Collections.

Are your accouints in collections? If you have ever applied for a charge account, rental unit, a personal loan, establishment of a new checking, savings, money market account, insurance, or a job, your credit report -- more than likely -- was reviewed. This file, known as a consumer report, contains information on where you work, live, payment history, public records such as law suits, arrests or bankruptcy.

Companies that gather and sell this information are called credit reporting agencies,  or CRA's. The most common type of CRA is a credit bureau. The information CRA's sell about you to creditors, employers, insurers, and other businesses is called a consumer report.

CRA's are engaged in compiling information on individuals and businesses, and provide this information to financial institutions, retailers, and others who have a need to evaluate credit worthiness.

The articles within this section will provide you with some common questions and answers about consumer reports, credit reporting agencies and your rights under the Fair Credit Reporting Act .

In order to understand the collection process, we need to start at the beginning. A successful Credit/Collections Department is created by knowing the industry in which they operate in, and understands the requirements of Management, Sales and Operations, in addition to the requirements of a company's customers. Once needs are known, a set of guidelines are formed, and the Credit/Collections Department can begin to operate knowing what must be done in order to satisfy the needs of all parties involved.

In a nut shell, the purpose of the Credit Department is:

1. Determine Credit/Collection Policy and 
2. To Carry Out the Credit/Collection Policy.

Once basic credit philosophy has been decided upon, main credit policies are then established. These policies are generally concerned with the following:

1. Opening new accounts.
2. Establishing lines of credit.
3. Methods of lowering risk and increasing line of credit.
4. Maintaining credit on existing accounts.

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Collection Management is the other side of the Credit Management. Whatever money has been extended on credit must be collected. The first decision is to determine the basic credit and collection philosophy which are as follows:

1. Liberal credit, conservative collections.
2. Moderate credit, moderate collections.
3. Conservative credit, liberal collections.

Generally both credit and collection departments establish policies for the following issues:

1. Types of contact with customers.
2. When contact is made.
3. How customer's past due condition effect current customers or orders.
4. Stages of collection.
5. Collection on secured  or unsecured credit transactions.
6. Collection against liens & bonds
7. Use of the courts, outside attorneys or collection agencies.
8. Bad debt write off.
9. Reserves for bad debt.

In order to fulfill the above requirements, an organization must be equipped to handle all of the collection requirements either by being self contained and meeting staffing requirement, responsibilities and duties. Implementing a chain of command and lines of authority to oversee workflow productivity or by outsourcing bad debt to a collection agency.

As you can see, extending credit to either an individual or business takes careful planning, risk, in addition to office manpower to ensure that all steps have been properly followed and executed.

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