Credit Policy - 2

XXX Ltd..- Credit Dept.
Credit Process: Policy & Procedure Page 1 29/04/2015
CREDIT CONTROL: POLICY & PROCEDURE
Version 1.0 : Prepared by: Peter Joseph. Date of Release : 15th January 2015 Page 1
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 Customers 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 channels 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 / magistrates name
5. The judicial clerks name and contact terminals
6. The police stations 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. Advocates 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 customers 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 customers 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 Personnels 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 Distributorsh
drop down) ip
Private
Client Business Category ( Pls. use Sector Pvt.
drop down) Ltd. Co.
Work order / Quote status ( Pls. use Tender / Work
drop down) order Received
Prospective
Client Name Blue Star Ltd.
Registered
Office Address Blue Star House, Saki Naka,
Andheri - East
State : Maharashtra City : Mumbai
Fax:022-
Pin code : 400 054 Landline : 022 - 40037445 28784141
Billing and Correspondence

Address Blue Star Ltd.
Blue Star House, Saki Naka,
Andheri - East
Fax:022-
Pin code : 400 054 Landline : 022 - 40037445 28784141
Email ID : harsha.pandit@bluestar.com
Contact Name & De Procurement

Person Details Dept.: Mr. Harsha Pandit pt. (2nd Floor)
Address: Blue Star House, Saki Naka,
Andheri - East
Landline : 022 - 40037445 Fax:022-
Pin code : 400 054 Ext. 2342 28784141
Cellular No. OR other personal contact details : 09240187836
Email ID : harsha.pandit@bluestar.com;
harsha2008@rediffmail.com
Designation : Manager - Projects (Mumbai Metro project)
Name & Previous

A/c code: 1600C00226
Existing Customer : with Outstanding Amt. Age of
sister concern / Associate INR: 1,25,456 A.R : 2 yrs and 8 months
concerns Details
Expected date of collecting the The major portion of O/s. pertains to TDS shall
existing O/s. : be collected by SEP09
CREDIT CREDIT GRANTED
REQUEST (Days) 90 (Days)
(Value
Rs.) 25,00,000 (Value)
Next Review Weekly Monthly Quartley Semi Quartley Annually

Statutory Registration information
Regn Remarks / Values
Particulars
Regn No Location Eff. Date in crores
Sales Tax : Central & Local
Tax Identification Number
(TIN)
PAN No.
Total Purchases as on
578 crores
31.03.09 (MANDATORY)
Total Creditors as on
82 crores
31.03.09 (MANDATORY)
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 Pay's on
time. reminding
Habitually
delaying or
Pay's in time X postponing.
Requesting
Channel : Industrial
Requesting
Location : Bangalore, Karnataka
Requesting
SBU :
Signature
Prepared
By Business Head Head Credit Control CFO
Peter
Names: 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 years) TO BE
AVAILED FOR BETTER ANALYSIS (pls. refer template)
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 Bankers Reference form
SPECIMEN : BANK REFERENCE FORM: Template for Review:
Bank Reference Sample Document from Credit Guru
ABC Bank [Your Bank] Please respond within 48 hrs and return
completed form to:[Your Name, Phone and Fax number]
Branch #:
Address
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: Please respond within 48 hrs and return
To, Name of the company providing the Credit Reference 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
31.03.2 % Change
Financial Statement Date 31.03.2012 011 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)
7% of
Turnover Method Turnover 265 223
25% of Net
Net Worth Method 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
Recove
ry
Cycle is
Good,
we can
reduce
credit
tenor
to 30
DSO 7 days
Average
Purchases 1,58,428
DPO 5
Average
COS 1,45,308
Very
high
Invento
ry
Holdin
DIO 109 g
CCC(DIO+D
SO-DPO) 111
Very
Poor
(CAN
RUN
INTO
FINANC
IAL
CASH
CRUNC
Quick Ratio 0.08 H)
Current
Ratio 1.17 OK
Debtors
Turnover 54
only 4
times
churn
of
invento
ry per
Inventory year
Turnover 3.73 (low)
Net
Working
Capital 24,12,336 CA-CL
Capital
+
Reserv
es &
Net Worth 31,75,699 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
= Op. Stock + Purchases - Clo.Stock (or) Sales -
Cost of Sales / Cost of Goods Sold 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 (C/L generally not to
25 % of Net Worth 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
Post Dated Cheque/Filled in Security Cheque /
3 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
Weight Weightage
Parameters Score age 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 managers 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
managers 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 & Accounts 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 Personnels).
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 Revenue loss :

:Reason codes 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 days credit availed by the Customer, the
collections: monthly modular target is set for each XYZ LTD. Sales / Marketing
Personnel.
AR Age %
buckets colle
(Value) ction COLLECTION TARGET % Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15
7,27,76, GREEN ZONE : 0-120

782 100 days (As per due date) 65 15 10 10
1,29,36, YELLOW ZONE : 121-180

757 95 days 20 20 20 20 15
70,93,14 RED ZONE : 181-360

9 80 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 2,54,71, 2,54,71, 72,77,67 72,77,67 72,77,6

days 874 874 8 8 78
YELLOW ZONE : 121-180 25,87,3 25,87,35 25,87,35 25,87,35 19,40,5

days 51 1 1 1 14 - - -
RED ZONE : 181-360 10,63,9 14,18,63 10,63,97 10,63,97 10,63,9

days 72 0 2 2 72 - - -
PINK ZONE : > 361 days 62,800 62,800 94,200 62,800 62,800 62,800 62,800 62,800
2,91,85, 2,95,40, 1,10,23, 1,09,91,8 1,03,44,

COLLECTIONS FROM AR : 997 655 202 02 964 62,800 62,800 62,800
5,00,00, 5,00,00, 5,00,00,

BUDGETED SALES 000 000 000
Collection from Jan-15

100 Sales 10 30 35 20 5
Collection from Feb-15
100 Sales 10 30 35 20 5
Collection from Mar-15
100 Sales 10 30 35 20 5
COLLECTIONS FROM 50,00,00 2,00,00, 3,75,00,0 4,25,00, 3,00,00, 1,25,00, 25,00,00

SALES : - 0 000 00 000 000 000 0
TOTAL COLLECTION 2,91,85, 3,45,40, 3,10,23, 4,84,91,8 5,28,44, 3,00,62, 1,25,62, 25,62,80
TARGET 997 655 202 02 964 800 800 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 months 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
31 January
RUN MONTH 2015
M
A
AP Y
R1 1 JUN JUL AUG SEP
PARTICULARS / MONTHS JAN15 FEB15 MAR15 5 5 15 15 15 15
7
4
,
As per collection TARGET
7
(linked to the collection 74,7 3 32,52 17,11
target file) 2,56,023 1,17,260 74,739 39 9 1 8 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
2
Variation in Targeted Collections ,
(based on the collection 3
estimates model worked on 4,72 6
REVENUE : refer adjoining GRID) 4,722 18,886 14,165 2 1 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
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

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 :
Invoice No.
Sr. No. Date 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 specimens 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
Person responsible for
collection : Mukundan Iyer CIN NO.
Custome
Receipt no.: =========> r Code: 1600A10009
Inv. Amt.
to be
Ch. # Ch. Dt. Ch.Amt Bank & Branch CIN dt. Inv. # Inv. Dt. allocated
02/08/20 1,43,930. SBT, Chennai 04/08/200
123456 09 70 main 9
Division
4-Feb-
DISTRIBUTOR D711201797 09 40,000.00
2-May-
D711201798 09 50,000.00
3-Apr-
AGENCY D711201799 09 30,000.00
3-Mar-
CONSIGNEE D711201729 09 9,000.00
3-Mar-
D711201730 09 6,000.00
4-Mar-
D711201741 09 15,000.00
1,50,000.
Total Gross 00
Deduction details / ( TDS CATEGORY) CONTRACTOR PROF. CONTRACTO
=============> S fees RS
Sectors USE DROP DOWN ==========> DISTRIBUTOR AGENCY CONSIGNEE Total
Rate % Value Value Value Value Value
1,50,000.
Gross Amt ========> 90,000.00 30000 30000 00
TDS Contracto 2.266 2,039.40 2,039.40
rs
Proff.
TDS Fees 11.330 3399 3,399.00
Contracto 6,069.3
TDS rs 2.266 679.8 0 630.00
Retention 0.00
Other deductions 0.00 0.00
Total Deductions 2,039.40 3,399.00 679.80 0.00 6,069.30
1,43,930.
Net Cheque Amt. 87,960.60 26,601.00 29,320.20 0.00 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 customers 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 banks 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 customers 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 Employees 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 its 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. cashiers 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 customers 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
Customers 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 XYZ LTD. Sales CEO
Customer OR / Marketing
GROUP of Customer OR GROUP OF SISTER Personnel
CONCERN Head: Jointly
Of the Customer with CFO
Value of write off per Customer < 50K per XYZ LTD. Sales CEO
Customer OR / Marketing
GROUP of Customer OR GROUP OF SISTER Personnel
CONCERN Head: Jointly
Of the Customer with Finance
Controller
Page 42
Credit Process: Policy & Procedure 29/04/2015
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 its a project outstanding and the
collection follow up is done by multiple Personnel then the Branch Managers
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 drawers 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 drawers 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 drawers 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
drawers 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

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XXX Ltd..- Credit Dept.

Credit Process: Policy & Procedure Page 1 29/04/2015

CREDIT CONTROL: POLICY & PROCEDURE

Credit Process: Policy & Procedure

1. XYZ LTD. a Corporate Overview ( Pg#: 03)

XYZ LTD. a Corporate Overview

Credit Process: Policy & Procedure

XYZ LTD.s Current Business Summary:

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

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

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

Existing Legal Cases with XYZ LTD. Customers :

1. Name of the customer

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

o Last 3 years Audited Financial Results

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

Billing and Correspondence

Contact Name & De Procurement

Name & Previous

Next Review Weekly Monthly Quartley Semi Quartley Annually

2.0 Credit Rating and limits (Days & Value)

For prospective Customers:

Prospective customer profiling using the following techniques:

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

2. Trade Reference Form and Bankers Reference form

Company Name: [Customer's Name]

Operating Loans: Secured Unsecured

Term Loans: Secured Unsecured

Average Balance: Deposit Accounts

NSF Activity [last 3 months]

Date: ____________________________ AuthorizedOfficer:______________________

Credit Reference: Sample Document from Credit Guru

Credit Limit in the past 1 year has:

High Credit given:

Low Credit given:

Average Payment Performance:

Industry Your Company belongs to:

Any other Comments:

COMPANY NAME CITY STATE

Paras PVC Pipes & Fittings

CONTACT IN A/P : EMAIL:

DATE OF INCORPORATION BUSINESS: CIN NO. (For Private

CONSTITUTION GROUP COMPANIES:

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%

AVG. PAYMENT PERIOD (DAYS) 33 47

YEARLY SALES 3,788 3,188 19%

COST OF SALES 3,094 2,706 14%

YEARLY PURCHASES 2,994 2,863

NET PROFIT 42 58 -28%

CASH PROFIT 79 96 -18%

NET WORTH 610 568 7%

TOTAL LIABILITIES 723 776 -7%

Net Working Capital Method 25% of NWC 117 89

Gross Profit Method 50% of GP 347 241

Gross Profit 54,63,505

Customer Name: Location:

Contact Person in A/P: Email:

Date Established: Nature of Business:

Date: ______ AuthorizedOfficer: