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Credit and Collection Guidebook #362526

Course Overview

Credit

Amount

CPA

Course Author: Steven M. Bragg, CPA Field of Study (CPA): Accounting

Course Description

Course publication/revision date: This course was updated on 9/29/2026.

Delayed payments by customers can seriously impact the finances of a business, but it is usually necessary to offer some level of credit to them. The Credit and Collection Guidebook shows how to strike a balance between more sales and a reasonable amount of bad debt. It does so by focusing on when to extend credit to questionable customers and how to select the best approach to collecting from late-paying customers. The discussion includes credit policies, credit monitoring, collection techniques, and the necessary controls, procedures, and reports to manage the process. The course also addresses more advanced concepts, such as credit and collection technology, the role of product and service improvements, and litigation tactics.

Table of Contents

Chapter 1 - Credit and Collection Operations1

Overview of Credit and Collection Management	1
The Credit Conundrum	1
The Collections Janitor Role	2
Organizational Structure	2
Job Descriptions	2
Credit Manager Job Description	2
Credit Clerk Job Description	3
Collections Manager Job Description	4
Collector Job Description	4
Skip Tracer Job Description	5
Probationary Period	5
Work Allocations	6
Staff Training	7
Goal Setting	7
The Watch List	9
Counterproductive Goals	9
Staff Compensation	9
Interdepartmental Relations	10
Reports	11
Credit Levels Report	11
Receivables Aging Report	11
Bad Debt Report	12
Customer Profitability Report	12
Employee Experience	13

Chapter 2 - Credit Procedures15

Forms: Sales Order Form	15
Forms: Credit Application	16
The Credit Examination Procedure (Manual System)	17
The Credit Examination Procedure (Integrated System)	22

Chapter 3 - Credit Controls28

In-Process Credit Controls	28
Alternative Credit Control Systems	29
Control System for Manual Credit Management	29
Control System for Computerized Credit Management	30
Additional Credit Controls – Fraud Related	31
Additional Credit Controls – Periodic Actions	31
Additional Accounting Policies	32

Chapter 4 - Collection Procedures35

Forms: The Credit Memo Approval Form	35
The Collection Procedure	36
The Credit Memo Request Procedure	40
The Allowance for Expected Credit Losses Calculation Procedure	40

Chapter 5 - Collection Controls44

In-Process Collection Controls	44
Alternative Collection Control Systems	46
Additional Collection Controls	46
Additional Accounting Policies	47

Chapter 6 - The Credit Policy50

Overview of the Credit Policy	50
Credit Policy: Mission	51
Credit Policy: Goals	52
Credit Policy: Responsibilities	52
Credit Policy: Required Documentation	53
Credit Policy: Review Frequency	53
Credit Policy: Credit Calculation	54
Credit Policy: Terms of Sale	55
Credit Policy: Collection Methodology	55
Miscellaneous Provisions	56
Revision Frequency	58
Distribution of Credit Policy Revisions	59

Chapter 7 - The Credit Application62

The Credit Application	62
Adjustments to the Credit Application	64
The On-Line Credit Application	65
Trade References	66
The Incomplete Application	67
Updating the Credit Application	67

Chapter 8 - Customer Credit Ratings69

The Credit Rating	69
Internal Credit Rating Systems	69
Third Party Credit Ratings	72
Evaluating Credit Scores	73
Use of Credit Ratings	73
Credit Rating Errors	74
The Five Cs of Credit	74

Chapter 9 - Ongoing Credit Monitoring77

Credit Documentation	77
Indicators of Future Payment Delinquency	78
Ongoing Credit Monitoring Actions	80
Requests for Credit Increases	82
The Riskiest Customers	83
The Demanding Customer	83
Effects of Industry Credit Practices	84
Effects of General Economic Conditions	85

Chapter 10 - Interpretation of Financial Statements87

Interpretation of Financial Statements	87
Problems with Financial Statement Analysis	88
Horizontal Analysis	89
Vertical Analysis	90
Cash Coverage Ratio	92
Current Ratio	93
Quick Ratio	94
Liquidity Index	95
Accounts Payable Turnover Ratio	96
Accounts Receivable Turnover Ratio	97
Inventory Turnover Ratio	98
Fixed Asset Turnover Ratio	98
Sales to Working Capital Ratio	99
Debt to Equity Ratio	100
Fixed Charge Coverage	101
Breakeven Point	101
Gross Profit Ratio	102
Net Profit Ratio	103
Return on Net Assets	103
Altman Z Score	104
Essential Analysis Tools	105
Limitations of Ratio Analysis	105
The Going Concern Qualification	106

Chapter 11 - Credit Risk Reduction108

The Risk Reduction Concept	108
Payment Guarantees	109
Check Guarantees	110
Title Retention	110
UCC-1 Financing Statement	111
Purchase Money Security Interest	112
Inventory Consignment	112
Collateral	112
Credit Insurance	113
Factoring	114
Letters of Credit	114
Export-Import Guarantees	115
Outside Financing	116
Distributor Sales	116
Adjustment of Days to Pay	116
Cross-Selling Risk	117
Treatment of Customized Goods	117
Portfolio Approach to Risk	118
Alteration of Credit Terms	118

Chapter 12 - Customer Billings121

Billing Processing	121
Billing Processing	121
Analysis of Billing Processing	122
Billing of Change Orders	122
Efficient and Effective Billing	123
Payment in Advance	123
Bank Account Debits	123
Systems Integration	124
Buffer Staff	124
Contract Terms Verification	124
Funding Verification	124
Update Customer File	125
Invoice Layout Improvement	125
Complex Invoice Separation	126
Invoice Proofreading	126
Invoice Creation at Delivery Point	127
Invoice Creation at Shipping Dock	127
Electronic Invoice Delivery	128
On-line Invoice Entry	128
Shipping Log Exception Tracking	129
Practices to Avoid	129
Analysis of Efficient Billing	129
Statements of Account	131

Chapter 13 - Payment Handling134

Check Receipts	134
Check Receipt Improvements	135
The Bank Lockbox	135
Automatic Cash Application	136
Mailstop Number	137
Remote Deposit Capture	137
Special Check Endorsement Language	138

Chapter 14 - Collection Tactics140

Overview of Collection Tactics	140
Collection Tactics	141
Courtesy Calls	141
Grace Period Reduction	142
Dunning Letters	142
Check Payment by Fax or E-mail	144
NSF Check Resubmission	144
Pay Undisputed Line Items	145
Confirm Payment Date	145
In-Person Check Pickup	145
Take Back Merchandise	146
Hold Orders	146
ACH Debits	146
Split Payments	147
Postdated Checks	147
Interest and Penalties	147
Promissory Note	147
Salesperson Assistance	148
COD Roll	148
Barter	149
Arbitration	149
Attorney Letters	149
Final Demand Letter	150
Issue Small Claims Court Complaint	150
The Collection Reputation	150
Piercing the Corporate Veil	151
Credit Repayments	152
The Collection Call	152
Preparation	152
Scheduling	153
Phone Skills	153
Escalation	154
Documentation	154
In-Person Visits	154

Chapter 15 - Payment Deductions157

Deduction Management	157
Subject Matter Experts	157
Team Approach	158
The Deductions Process Flow	158
Mitigating the Deductions Backlog	159
Personal Visits	160
Salesperson Involvement	160
Repairs Department Involvement	161
Product Returns Management	161
Planned Deductions	161
Deduction Prevention	162
Customer Terminations	163
Small Discount Management	164
Early Payment Discounts	164

Chapter 16 - Skip Tracing167

Cost of Skip Tracing	167
Skip Tracing Information Sources	168
Fee-based Search Tools	170
Profile Reports	171
Social Media	171
Outsourced Skip Tracing	171
Profile of a Skip Tracer	172
Skip Tracing Documentation	172

Chapter 17 - The Collection Agency175

The Collection Agency	175
When to Use a Collection Agency	175
When to Refer an Account to a Collection Agency	177
Management of a Collection Agency	178
Selection Criteria	178
Pricing	178
Contract Terms	179
Speed of Referral	179
Paperwork Support	180
Effectiveness Issues	180
Fraudulent Customers	181
Liability Issues	181
Feedback Issues	181
Bonding	181
Payment Tracking	181
The In-House Collection Agency	182

Chapter 18 - Litigation and Bankruptcy Tactics184

The Litigation Process	184
Litigation Advance Preparation	185
Litigation Prescreening	185
Litigation Timing	186
Collection Trigger Points	186
Attorney Selection	187
Small Claims Court	187
Money Judgment Collection Tactics	188
Bankruptcy Activities	189
Asset Reclamation	190
Sell a Creditor Claim	191
Chapter 11 Bankruptcy	192
The Involuntary Bankruptcy Petition	192

Chapter 19 - The Allowance for Expected Credit Losses195

Estimation of the Allowance for Credit Losses	195
Historical Loss Rate Method	196
Aging Method	196
Risk Classification	197
Current Accounts Receivable Practical Expedient	197
Accounting for the Allowance for Credit Losses	197
Write-Offs	198
Recoveries	198
The Direct Write-Off Method	198
Management Review of the Allowance	199

Chapter 20 - Credit and Collection Technology201

Cloud-Based Receivables Platforms	201
Systems Integration	202
Workflow Automation	202
Customer Portals	202
Electronic Payment Integration	203
Communication Management	203
Artificial Intelligence and Collection Prioritization	203
Machine Learning and Credit Risk	204
Document Management	204
Payment Deduction and Dispute Management	205
Analytics and Dashboards	205
Cybersecurity and Data Privacy	205
Technology Vendor Evaluation	206
Summary	206

Chapter 21 - Product and Service Improvements208

Pricing	208
Incorrect Order	208
Product Quality	209
Shipping Damage	209
Field Servicing	210
The Improvement System	210

Chapter 22 - Credit and Collection Measurements213

Overview of Credit and Collection Measurements	213
Days Sales Outstanding	214
Best Possible DSO	215
Collection Effectiveness Index	216
Measurements Based on Time Buckets	217
Days Delinquent Sales Outstanding	218
Average Days to Pay per Collector	219
Collection Dispute Cycle Time	219
Deduction Turnover	219
Average Time to First Contact	220
Bad Debt Percentage	220
Collection Performance Report	221
Average Time to Establish Credit	222
General Management Measurements	222

Chapter 23 - Credit and Collection Laws225

CAN-SPAM Act	225
Equal Credit Opportunity Act	225
Fair and Accurate Credit Transactions Act (FACT)	226
Fair Credit Reporting Act	226
Fair Debt Collection Practices Act	226
Service Members Civil Relief Act (SMCRA)	227
Telephone Consumer Protection Act (TCPA)	227
Truth in Lending Act (TILA)	228

Answers to Chapter Questions230

Glossary245

Index248

Course Details

Author: Steven M. Bragg, CPA

Steven Bragg, CPA, has been the chief financial officer or controller of four companies, as well as a consulting manager at Ernst & Young. He received a master’s degree in finance from Bentley College, an MBA from Babson College, and a Bachelor’s degree in Economics from the University of Maine. He has been a two-time president of the Colorado Mountain Club, and is an avid alpine skier, mountain biker, and certified master diver. Mr. Bragg resides in Centennial, Colorado. He has written more than 300 books and courses, including New Controller Guidebook, GAAP Guidebook, and Payroll Management.

Publication/Revision Date: 9/29/2026

Course Exam Questions (online): 70 (multiple-choice)

Program Delivery Method: NASBA QAS Self-Study

Available Formats of Course Text: PDF or PDF plus printed copy sent in the mail

Course Level, Prerequisites, and Advance Preparation Requirements

License	Course Level	Prerequisites	Advance Preparation Requirements
CPA	Overview	None	None

Sponsor ID Numbers

National Registry of CPE Sponsors ID: 107615

State CPA Board Sponsor ID Numbers (where applicable)

Florida Division of Certified Public Accounting: 0004761

Hawaii Board of Public Accountancy: 14003

New York State Board for Public Accountancy: 002146

Ohio Accountancy Board: CPE .51 PSR

Pennsylvania State Board of Accountancy: PX178025

Texas State Board of Public Accountancy: 009349

Learning Objectives

As a result of studying the course material, you should be able to meet the objectives listed below:

Specify the roles of the various employees of the credit and collection functions.
Identify the key procedures and forms needed to operate the credit function.
Cite the key controls needed for the credit function, and note what they are intended to accomplish.
State the key procedures and forms needed to operate the collection function, and the situations in which they are applicable.
Identify the key controls needed for the collection function.
Identify the main elements of a credit policy, and note the situations in which the policy may be changed.
Cite the contents and handling of a credit application, and note why this process is used.
State the methodologies available for developing credit ratings, and the situations in which credit rating systems can be used.
Itemize the events that can trigger a credit review.
Identify the methods that can be used to interpret the financial statements of a customer.
Cite the methods available for mitigating the risk associated with granting credit.
State the methods used to achieve an efficient and effective billing process.
Itemize the methods available for processing customer payments, and note who is involved in this activity.
Identify the primary tactics used to collect cash from customers, and note how these tactics can be improved.
Cite the management techniques used to deal with payment deductions made by customers.
State the sources of information used to locate customers via skip tracing, and the circumstances under which skip tracing might be necessary.
Specify the reasons for using a collection agency, when to use one, and the fee structures they employ.
Identify the reasons for using litigation, and the methods for collecting on favorable judgments.
Specify the classification of the allowance for expected credit losses.
Cite the methods used to estimate the amount of the allowance for expected credit losses, and how to account for this allowance.
State the types of technology that can support the credit and collection functions.
Identify the areas in which other parts of a company can cause collection problems, and how to mitigate these problems.
Identify the key measurements used to evaluate the performance of credit and collections, and note how these measurements should be used.
Cite the key laws that impact the credit and collection functions.

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