order from you on his last two trips. Now if you have any cause for
dissatisfaction, we would like to have you tell us, as we are more
than anxious to please you, and would certainly appreciate your future
orders.
Very truly yours,
One point in this letter, to which special attention is called, is the
absence of the word _dishonor_. Technically, when a draft is not paid
it is dishonored, but the word has an ugly sound; the word _unpaid_
is less harsh, yet conveys the desired meaning. While it is sometimes
necessary to be quite emphatic, nothing is gained by adopting a tone
calculated to arouse the antagonism of the debtor. The time-honored
axiom that "More flies can be caught with sugar than with vinegar," is
given a special force when considered in connection with collection
letters.
Naturally, these letters must be varied to suit the business, the
season, and general trade conditions. They are not submitted as models,
to be used under all circumstances, but to impart an idea--the idea
of _tone_, the sugar coating which is so essential in keeping the
recipient in the right frame of mind. Politely request, ask plainly for
what you want, firmly demand, but never threaten until you are prepared
to carry out your threat. This is a safe rule to follow in handling
collections.
COLLECTION SYSTEMS
In the successful handling of collections, a requisite is promptness.
There must be a system that will insure bringing collections to notice
at the right time. Without attempting to lay down specific systems for
individual concerns, detailed descriptions of systems that have been
found satisfactory in different businesses are given herein.
=Duplicate Invoices.= The tendency at the present time is to regard
each invoice as a separate account, and to regard each as due at the
end of the time specified--thirty, sixty, or ninety days. An exception
is found in the accounts of city customers. A wholesale merchant may
have customers in his own city who buy in small quantities, placing
orders nearly every day. The usual rule is to regard these as monthly
accounts, the account for one month being due the 15th of the following
month. For out-of-town customers, however, the first plan is found more
satisfactory.
A certain large manufacturer, whose business is world wide, treats each
invoice as a separate account, and handles the collections in a very
simple manner. All invoices are made in duplicate, the original going
to the customer. From the duplicate, all entries are made on the books.
If special terms are granted, these terms are stamped on the back of
the duplicate invoice.
[Illustration: Fig. 14. Collection Card for Each Invoice]
When it has served the purpose in the accounting department, the
duplicate invoice is returned to the collection desk. Here it is filed
under the date on which it is due.
The file is a simple arrangement of pigeon holes. A case containing
sixty pigeon holes, large enough to hold invoices laid flat, is used.
These pigeon holes are divided into two sets of thirty each, one above
the other, and each set is numbered from _1_ to _30_. This number
provides for filing ahead sixty days, which is the longest credit term
allowed.
In operating the filing system, the two sets of pigeon holes represent
alternate months. During January, bills due in March are filed in
the upper pigeon holes; in February, bills due in April are filed in
the lower case. Each day the bills due are removed from the file for
attention, leaving the pigeon hole empty for filing bills due sixty
days ahead. On March 10th, for instance, bills are removed from the
_No. 10_ pigeon hole of the upper case; the current day's bills, due
May 10th, are then filed in the same pigeon hole.
[Illustration: Fig. 15. Card Tickler for Collections]
When bills come out for attention, they are referred to the accounting
department to find if they have been paid. For those not paid,
statements are prepared and returned with the bills to the collection
desks. The usual letters are written, and all past due bills are held
in a desk tickler, that they may be followed up from day to day by the
collection clerk.
This system can be operated with the regular tickler file, but for
a large number of bills the pigeon holes are more convenient. A
modification is necessary, also, when the bill and charge system is
used. In that case, an extra copy of the invoice should be made for the
use of the collection clerk.
[Illustration: IN THE GENERAL OFFICES OF CORBIN CABINET LOCK COMPANY,
NEW BRITAIN, CONN.]
=Card Tickler.= A very convenient method, where it is not deemed
advisable to use duplicate invoices, is to fill in a collection card
for each invoice.
A card, printed similarly to the form shown in Fig. 14, is filed under
the date on which the account is due. Each day, all cards filed under
that date are removed for attention. The first step is to compare the
cards with the ledger accounts. If the account has been paid, the card
is destroyed; if not, a statement is sent and the card filed ahead to
the next follow-up date. All letters written and all steps taken are
noted on the card, so that in the end it presents a complete history of
the efforts made to collect the account.
[Illustration: Fig. 16. Collection Card for Alphabetical Cross-Indexing]
A slightly different form of card, which is used in the same manner, is
shown in Fig. 15.
=Cross-Indexing.= The same objection exists in regard to the use of the
tickler card for collections as for other follow-up purposes, which is
the difficulty of finding the cards. Every time a card is removed from
the file it is necessary to compare it with the ledger to find if the
account has been paid.
To overcome the difficulty, a card with an alphabetical tab is used to
good advantage. Such a card is shown in Fig. 16. It will be noted that
this card bears a tab printed with the letter _G_. A card with this
tab is used for every name that commences with _G_, and as all _G_ tabs
are in the same position on the card, they will be in direct line from
front to back of the file.
The cards are filed by dates, but each day all remittances are sent to
the collection desk, that the cards representing accounts that have
been paid may be removed. All cards may be found by name, by referring
to the lettered tabs, thus Brown's card will be found in the row of _B_
tabs.
[Illustration: Fig. 17. Collection Card for Cross-Indexing by Date]
Another method of cross-indexing the collection file is to have the
numbers from _1_ to _31_, representing the days of the month, printed
across the top of the card, as shown in Fig. 17. To indicate the due
date a metal tab is placed over the proper number, a red tab being used
for succeeding months and a black tab for the current month.
The cards are filed alphabetically by name, or subdivided by states and
towns, so that any desired card can be found instantly. Each day all
cards having tabs over that date are removed for attention. On the
first of the month those bearing red tabs are referred to, and if due
in the current month, black tabs are substituted.
=Monthly Statements.= In some houses, it is the practice to follow up
collections on the basis of the monthly statement, instead of treating
each invoice independently. When this is done the collection record
must include a synopsis of the entire account. The card shown in Fig.
18 is used for following collections on such accounts. This form shows
the date and amount of statements, with interest added, date and
amount of drafts, and dates and amounts of payments. Other columns are
provided for a record of letters, promises, extensions, etc.
[Illustration: Fig. 18. Collection Card Showing Synopsis of Entire
Account]
This card is handled in exactly the same manner as it would be if used
for a single invoice. While the card shown is used in a tickler, it
would be improved by the addition of the numbers across the top, which
would permit of alphabetical indexing.
=Local Collections.= Collections from local customers are usually made
by collectors. In handling such collections, a system that will enable
the office to keep track of the work of each collector is necessary.
[Illustration: Fig. 19. Triplicate Statement for Collectors]
One large mercantile concern has solved the problem by using the
following system. This concern has a large number of customers who make
frequent purchases. For convenience, the city is divided into four
sections, one for each week in the month. Each section is divided into
five parts, representing the days of the week from Monday to Friday,
inclusive. One collector covers the entire city, calling on each
customer once a month.
Arrangements are made with the customers in each section to pay their
bills at a certain time each month--the bills of all customers in the
first section are collectible during the first week in the month. Each
customer knows, also, on what day of the week he is to expect the
collector.
Statements are made Saturday morning for all accounts to be collected
the following week. These statements are made in triplicate, as shown
in Fig. 19. Two copies are given to the collector, who arranges them in
a file according to his daily routes. One copy is kept in the office,
filed by routes.
When the collector makes his call, he receipts one copy of the
statement and delivers it to the customer. The second copy is kept by
the collector and turned in with the collection. If the customer is
not found, or if he fails to pay, both copies of the statement must be
turned in by the collector.
Each morning the collector makes his report for the previous day.
The cashier compares the collector's report with his copies of the
statements, and, as the collector must turn in both of his copies when
no payment has been made, a safe check is had on the collector. To
make the check more positive, it is the custom of the cashier to mail
a copy of the statement to those customers who have made no payments,
or partial payments, requesting them to compare with their records and
advise if any discrepancies are found. This makes it impossible for the
collector to hold out collections without detection.
=Collecting from the Ledger.= In many houses having no organized credit
department, the collections are handled by the bookkeeper. When this
work is added to his many other duties, the bookkeeper is obliged to
devise some scheme that will eliminate detail--he has no time to make
additional records. His method is to follow up collections direct from
the ledger.
But there must be some method of bringing the accounts to notice when
they require attention--an automatic system. The most simple scheme
is shown in Fig. 20. Across the end of the ledger sheet--which is
loose-leaf--- numbers representing the days of the month are printed,
and metal markers, or tabs, are attached over the due dates.
To represent different stages in the collection of the accounts,
different colors are used. When a charge is posted to the ledger sheet,
a black tab is placed over the date on which the bill falls due. When
payments are posted the tabs are removed, provided the account is paid
in full; otherwise it is moved forward to the next due date. After
the day's remittances are posted, all sheets with black tabs over the
current date are referred to, and statements made. At the same time,
white tabs are substituted for the black.
[Illustration: Fig. 20. Loose-Leaf Ledger Cross-Indexed for Due Dates]
[Illustration: Fig. 21. Quadruplicate Draft Form which Includes Letters
of Advice to Bank and Drawee]
The next step is to make drafts for all accounts on which white tabs
have appeared ten days, that is, on the 10th drafts are made for all
accounts with white tabs over the 30th. Blue tabs are then substituted
for white. If the draft is returned, a red tab is substituted. The red
tabs indicate accounts past due, which are subject to such action as
may be considered advisable. This ledger sheet, with the adjustable
tabs, insures attention to collections, regardless of the method of
filing.
=Handling Drafts.= When drafts are used extensively, considerable
detail is involved in handling the records. Any method that will reduce
this detail means a material reduction in the expense of conducting the
work of the collection desk.
The usual method is to write the draft and register it in a draft
record book. Then the necessary record is made on the collection
card. A draft register is used that there may be a record showing the
aggregate of drafts outstanding, and the number and amount in the hands
of each bank--where drafts are sent direct, instead of through a local
bank. The next step is to write a letter of advice to the bank. This
method necessitates writing the names of the bank, the drawee, and the
amount of the draft three times--on the draft, letter of advice, and
draft register.
By the use of properly designed forms, this duplication can be avoided.
Fig. 21 shows a set of forms designed for the purpose. _A_ is the
original draft, _B_ is the letter of advice to the bank, _C_ is a
letter of advice to the drawee, and _D_ is the office record. The
draft, _A_, is attached to the letter of advice, _B_, and is detached
by the bank. The four forms are so printed that the date, name of the
bank, amount, and name and address of the drawee register perfectly.
The blanks are properly spaced for use in a typewriter, and all copies
are made with one writing.
Copies _A_ and _B_ are mailed to the bank, and _C_ to the drawee. From
copy _D_ the record is made on the collection card, after which it is
filed in a card tray, under the name of the bank. This keeps copies
of all drafts sent to each bank together, and the total of all drafts
outstanding is quickly obtained on an adding machine. When payments are
made, or drafts are returned, these copies are removed from the files.
Frequent reference to the file insures the necessary follow-up on banks
that are slow in reporting.
=Installment Collections.= Probably the most difficult class of
accounts to handle from a collection standpoint is installment
accounts. Payments are quite irregular, both as to time and amount, and
frequent changes of address make it difficult to keep track of debtors.
[Illustration: Fig. 22. Contract for Installment Sales]
The collector of installment accounts must have the faculty of
meeting and satisfying all sorts of people. He is obliged to listen
to hard-luck tales without number, and while sympathizing with the
customers, must be patiently persistent. If unable to collect the
dollar due, he will accept a half-dollar to keep the account active. So
long as he collects _something_, each time a payment is due, he is in
a position to make the debtor feel the importance of the contract, but
let one or two collection days go by without a payment, and the debtor
has the upper hand. He then feels that he can stand-off the collector
whenever he happens to have other uses for his money, a condition which
becomes increasingly frequent.
An installment dealer will nurse an account to the limit, rather than
take back the goods he has sold. Once he has collected the cost of the
article, he will accept payments of almost any amount, but it will not
do to let the debtor know how lenient he is prepared to be; at least a
semblance of enforcing the contract must be kept up.
[Illustration: Fig. 23. Installment Contract Register]
The most familiar branch of the installment business is the sale of
house furnishings and pianos. The sale of house furnishings on the
installment plan is rapidly increasing, and probably more pianos are
sold on this than any other plan. Furniture dealers who formerly sold
only for cash or on approved credits, are finding profitable business
among the better class of installment buyers.
Installment sales are made on contracts, or leases, which provide that
title to the goods shall be held by the seller until all payments have
been made, and that the right of possession shall be forfeited by the
buyer if he fails to make any payment when due. When the contract is
folded, the outside shows a form printed as in Fig. 22. This particular
form is used by a musical instrument house.
At the head of the form is shown the contract number, amount, date of
contract and collection date, name and address of the buyer, and the
name, number, and make of instrument. Below is space for a record of
payments, divided as to principal and interest, with the names of the
collectors. When a sale is made, a contract is made in duplicate, the
original remaining in possession of the seller and the duplicate being
given to the purchaser.
[Illustration: Fig. 24. Ledger for Installment Accounts]
=Installment Register.= All contracts are registered in numerical
order, in an installment register ruled as shown in Fig. 23. One line
is used for each contract, the particulars recorded being the date and
number of the contract, name and address of the buyer, and the amounts
to be credited to the different sales accounts. It is not necessary
to list the articles sold, as a complete list will be found in the
contract.
The footings of the money columns are carried forward to the end of
the month, when the totals are credited to the sales accounts in the
general ledger. The footing of the _total_ column, which is the total
of all installment sales, is posted to the _debit_ of an _installment
contract_ account in the general ledger. This is a controlling account
of the installment ledger accounts.
=Installment Ledger.= Installment accounts necessitate a form of
ledger differing from that used for ordinary accounts. The special
requirement in such a ledger is space for recording a large number of
payments. Fig. 24 shows a form of loose-leaf ledger sheet designed for
installment accounts.
[Illustration: Fig. 25. Special Cash Receipt Book for Installment
Collections]
One of these ledger sheets is used for each installment contract. The
particulars of the contract are recorded at the head of the ledger
sheet, above the name and address. The particulars recorded are the
number of the contract, the amount and date, amount of payments,
collection day, and whether payments are to be made weekly or monthly.
The body of the form is ruled for a record of payments and balances.
The ledger sheets are arranged in alphabetical order, about
five-hundred sheets in each binder. Each alphabetical section is
separately indexed to afford quick reference to all accounts. If the
contract number only is known, reference is had to the installment
register, where all contracts are recorded in numerical order.
=Cash Receipts.= For installment collections, it is well to provide a
special cash receipt book. Such a form is shown in Fig. 25. This form
is used exclusively for installment receipts, and payments are posted
direct to the installment ledger. The total cash for the day is entered
as one item in the general cash book.
=Statement of Installment Ledger.= From an accounting standpoint,
installment accounts present certain difficulties not experienced
in the handling of other classes of accounts receivable. There is
always a question as to the real value of the accounts outstanding,
a doubt as to the advisability of including the total balances in a
statement of assets. A live account--one on which payments are being
made regularly--is legitimately considered as good an asset as any
other account receivable, but the value of the delinquent account--when
payments are past due--is questionable, and if included in a balance
sheet, the nature of the asset should be clearly stated.
That the actual condition of these accounts may be shown on the general
ledger, it is the better practice to carry two accounts, representing
live and delinquent accounts. Installment sales should be charged to an
_Installment Accounts Receivable_ account, and payments credited to the
same account, which then becomes a general ledger controlling account
of the live accounts in the installment ledger. Another account should
be opened in the general ledger under some such caption as _Installment
Accounts Delinquent_. When accounts become delinquent, they should be
transferred by journal entry to this account. The journal entry would
be:
_Installment Accounts Delinquent
Installment Accounts Receivable_
This transfer may be made daily, weekly, or monthly, but the period
between transfers should never be longer than one month. Delinquent
accounts may be indicated in the installment ledger by placing a metal
tab of some distinctive color on the ledger sheet or card, or they may
be segregated by transferring them to a special delinquent binder or
file.
[Illustration: Fig. 26. Daily Report of Installment Accounts for the
Credit Man]
When a payment is received on a delinquent account, that account
immediately becomes live, and the amount should be transferred by
journal entry to _Installment Accounts Receivable_. The journal entry
would be:
_Installment Accounts Receivable
Installment Accounts Delinquent_
Each day, the amount of accounts revived--delinquent accounts on which
payments have been received--should be ascertained. If it is desired to
save the labor of making journal entries daily, a memorandum of these
amounts may be kept and a journal entry made at the end of the month.
When a delinquent account reaches the condition where it is considered
worthless, the amount should be charged to profit and loss, by the
journal entry:
_Profit and Loss_
_Installment Accounts Delinquent_
This should be done whenever the credit man carefully examines all
delinquent accounts, which should be not less frequently than once a
month. When payments are received on these accounts, they should be
treated as revived accounts, with proper credit to profit and loss, if
revived during the current fiscal period; but if, in the meantime, the
books have been closed, they should be treated as new accounts.
It is quite necessary for the credit man to know every day how the
installment accounts are running. That he may do this, a daily report,
as shown in Fig. 26, should be made by the installment collection
clerk. The report form should be in loose-leaf, and if the installment
sales are divided by departments, the necessary number of columns to
accommodate the departmental records may be provided.
The report is headed with the amounts of accounts outstanding, divided
as to live and delinquent. New accounts opened and delinquents revived
are added in the live column, and delinquents revived are deducted from
the delinquent column. Cash collections, discounts and allowances, and
delinquents today are deducted separately from the live accounts, and
delinquents today added to the delinquent column. Then the delinquents
charged to profit and loss are deducted from the delinquent column.
The balances represent the net amount of outstanding accounts, and
must agree with the two controlling accounts, _Installment Accounts
Receivable_ and _Installment Accounts Delinquent_.
[Illustration: Fig. 27. Front and Back of Collector's Card]
[Illustration: A CORNER IN THE STENOGRAPHIC DEPARTMENT Weis
Manufacturing Co., Monroe, Mich.]
Such a report enables the manager or credit man to keep in touch with
the actual condition of installment accounts. As a rule, three copies
should be made, one for the manager, one for the credit man, and one to
be kept on file by the collection clerk.
=Filing Contracts.= Some houses follow the practice of allowing the
collector to carry the original contracts, and in such cases the
contracts are filed according to the dates on which payments are due.
It is claimed that it is necessary for the collector to have the
contract, as the customer is quite liable to lose the duplicate and may
ask for particulars about the items purchased.