Collections (AR106)

Process Group/Policy Details

• Subject:  Accounts Receivable

• Process Group: Collections

• Title of Policy: AR_Collections

• Effective Date: 07/01/2014

• Approved/Revision Date: 07/01/2014

• Approved by: State Controller

Process Group Description:

Collections

• If customers do not pay for the goods and services delivered to them by the due date, CORE provides numerous approaches for performing collection activities, which include the use of dunning messages and collection letters, setting up payment plans, referring past due accounts to collections, and recording write offs.

• This process group includes certain provisions of the Accounts Receivable Collections Administrative Rule and the steps that departments need to follow to comply with the rule when referring accounts to Central Collections Services (CCS). For information regarding write offs, releases, and compromises, see AR.PO.07. Only regular receivables entered into CORE are eligible for the collection actions and transactions within CORE. Summary receivables entered into CORE will not use the CL transaction for flagging accounts as being sent to CCS. 

• CRS 24-30-202.4 states: “The controller shall advise and assist the various departments concerning the collection of debts due the State through such agencies, in accordance with rules and regulations promulgated by the executive director of the department of personnel, to achieve the prompt collection of debts due such agencies. The controller may delegate the responsibility for the collection of debts to the central collection services section of the division of finance and procurement, or any successor section, in the department.

• Upon referral to the controller of debts due the State, the controller shall institute procedures for collection thereof pursuant to the rules and regulations promulgated therefore by the executive director of the department of personnel.” 

• The executive director for the Department of Personnel & Administration (DPA) has issued the Accounts Receivable Collections Administrative Rule (the Rule) that establishes policies and procedures for the collection of debts due all departments and institutions (departments). The Rule does not outline a state-wide credit policy, nor does it have definitions for important terms involved in the collection of debts due the state. The policy below outlines the State of Colorado’s credit policy and provides departments with definitions of selected terms involved with receivables and receivable collections. The corresponding procedures also provide guidance on recording, reporting, and collecting debts due the state.

• The policy applies to debts due the state from sources other than federal, state, or local governments. The policy applies to all departments, unless specifically exempted by statute. If a department determines that compliance with this policy presents an undue hardship on the operations of the department, the department shall consult with the OSC on the need to deviate from the policy. CRS 23-5-113 states that the governing board of any Higher Education Institution may promulgate rules and regulations relating to the collection of any outstanding obligations owed to their institution.

Rationale or background to policy:

• In order to ensure that the Rule is properly and consistently applied, policy is required.

Policy Statement:

AR.PO.06 AR_Collections

State of Colorado Credit Policy

• It is the policy of the State of Colorado that:

  • • Departments implement policies and procedures that ensure prompt payment of amounts due the state. This includes developing and implementing a credit policy for the department. The department shall submit its credit policy to the Office of the State Controller for approval.

    • Departments, where possible, collect for goods or services provided at or before the time of delivery. When departments utilize credit cards, they are encouraged to institute a credit card acceptance procedure.

    • Departments extend credit only when required by statute or other administrative rule, or when collectability is reasonably assured and appropriate steps are taken to protect the interest of the State.

    • Departments provide a notification to the debtor regarding what appeal or disput rights are available.

    • All invoices, which represent an extension of credit under this policy, must include a due date when payment is required to be received by the department, unless the due date is otherwise specified by written agreement. The OSC recommends a due date of 30 days from the invoice date.

    • A final invoice which advises the debtor that the account is subject to final agency determination and will be referred to collections if not paid by the due date.

    • Departments shall not extend credit to individuals or businesses known to have outstanding debts or non-discharged debts resulting from a bankruptcy order within the past seven years of the most recent request for credit. Departments shall not accept personal checks for payments from individuals who have submitted checks previously that have not cleared the bank. Under these circumstances, departments shall receive payment for goods or services in advance or at the time the goods or services are provided.

State of Colorado Past Due Policy

• It is the policy of the State of Colorado that:

  • • The Office of the State Controller shall develop procedures for departments to identify and follow-up on past due receivables. Departments shall implement these procedures. This includes, but is not limited to, a periodic aging of all accounts receivable. Departments establish a due date that provides reasonable assurance of prompt payment by the recipient, when it is not feasible to collect payment at the time the goods or services are provided.

    • Departments reconcile internal records to reports issued by CCS showing past due accounts receivable amounts submitted to CCS for collection on a periodic basis, but not less than quarterly.

Procedures:

AR.PR.06.1 AR_ Establish Collection Agreement

• The COLLA table establishes Collection Agency Agreement numbers and defines collection agency information. A Collection Agency Agreement number must be established before a receivable may be referred to a collection agency. The COLLA table feeds into the BPRO table and is included as part of each billing profile. Because all state departments and participating Institutions of Higher Education use CCS as their collection agency, all billing profiles will be set up with the same collection agreement. See more information related to billing profiles at AR.PR.01.1.

AR.PR.06.2 AR_ Referral to Collections

Past Due Receivables

• When credit is voluntarily extended, a department must obtain sufficient information from the debtor to allow for collection efforts if the debt is not repaid on a timely basis. Departments must make every effort to obtain sufficient information from a debtor when the department is required to extend credit. The Rule includes relevant information that departments should obtain before extending credit.

• The Rule requires that:

  • Department’s bill for goods or services rendered as quickly as possible.

  • Departments establish a definite schedule of payment of the account receivable.

  • Departments refer all debts to the State Controller for collection when the debt is 30 days past due or in accordance with an approved alternative timeframe. This requirement is met by sending the past due accounts to CCS.

  • Departments should not refer debts in amounts less than $1.00 to CCS. Their system cancels any balance less than $1.00

• The Rule defines a debt as being “past due” if the debt has not been paid by the close of business on the due date.

• Departments shall ensure that the debts sent to CCS are valid debts, and that there are no underlying issues regarding the incurrence, amount, or timing of the debt.

• The due date is defined as the date when payment for invoiced goods or services must be made to the State, or the date(s) scheduled payments are due under a payment plan.

Exemptions from Timely Submission of Accounts to Central Collection Service (CCS) 

• Certain agencies have either a statutory exemption or a waiver from the State Controller extending the 30-day time frame for submitting past due accounts to CCS. Past due accounts, as defined by the Accounts Receivable Administrative Rule, include receivables 30 or more days past the due date established by the agency. The waivers granted by the Controller allow for additional time to submit accounts to CCS based on a specific or unique circumstance in that agency. The Office of the State Controller will periodically review these extensions to determine whether the circumstances for which they were given are still valid. Any agency wishing to apply for an extension should do so by submitting the “Accounts Receivable Collections Administrative Rule 1.37 - Extension Request of 30-Day Requirement” form. The form is located on the OSC’s website at: http://coloradoc2.prod.acquiasites.com/sites/default/files/Accounts%20Receivable%20Request%20Form.pdf.

Identifying a Receivable in CORE as being sent to CCS 

• Departments that have receivables in CORE will use the CL transaction in CORE to identify receivables that are past due and referred to CCS. The CL transaction can only reference RE transactions containing accounting lines with the event types of Billed Earned Revenue (AR01) or Billed Vendor Refund (AR30 and AR31). If an RE transaction has a combination of these event types and other event types in the accounting lines, a CL transaction cannot be used. The following types of receivables cannot be referenced on a CL transaction:

  •  Receivables containing accounting lines with outstanding balances against event types other than AR01, AR30, and AR31

  •  Summary receivables, regardless of event type

  •  Regular receivables with a billing profile code that specifies a Billing Type of No Billing Required.

• Additionally, there is a one-to-one relationship between an RE transaction and a CL transaction because only one vendor/customer line entry is allowed on a CL transaction.

• When creating CL transactions the outstanding amount on the accounting lines of an RE transaction are copied forward to ensure the correct balances are flagged as being at collections. Additionally, this process requires minimal data entry since most of the information is inferred onto the transaction from the RE transaction. Once a CL transaction is processed, it cannot be modified; it can only be or cancelled or copied forward to a CR if collection is made.

• Note that by preparing a CL transaction in CORE, the past due account is not submitted to CCS for the collections process, but is just marked as such in CORE. By creating the CL transaction, all billing is automatically suppressed. Additionally departments that are recording their detailed accounts receivables in systems external to CORE will not record any activity in CORE when a receivable is referred to CCS. This is because all receivable information recorded in CORE for such departments is on a summary level and only regular RE’s in CORE can be copied forward to a CL transaction.

Referring Past Due Receivables to CCS

• Whether recording detailed receivables in CORE or in a system external to CORE, departments should follow CCS’ procedures for submission of past due accounts. For more information on submission of accounts, see CCS’ website at www.colorado.gov/pacific/dfp/CCS.

AR.PR.06.3 AR_ Cancellation of items sent to collections

• Under certain circumstances, a department may determine that an account was inappropriately submitted to CCS, or other events have occurred that results in a need to recall the account from CCS. In this event, the department may submit a cancellation request to CCS. A cancellation stops all collection efforts and adjusts the account balance to zero on CCS’s database. Information on how to request a cancellation can be obtained from CCS.

• A cancellation request could occur under the following conditions:

  • The debt is cancelled, but remains in the accounting records:

    • A past due account is submitted to CCS by a department authorized to collect on past due accounts receivable using a means or method other than CCS, and the department chooses to use other means or methods to collect the debt. The receivable remains on the department’s accounting records.

    • A department receives payment to bring the account into current status within five working days of placing the account with CCS. The receivable remains on the department’s accounting records.

  • The debt is cancelled and is removed from the accounting records:

    • The department determines that the debt should never have been submitted to CCS because it was not a valid receivable or other similar reason. This includes debts submitted to CCS where collection efforts cannot proceed because the required debtor information or evidence supporting the underlying charge is not available. The department should remove the receivable from the department’s accounting records. As noted above, this should be an exception process. Departments should submit only valid receivables to CCS.

    • A loan guaranteed by the federal government or some other guarantee organization is in default and the loan is turned over to the guarantee organization for collection. The department should remove the loan from the department’s accounting records.

    • An order of bankruptcy discharge that identifies the state debt as being discharged. The department should remove the receivable from the department’s accounting records.

    • Death of the debtor with no estate to make a claim against, after being included in the next tax offset, if appropriate. The department should remove the receivable from the department’s accounting records.

  • A cancellation request should not be used to recall an account from CCS because of direct payment to the department after five days after assignment or to stop collection efforts because the department wants to forgive, settle, or otherwise compromise the amount that is due the state.

  • Within CORE, a CL transaction can be cancelled using the appropriate transaction action. When a CL transaction is cancelled, the RE transaction that was originally referenced by the CL transaction will be updated to reflect the open/outstanding amount.

AR.PR.06.4 AR_ Referral to Collections - Payment

• A department that receives a payment on an account already assigned to CCS, shall notify CCS within 30 days of receipt of such payment. CCS and/or contract vendors are entitled to commission on such payment. If such payment from a customer is intended to pay the balance in full on an account, the department should contact CCS prior to accepting payment to ensure the payment covers the customer’s outstanding balance as well as CCS’ commission amount.

• To record the receipt of payment in CORE, the Department will process a CR transaction with the AR02 or AR32 event types, depending on the nature of the receipt. If a department is recording its detailed accounts receivable within CORE, the CR transaction can be copied forward from the CL transaction.

AR.PR.06.5 AR_ Administrative Adjustment of Balances for Accounts Submitted to Central Collection Services

• Occasionally account amounts may need to be corrected. These corrections are referred to as administrative adjustments. Types of administrative adjustments may be:

  • When a department may need to change the principal or interest amount of debt reported to CCS as past due. Such an adjustment may be necessary due to an error or other principal change since the original amount was placed for collection.

  • Compromises of debt approved by the State Controller and State Treasurer are also treated as administrative adjustments. (For more information on compromises of debt see AR.PR.07.2.)

• When these occur, the department submits an adjustment report to CCS so that both entities books are in balance.

• Except in the case of compromises or settlements, collection efforts will continue on the remaining outstanding balance. CCS can provide information on how to report an adjustment to an account.

• An adjustment should not be requested when a payment is received directly by the department or as a means to settle, forgive or otherwise compromise an amount due the state that has not been approved by the State Controller and State Treasurer. Departments and CCS may also need to adjust their internal records because of minor differences between the two. The CCS system cancels any balance remaining on an account that is less than $1.00. Departments may make these miscellaneous (non-principal) adjustments to their internal records without the approval of the State Controller and without submitting an adjustment report to CCS. These generally occur with a final payment.

• Additionally, these types of adjustments should be less than ten dollars. Departments should make appropriate entries to their accounting records to reflect administrative adjustments made by CCS.