Accounts Receivable Guide
Tips for leaders, managers, supervisors
and accounts receivable clerks
Improving your processes:
Brought to you by the Center for Government Innovation,
a service of the Washington State Auditor’s Oce
First edition, April 2023
Table of Contents
Accounts Receivable Guide | 2
Disclaimer: is resource is provided for informational purposes only. It does not represent prescriptive guidance,
legal advice, an audit recommendation, or audit assurance. It does not relieve governments of their responsibilities
to assess risks, design appropriate controls, and make management decisions.
Leadership
Leadership sets policy
and direction for
nancial operations,
such as billing and
collections. They
also make important
decisions about the
overall structure of
control systems – how
accounts receivable
functions will be
organized, when to
invest in technology,
and what major
improvements will
be authorized.
Supervisors
Supervisors of the
accounts receivable
process monitor
billing and collection
activities to ensure
sta follow policies
and internal controls
operate as designed.
They monitor billing
accuracy, completeness,
and timeliness, as well
as oversee collections of
past-due accounts.
A/R Clerks
Accounts receivable
(A/R) clerks carry out
the daily tasks of billing
customers or debtors
and collecting past-
due accounts. They are
responsible for following
policies established
by leadership and the
internal control system
principles established by
management.
Managers
Managers carry out
policy decisions set by
leadership, determine
the design of internal
control systems, and
support system or
process improvements.
They strive to maximize
revenue from the billing
and collection processes
while reducing risks
related to fraud, errors,
or omissions.
Leadership
Start your accounts receivable policies today! __________________________________ 4
Tips to maximize revenue collection in the billing and collection system ____________ 8
Accounts Receivable Clerks ______________________________________________ 10
Supervisors ____________________________________________________________ 12
Managers _____________________________________________________________ 14
Summary
Accounts Receivable Guide | 3
Accounts receivable collects critical revenue from customers or debtors – a key
activity in supporting a government’s operations and service delivery. Governments
bill for taxes, various fees, and nes, and a multitude of services like utilities,
ambulance, property leasing, and port terminal operations (dockage and wharfage).
e billing and collection processes can be labor intensive, and any missteps can cost
your government greatly in foregone revenues and damage to customer trust. at is
why it is important to revisit this process and explore options to improve it. With
minimal investment and a few changes, you may be able to better optimize
your revenue collection.
We know the challenges governments face in managing billing
and collection systems, and in striking just the right balance
between internal controls and the costs of those controls.
Governments are busy managing daily operations, and they
do not always have the time to research better ways of
doing business.
Organization-wide policies are critical for setting the
direction and expectations for billing and collections.
If your government does not have policies covering
accounts receivable internal controls, this guide can
help you get started developing them. Although there
is no one solution that ts every government and every
situation, there are certainly some best practices, ideas,
and suggestions to consider.
We know you have limited time. at is why we have
prepared guidance for you, regardless of your role. We have
made it easy for you to nd just what is relevant to you. is
guide can be printed in sections and distributed to whomever is
in charge of certain responsibilities.
is guide is intended to provide ideas and best practices that can
help you build a stronger accounts receivable process. We hope you
nd it helpful in your work!
Organization-wide
policies are critical for
setting the direction
and expectations for
billing and collections.
POLIC Y
Leadership
Leaders
Leadership
Start your accounts receivable policies today!
Your government’s success with billing and collections can greatly aect your
revenue and cash ow. at is why it is important to develop guidance so your
sta understand the expectations and internal controls over this important
system. Here are some areas your policies should address:
Set the stage for billing
Your ability to collect payments depends on the timeliness and quality of the
billing information. Your policies should address areas like:
• Customer or debtor master le – Determine the controls over
setting up or changing customer or debtor information.
• Credit limits and deposits – Determine if you require a
credit review process and/or deposits for new customers
to protect your nancial interests.
• Rates or fee adoption – Adopt billing rates or fees
formally, or describe how you will determine them.
Adopt any discount rate or hardship programs,
if applicable.
• Rate or fee analysis – Determine if (and how oen)
you should analyze fees or rates to assess if they are
reasonable, recovering costs, and properly allocated
by category.
• Billing rate verication – Designate which sta are
responsible for updating billing rate tables and testing
changes to them.
• Billing timeline – Specify how quickly sta should prepare and
send billings aer the triggering event occurs (such as providing
service). If you operate a utility, address timelines for rst and nal
invoices for opening or closing accounts.
• Billing details – Describe what information your invoices must include, such
as detailed descriptions of the services performed or fees charged, contact
information should recipients have questions, translation information, or
any legally required disclosures.
• Payment terms – Determine how quickly customers or debtors should remit
payments to you, such as net 30 days.
• Billing process – Dene how sta should prepare or record invoices, and if they
are required to use a specic soware system.
• Billing reconciliations – Describe any required reconciliations to source records
that sta should perform.
Accounts Receivable Guide | 4
• Billing disputes – Outline your process for investigating and resolving disputed billings,
including notifying management for disputes not resolved within a certain time frame.
If one item is under dispute, consider requiring collection of all other amounts owed.
• Returned customer or debtor mail – Specify the number of days within which sta
should follow up on returned customer or debtor mail.
• Stand-alone billing systems – Describe the approval process for establishing a stand-alone
billing system (if they are allowed), how the subsidiary data will transfer to the general ledger,
and how it will be reconciled to the general ledger.
• Expectations of customers or debtors – Decide if you will expect customers or debtors
to provide remittance details with their payments.
• Error corrections – Describe how to handle overbilling or underbilling errors, and how
to apply or interpret relevant statutes, such as a statute of limitations.
Put parameters in place for payment posting
You need accurate payment posting so that your records are complete and reliable. Your policies
should address:
• Process – Include your payment posting requirements (e.g., the posting timeline,
and whether you require sta to post payments according to the customer’s or
debtor’s remittance advice).
• Daily reconciliations – Require that all payments received agree to all payments
posted (including payment method). Describe any other required reconciliations.
Develop guidelines for account adjustments
Sta can change the amount customers or debtors owe with credit memos, invoice
reversals, account adjustments, or balance transfers. erefore, it is important your
policies include some parameters. Key areas may include:
• Allowable types – List the types of allowable adjustments (e.g., correct a billing
error).
• Documentation – Specify the required documentation to support each adjustment type.
• Initiators – Explain who may initiate these transactions.
• Approvers – Designate someone responsible for approving and monitoring account
adjustments.
• Issuance – Determine how you will communicate each adjustment type to the customer or
debtor (e.g., monthly billing statement, credit memo).
Formalize your process for collecting past-due amounts
Your policies should communicate the steps that sta will take when collecting amounts owed.
You may have dierent processes for dierent transaction streams. Some areas to cover are:
• First contact – State when and how rst contact should occur to collect amounts owed.
Leadership
Accounts Receivable Guide | 5
• Subsequent collection eorts – Dene the specic collection actions that your sta will take,
the timeline for each one, and how they will escalate over time until payment is received or
the account is written o. Describe if and how the collection actions will change based on the
amounts owed or nature of the receivable.
• Clarity in communications – Address the form and content of collection correspondence, such
as requiring communications use plain language, explain additional costs for late payment or
collection agency referral, and translation information.
• Regulations – Address any state laws that prescribe certain collection procedures for a specic
transaction stream. In addition, make sure your policies comply with the federal Fair Debt
Collection Practices Act where applicable.
• Payment arrangements – Decide if you will allow payment arrangements and how they will be
approved, documented, and monitored. Also, address any limitations, such as dollar thresholds,
maximum time frame, or a maximum number allowed.
• Other hardship options – Describe clearly any additional hardship options and how
you will communicate them to ensure everyone has an equal opportunity to access them.
Examples might include fee waivers, penalty waivers, temporary billing pauses for certain
qualifying events, collection agency referral pauses, discount programs, crisis vouchers,
and options for more frequently billing.
• Legal involvement – Describe when sta should communicate with your legal counsel,
as issues can arise in the collection process that require legal assistance.
• Contracted collection agency – Specify when you will refer past-due accounts to
collections, at what dollar threshold, who will approve them, and how long the collection
agency has to collect them. List any exceptions you will allow. In addition, provide a
notication timeline for communicating with customers or debtors so they are given
proper notice of the referral.
Give direction for write-os
Write-os can save you from wasting resources and trying to collect the uncollectible.
Your policies should address areas like:
• Justication – List the allowable reasons for writing o accounts, when they will qualify, and
any associated criteria.
• Statute of limitations – Specify any statute of limitations for collecting certain transactions and
how that will aect your write-o process.
• Receipt of bankruptcy notices – Describe the process for evaluating and responding to these
notices, and whether sta should involve your legal counsel.
• Small balances – Decide if you will have a separate process for writing o small
balances, and specify your threshold.
• Approval – Describe the approval process for write-os, including who
reviews the preliminary listing of accounts and gives nal approval.
Leadership
Accounts Receivable Guide | 6
Leadership
Dene the monitoring activities
Monitoring plays an important role in the collection process. Your policies should set expectations
for those in a supervisory role. For example, your policies might cover:
• Monitoring of billing – Designate those responsible for monitoring the billing process and
explain how they should monitor (e.g., monitor outstanding billing disputes, review key
exception reports or queries for assessing billing accuracy or completeness, and/or evaluate
certain performance metrics).
• Monitoring of aged receivables – Determine how oen management should review an aged
receivable report for each billing and collection system, and how they should review it (e.g.,
compare to prior years, industry standards).
• Monitoring collection agencies – Describe how you will track the accounts assigned
to collections, who is responsible for monitoring collection agency reports, and any
performance expectations for collection agencies, such as minimum collection rate.
• Central nance – Describe your nance department’s role in potentially monitoring any
subsidiary or stand-alone billing and collection systems, such as those that might exist at
the department level.
• Review of bad-debt losses – Describe how management should analyze the losses you have
incurred (e.g., by customer, size of account).
Segregate conicting duties
Your policies should give some general guidelines about segregating duties. Here are some
considerations:
• Cash receipting – Ideally, your policies should restrict billing or collection sta from handling,
accepting, or posting payments. If this is not possible, describe how managers should monitor
to compensate for the increased fraud risk.
• Approvals – Your billing and collection sta should not approve transactions, as they already
process them.
For more information, see SAO’s Segregation of Duties Guide (section 2, chapter 2).
Financial reporting (GAAP reporting only)
If your government reports using generally accepted accounting principles (GAAP), your policies
should describe nancial reporting processes for accounts receivable. Here are a few items your
policies might cover:
• Estimating your allowance for doubtful accounts – Describe the methodology you will use
and how you will support signicant assumptions.
• Unbilled revenue – Explain your procedures for estimating the unbilled receivables that exist
as of year-end (the service has been provided but not yet billed).
• Reconciliation of billing soware modules to the general ledger – Designate responsibility
and how oen reconciliations should occur.
Accounts Receivable Guide | 7
Accounts Receivable Guide | 8
Leadership
Tips to maximize revenue collection in the
billing and collection system
Leaders can deploy resources in ways that increase the likelihood of collecting payments.
Consider these possibilities to improve your government’s process:
Set up your systems to be prompt
Send out invoices on time and begin collection eorts immediately aer an account is past due
(potentially the rst day it is late). is is the single most important factor in receiving timely
payment, but you must dedicate the necessary resources.
Centralize your accounts receivable system
Centralize your accounts receivable process as much as possible to enjoy benets like centralized
tracking, monitoring, and management. is practice reduces soware costs and allows you to
contact a debtor once for all amounts owed.
Use in-house collections as your primary means to collect
Use your sta as the primary means to perform collections. You are likely to have better success than
a collection agency, and you can avoid costly fees. It also allows you to identify and correct invoice
errors, provide better customer service, and better understand the reasons for nonpayment. You can
use collection agencies as a backup when stang is low or when you have completed your internal
collection eorts.
Provide access and training on skip-tracing tools
Skip tracing is the use of databases to nd information about someone. You can use it to
locate customers or debtors, but be sure to comply with any privacy laws. You can use
your own databases or those of other state or local governments (e.g., County Assessor,
Department of Motor Vehicles, Secretary of State, or Department of Labor and Industries).
Write o uncollectible accounts as soon as practical
Make sure you regularly write o uncollectible accounts so that sta are not wasting their
time and resources. is should include any accounts you cannot pursue, such as those
exceeding a statute of limitations, or where documentation is lacking. Also, consider
delegating authority to write o smaller accounts.
Seek alternatives if nes are bogging down your collections
Governments may impose a ne to motivate a third party to stop doing something or to take a
certain action. However, this practice can lead to the creation of many debtor accounts with a
very low collection rate. Oen, those ned lack the ability or motivation to pay, and governments
oen must expend considerable resources to try to collect. Explore alternative methods to
achieve your underlying objective so that you can free up collection sta time.
Leadership
Leadership
Strike a balance with late fees and penalties
Assessing late fees and penalties can be a reasonable tool for motivating payment, so long as you
are not overly aggressive. Otherwise, it becomes an obstacle to payment, as the amount owed can
quickly exceed the debtor’s ability to pay.
Currently, you may have varying late fees, penalties, or timeframes for dierent transactions, which
can lead to confusion and create challenges for those who owe money. Consider aligning the charges
and timing as much as possible when you have the legal exibility to do so.
Access debtor assets, wages, winnings, or refunds
Explore options like wage and bank matching to recover amounts owed. State agencies, counties,
cities, towns, school districts, re protection districts, port districts, and public utility districts
also can also access lottery winnings (RCW 67.70.255).
State agencies might consider a data-sharing agreement with other state agencies to identify
debtors who are owed refunds that can be applied to debts owed (contact your Assistant
Attorney General or the Department of Revenue, Department of Labor and Industries,
and Employment Security Department, which currently have such agreements).
State agencies that participate in the federal Treasury Oset Program may also
be able to access federal tax refunds. (Contact the Oce of Financial Management
for more information.)
Make it easy for debtors to pay you
is might include oering a host of payment options, methods, and plans. If you oer payment
plans, make sure you publicize options so that everyone has an equal opportunity to request them.
Optimize collection stang levels to maximize revenue
Agencies with lagging collection eorts frequently do not have enough sta. Governments
oen overlook the extent to which additional sta could collect money owed to them, thus
covering the cost of their position and more. Perform an analysis and use this data to support
a budget request, if needed.
Explore the costs and benets of automated options
Electronic billing reduces paper costs and delivers billings promptly. Online account
access provides customers or debtors the ability to access their information and get
answers to questions.
An automated collection system can interpret debtor data and prompt sta to collect
certain accounts (e.g., larger, higher probability of collection, or a history of negligence).
Such systems can also automate parts of the collection process, store key documents
online, send text messages to debtors, and even allow debtors to electronically agree
to a payment plan.
Accounts Receivable Guide | 9
Accounts Receivable Clerks
Accounts
Accounts receivable clerks
Remember these best practices when billing
or collecting
Your government counts on you to prepare billings accurately and help it collect
amounts owed so it can continue to provide services to its community. Follow these
best practices to help guide you along the way.
Let policies guide you
Always follow policies and procedures, and make sure you adhere to all internal
controls. If you have suggestions about how to improve your policies or procedures,
share them with your manager.
Spend quality time with your computer application
Get familiar with your accounts receivable application. Spend some time exploring
how the program works and the types of system reports available.
Maintain your customer or debtor master le
First, eliminate duplicate accounts, as they can complicate
collection eorts and lead to diculties when performing
research. Second, clear out old, obsolete records that are
outside of records retention laws. Lastly, spend time
collecting any missing customer or debtor billing
information, in case you need it to collect on
accounts later.
Make haste when preparing invoices
Perform billing promptly aer your agency provides
goods or services, or some other underlying event
has occurred that would trigger a bill. is helps your
government collect its revenue sooner and results in
more successful collection eorts.
Shine the light on the details
Make sure billings have sucient detail and clear explanations so that customers or
debtors can understand the underlying charges. Otherwise, the customer or debtor
may call or delay payment, prompting you to spend additional time and resources.
Accounts Receivable Guide | 10
Accounts Receivable Clerks
Be prepared to prove your case
It is not enough to say someone owes you money; the burden of proof is on your
government. Make sure you have documentation about amounts owed early so that
support is available at any point in the collection process.
Apply payments at the customer’s or debtor’s direction
In most cases, you should apply payments based on the details the customer or debtor
has provided (as per the remittance information that accompanies payment). at way,
you can have productive conversations about the makeup of a past-due balance.
Promptly begin collection eorts
e sooner that you begin collection eorts on past-due amounts, the more likely you
will be successful in collecting them.
Be smart about where you spend time
Consider the likelihood of collection, as well as the dollar amount owed, before devoting
time and resources to collecting amounts owed, especially if you have limited
resources.
Take time to do some sleuthing
You can use skip-tracing tools to nd information about a
customer or debtor. Your government may have information
about them in other databases or recordkeeping systems, or it
may have access to other external databases or tools.
Keep track of your collection eorts
Document all your communications, correspondence, and other
evidence of collection eorts with customers or debtors. at way, you
can demonstrate the actions you have taken to collect on the account.
Perseverance often pays o
You should maintain regular contact with the customer or debtor
until the amount outstanding is paid, written o, or referred to a
collection agency.
Accounts Receivable Guide | 11
Supervisors
Supervisors
Supervisors
Remember these best practices when overseeing
billing and collections
Supervisors conduct critical oversight to ensure accurate, timely billings and proper
performance of collection activities. Here are some tips to help you make sure your
oversight procedures are top notch:
Gain assurance over the quality of source data
Billings depend on accurate and complete underlying data. For example, utility bills rely
on accurate meter-read data. Make sure you are comfortable with the internal controls
over key inputs to your billing process. For best practices over meter-read data, refer to
SAO’s resource on this topic.
Stay on top of the “Big Three:” Accuracy, timeliness, and
completeness
Check that your billing process is accurate, timely, and complete. For accuracy,
this may involve verifying the billing rates or testing soware calculations.
For timeliness, you want to make sure billings are prepared promptly
and within your policy guidelines. For completeness, take steps to
make sure all source records result in the appropriate billing.
Scrutinize accounts receivable adjustments
Review adjustment activity to ensure it is appropriate,
accurate, and complies with your policies. As a designated
reviewer, you should generate your own exception report
or nd some other way to verify that you are reviewing
all the adjustment activity, including transfers between
accounts. Make sure to review the reasons for adjustments
(you may learn about billing errors or other issues that could
be resolved earlier in the billing process).
Keep tabs on open billing disputes
Monitor the nature and extent of outstanding billing disputes, and follow up
where needed. You should strive to resolve disputes in a timely manner, as
well as require customers to continue to pay charges unrelated to the dispute.
Monitor high-value and high-risk accounts
Develop a report to help you identify high-value and high-risk accounts so that you
can closely monitor collection eorts. Some examples of high-risk accounts include
those approaching a collection deadline (e.g., due to a statute of limitations), having
Accounts Receivable Guide | 12
a long history of nonpayment or disputes, or belonging to a related party or a business
experiencing nancial distress.
Assess collection sta’s performance
If you have a small collection sta, you can spot check their eorts by reviewing some
accounts, monitoring the collection rate, and reviewing an aged receivables report. If you
have a large collection sta, you can look at metrics like the number of calls or letters each
employee has prepared. You can also analyze the cost of collecting accounts and compare
that to industry norms.
Monitor accounts not sent to collections
If you use an external collection agency, develop a report to identify delinquent accounts
not referred to collections. Review it periodically to ensure the information meets your
expectations.
Evaluate collection agency results
Monitor collection agencies monthly by comparing data to historical information, that of
other collection agencies you might use, and industry norms. Focus on their collection rate
(amount collected as a percentage of total amount owed) and how many days it took them
to collect it. You should monitor this information for indicators that your sta did not
make a sucient attempt to collect before they referred it.
In addition, you should verify that the total amount the collection agency is pursuing
agrees to your records.
Check write-o activity
Review reports to ensure the proposed write-o amount is complete and accurate before
submitting it for approval. In addition, verify that sta have accurately updated your
system records aer write-o approval.
Regularly review an accounts receivable aging report
Review an accounts receivable aging report oen (e.g., weekly or monthly). Compare the
information to historical trends, review for individually signicant accounts, and follow
up on red ags.
Make sure your general ledger is complete and accurate
(GAAP reporting)
If your government reports under GAAP, ensure that all accounts receivables are recorded
in a billing and collection module, and each module is reconciled monthly to the general
ledger. Review for any accounts with credit balances, as these can represent money owed to
the customer or debtor and can understate the accounts receivable balance if unresolved.
Supervisors
Accounts Receivable Guide | 13
Supervisors
Payroll Guide | 14
Managers
Reduce your billing and collection risks
Billing and collection risks include fraud-related revenue loss, error, or mismanagement.
Managers can help reduce risks of revenue loss in these ways:
Monitor customer or debtor master le
A messy customer or debtor le can lead to sta billing the wrong account, wasted time
researching amounts owed, or collection actions that do not include everything that is
owed. Make sure that sta are keeping it free of duplicates and obsolete accounts.
Segregate incompatible duties
To reduce your government’s risk for fraud or error, the accounts receivable sta who
handle billings and collections should not have other roles like cash or check handling.
If you cannot segregate duties, then you should implement strong monitoring controls
covering specic risks. To learn more, see SAO’s Segregation of Duties Guide (section 2,
chapter 2).
Use third parties to receive cash receipts
is can reduce your fraud risk, especially if you
cannot segregate duties eectively. One option is a
bank lockbox service that collects and deposits
payments, and electronically transmits remittance
details. An added benet of a lockbox is that it can
reduce payment-posting errors and may free up sta
time to perform collection activities. Another option is
to directly receive payments via electronic funds transfer.
Review software permissions at least
once per year
Employees should have only the system permissions needed
to perform their job duties and no more. For example, only
those employees authorized to adjust customer balances should
have the ability to do so in the system. In addition, no employee
should have the ability to create, approve, and process a transaction
from start to nish – not even the manager.
Managers
Managers
Accounts Receivable Guide | 14
Managers
Make sure your records are accurate
Your records need to agree to those of your customers or debtors, or your sta will waste
time and resources when collecting past-due balances. Ask customers or debtors to provide
payment details and then require sta to post them according to their instructions. Make sure
that sta post payments promptly so that your records accurately reect what is
past due.
Impose restrictions for account adjustments, billing reversals, or
other credits
Billing or collection sta can use adjustments to conceal a the, avoid taking collection
action, or circumvent a write-o process. You should specically review controls over
adjustments and ensure the proper safeguards are in place. For example, this might include
ensuring adjustment limits are in place for certain levels of sta, clearly communicating
expectations about adjustment documentation, and establishing adequate oversight to
monitor adjustment activity.
Actively pursue collections until resolution
Make sure that your government has processes in place to actively pursue collections
until all accounts are paid or written o, or you will end up with a large build-up of
uncollectible accounts. It also sends the message that all customers and debtors are
expected to pay their bills.
Support stand-alone billing systems
Perform outreach to any departments engaged in billing or collections.
is should include communicating policies, performing oversight and
spot checks, and providing training. Remember, departments may
lack critical knowledge and resources, and collection activities
may not be a high priority.
Establish performance measures to identify
issues and opportunities
Establish realistic performance goals and create an action
plan if you do not meet them. Trend the metrics monthly
and compare results between your dierent billing systems.
Evaluate this information to identify opportunities. Some
example measures are:
• Number or percent of billings that were revised or corrected
(billing accuracy)
• A/R collection period or how many days it takes you to collect
payment. In general, you want less than a 60-day average collection
period. [To calculate it, divide your average accounts receivable balance
Accounts Receivable Guide | 15Accounts Receivable Guide | 15
(beginning A/R and ending A/R divided by two) by net credit (billed) sales for a specic
period, then multiply by 365 days.]
• Number of repeat delinquent accounts
• Collection to cost ratios (the amount collected for each dollar spent) to
determine the eciency of collecting on debt
• Collection rate (dollars collected divided by total billed)
• Percentage of A/R over 90 days (number of days can be adjusted)
• Percentage of customers or debtors paying late
• A/R turnover ratio (billings divided by average accounts receivable) – how quickly you
are collecting accounts receivable. e higher the number, the more ecient you are.
Give your controls a periodic check-up
Perform an in-depth internal control review annually or when changes are made.
Consider using SAO’s Internal Control Checklist for Accounts Receivable to evaluate
your control system.
Managers
Accounts Receivable Guide | 16
This self-assessment
checklist will help
you assess your
government’s internal
control environment
for the accounts
receivable function.
Accounts Receivable Guide | 17
This self-assessment
checklist will help
you assess your
government’s internal
control environment
for the accounts
receivable function.
Add these resources
to your tool belt
Accounts Receivable Guide | 18
Accounts Payable Guide
Tips for leaders, managers, supervisors
and accounts payable clerks
Improving your processes:
Brought to you by the Center for Government Innovation,
First edition, November 2021
Be sure to check out
our guides for Accounts
Payable, Cash Receipting,
and Payroll.
