What does an effective collection policy typically include?

An effective collection policy primarily includes guidelines for handling overdue accounts and collections. This is essential because it establishes a structured approach that accounts receivable teams can follow when managing late payments. This structured process is crucial for minimizing financial risks and effectively recovering outstanding debts.

The guidelines provide clarity on actions to take at various stages, such as when an account becomes overdue, setting timelines for follow-ups, establishing who will contact the debtor, and outlining the methods of communication to be used. Such a policy helps ensure consistency and fairness in the treatment of all accounts, which can improve recovery rates and maintain good customer relationships.

While procedures for discount offers can be part of a broader financial strategy, they are not core to the collection policy itself. Although staff training requirements are important, they relate more to preparing staff to implement the overall policy rather than the policy's specific collection processes. Marketing strategies to gain new accounts do not pertain to the collection of existing overdue accounts, making them irrelevant to this particular context. Thus, focusing on guidelines for managing overdue accounts and collections highlights the critical nature of effective recovery processes in maintaining an organization's cash flow.