit limit are automatically placed on credit hold by the accounting system. Orders for such
accounts can only be released by the credit department. At the same time, credit department personnel
are to conduct an assessment of the customers credit worthiness and increase the limit as needed to
accommodate current and future business levels.
After all reasonable efforts have been made to collect a debt and in no case beyond X days from due
date, an account is to be brought to the corporate credit manager's attention for further action and
approval to place with a third party (attorney or collection agency). Such accounts are then sent a certified
final demand letter if the debt is over $X. A regular letter or the collection agency's own ten-day free
demand form can be sent to accounts owing less than $X. Any new orders for accounts that are placed
with a third party must be on C.I.A. or C.O.D. basis and only if previous debt is paid in full. Offices are to
be notified at the time an account is sent a final demand letter or form and when placed with a third party.
In order to protect Company Xs rights on jobs where there is a bond or Company X has lien rights, such
accounts are to be brought to the corporate credit manager's attention at X days of when a job is
completed. In certain states, preliminary lien notices are to be filed either prior to a job being started or
within a limited number of days thereafter. It is the responsibility of the offices to do so.
Any disputed items, claims or short payments identified by corporate credit should be noted and
forwarded to the appropriate office for resolution. The appropriate office is to resolve the dispute within X
days and advise the appropriate collection personnel to commence collection efforts. Legitimate disputes,
claims and short payments will be coded in the accounts receivable system as disputed during the X-day

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resolution period. If the dispute remains unresolved after X months, corporate accounts receivable will
reverse the sale while maintaining the receivable balance.
Prior to the acceptance of any repay programs or notes receivable, approval must be obtained from the
corporate credit manager. All repay programs must be documented and acknowledged via return mail
from the customer. The acknowledgement copy from the customer is to be maintained in the customers
credit file. Any services performed or shipments made to a customer of a repay program are to be
conducted in such a manner that overall credit exposures are reduced. A complete credit review needs to
be conducted by the corporate credit department prior to accepting an agreement to a repayment
program and any open account sales.
Repayment and note programs that extend more than X year(s) need to be approved by corporate.
Repayment and notes programs, if accepted, should accrue interest at the rate of X% prime and when
possible/practical be collateralized.
Accounts that have been placed with a collection agency or an attorney are not to have any product
shipped or services provided until the past due balance is paid up, and then only on a prepaid basis.
Unless approved by the credit manager and controller, accounts operating under bankruptcy are prepaid.
Accounts operating under bankruptcy and who have been granted open terms must be monitored closely;
open terms that go past due will be revoked.
Bad Debt
Only receivables that are uncollectible due to a customers inability to pay, and then only after all
collection efforts, including litigation if necessary, have been exhausted, are to be written off to bad debt.
Amounts not being paid because of product or service issues are to be zeroed out with credits against
sales. An account may not be written off without the approval of the credit manager (up to $X), corporate
controller (up to $X) and chief financial officer (over $X).
A file of bad debt accounts should be maintained by corporate credit.
Any proceeds from accounts previously written off should be treated as a recovery and debited to cash
and credited to the reserve for bad debt.
Billing and Credit Adjustments
The credit department is not involved in billing and issuing credit adjustments. Any questions regarding
billing or credits that are posted on an account or why bills/credit adjustments have not been issued need
to be addressed with the appropriate office. All requests and appropriate paperwork to issue a credit or rebill any items are also to be directed to the appropriate office.

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