Extending Credit (Alberta Council)

From SJA

This Policy is effective January 1st, 2011.

Contents 1 The Need 2 Policy 2.1 Purpose 2.2 Scope 2.3 Responsibilities 2.4 Definitions 2.5 References and Related Statements of Policy and Procedure 3 Procedures 3.1 Credit Applications 3.2 "Credit Check" completed by the Finance Department 3.3 Customer Records 3.4 Attachments

The Need

There is a need to balance the concerns of the business development department, which would prefer to ignore credit issues and just get the sale, with those of the finance area, which is charged with worrying about – and minimizing – risks. There is nothing wrong with such conflict, and a healthy organizational culture will ensure that each area maintains a healthy respect for the other’s objectives. There is also an inherent trade-off between the desire to service the customer and close a sale, versus the need to protect the company’s assets and not accept the sale if credit risk is too high. As a result, it is essential to have credit policies and procedures that are clear, well understood and enforced. Sales on credit should only be made when the credit risk has been examined and credit is explicitly authorized.

Policy

All customers must have a valid credit status and only customers with approved and sufficient credit will be invoiced on 30 day payment terms.

Purpose

The purpose of this Statement of Policy and Procedure is to set out the credit policy and to ensure that orders are processed correctly for those customers that are authorized for credit.

Scope

This Statement of Policy and Procedure applies to all front line employees and related management.

Responsibilities

The Business Development Department is responsible for ensuring that:

• Customer credit applications are collected and forwarded to the Finance Department
• Customer “credit rating” is to be reviewed and adhered to prior to any customer credit purchases
• Communications between the Customer and Finance Department are liaised by Business Development
• Customer records are properly maintained and up-to-date
• Confidential documents are not disclosed outside of the Finance Department

The Finance Department is responsible for ensuring that:

• The Business Development Department is informed of any customer bad debts or questionable payment practices
• Customer “credit rating” is properly maintained and up-to-date
• Credit applications are processed within a reasonable time
• Credit records are properly maintained and up-to-date
• Confidential documents are not disclosed outside of the Business Development Department

Definitions

"Subsidiary" is a company that is controlled by a separate higher entity called a parent company. The parent and the subsidiary do not necessarily have to operate in the same locations, or operate the same businesses, but it is also possible that they could conceivably be competitors in the marketplace. Also, because a parent company and a subsidiary are separate entities, it is entirely possible for one of them to be involved in legal proceedings, bankruptcy, tax delinquency, indictment and/or under investigation, while the other is not.

"Credit Check” means the process of assessing a customer’s individual credit worthiness. A “credit check” may involve referring to a credit bureau, obtaining bank account information, and reviewing the customer’s payment history with the company or other activities in order to assess risk.

"Credit Rating" means an assessment of the customer’s financial position, credit history and ability to pay. “Credit rating” is expressed utilizing the “insufficient credit flag” combined with the “credit status” field in Unity.

"Insufficient Credit Flag" in Unity indicates if an account is allowed to invoice with 30 day terms. Only those customers with the flag turned off and a “credit status” of “approved” are allowed to invoice.

"Credit Status" field in Unity indicates an accounts current “credit rating.” For those customers with the "insufficient credit flag” turned on utilize the "credit status" field as follows:

• “Blank” – this is the default for all new accounts and means the account has not applied for credit. Contact the Accounts Receivable Coordinator to adjust the credit status. This account is not approved for invoicing.
• “Approved” – This account is in good standing. If the “insufficient credit flag” is turned off the account is “approved” for invoicing. If the "insufficient credit flag" is turned on the account is cash/credit card only.
• “Declined” – This account is inactive and St. John Ambulance will no longer continue business with this account.
• “In Process” – This account is cash / credit card only until the Finance Department has completed a “credit check”. This account is not approved for invoicing.
• “Other” – Review the customer notes to see issues / circumstances with account and contact the Finance Department if necessary. If the "insufficient credit flag" is turned off this account is approved for invoicing. If the "insufficient credit flag" is turned on this account is not approved for invoicing.
• “Overdue” – This account in cash / credit card only until the Finance Department has received overdue payments and has re-assessed the accounts "credit rating". This account is not approved for invoicing.

For any other credit issues contact the Finance Department.

References and Related Statements of Policy and Procedure

• SPP FN 1.01 - Point of Sale Revenues (Future Development)
• SPP FN 1.03 - Sales Contracts (Future Development)
• SPP FN 1.05 - Sales Commissions (Future Development)

Procedures

The following procedures provide a summary of actions taken to process a credit application. Please note that St. John Ambulance is committed to the environment and therefore has converted all credit forms to fill-able / save-able PDF so the entire credit application process can be done electronically.

During the Credit Application process, administration and/or Business Development staff can take course registrations. However these registrations will require prepayment to hold the seats until credit has been "approved" by the Finance Department. This prepayment can be provided via credit card or cheque. If the customer requires documentation in order to produce a cheque the Quote Policy and Procedure is available.

Credit Applications

1. Upon request for a credit application please query the account in Unity, and if the customer does not have credit or does not exist in Unity, forward the customer request to the Business Development Coordinator.

   Performing a query: If there are any special characters in the account name remember a query can be completed by using an address or phone number. The asterisk (*) function is also available when querying accounts and can be used in front and/or behind the query. It allows the system to search for the word(s) as entered as well as additional information in front of and/or behind the query.

2. If the customer meets the credit requirements and does not exist, or does not have credit in Unity, forward the Credit Application Form. If the customer is a "subsidiary" of a parent company with credit then see the Extending_Credit_To_A_Subsidiary_Policy_(Alberta_Council)
3. All completed credit application forms must be returned to the Business Development Coordinator.
4. The Business Development Coordinator will contact the customer to do a preliminary assessment of the customers credit needs and to ensure the account will meet the $2,000 minimum annual sales. The Business Development Coordinator will also review the credit application for completeness and collect completed Credit Reference Forms from the references listed on the credit application.
5. Once the Business Development Coordinator has collected the documentation, the completed credit package will then be forwarded to the Accounts Receivable Coordinator for review.
6. The Accounts Receivable Coordinator is responsible for:
   1. Reviewing the documentation and making a credit decision
   2. Scan and save the credit application package in a "Company Name" folder on the S: Drive/Finance/Accounts Receivable Coordinator/Credit Applications.
7. When the "credit check" has been completed the Accounts Receivable Coordinator will update "credit rating" in Unity accordingly, and the Business Development Coordinator will be contacted.
   1. For those accounts that are not approved the Unity account "credit status" will be updated to "other" with notes and the "insufficient credit flag" will be left on. The credit application form will be moved from the "In Progress" folder into the "Unapproved" folder, and notes will be made in the folder as to the reason why credit was denied.
   2. For those accounts that are approved the Unity account "credit status" will be updated to "approved" and the "insufficient credit flag" will be turned off. The credit application form will be moved from the "In Progress" folder into the "Approved" folder.
8. The Business Development Coordinator will contact the client advising them of their credit status. For accounts that are approved the client will be advised of their credit limit, account number, and sales representative.

"Credit Check" completed by the Finance Department

1. Check the credit@stjohn.ab.ca email account daily for new credit applications and forward them to the Business Development Coordinator for completion.
2. When a credit application package is received by the Accounts Receivable Coordinator it will be reviewed for completeness. If any documentation is missing it will be sent back to the Business Development Coordintor for completion.
3. Accounts Receivable Coordinator will review the completed documentation in the credit package. If further information is needed for assessing credit the Accounts Receivable Coordinator will produce a credit report from Dunn & Bradstreet's website.
4. Analyze credit reference responses and/or the Dunn & Bradstreet report to assess "credit rating". The credit status in Unity will be updated accordingly.
   1. For those accounts that are not approved the Unity account "credit status" will be updated to "other" with notes and the credit application form will be moved from the "In Progress" folder into the "Unapproved" folder.
   2. For those accounts that are approved the Unity account "credit status" will be updated to "approved", the "insufficient credit flag" in Unity will be unchecked, and the credit application form will be moved from the "In Progress" folder into the "Approved" folder.
5. Scan and save the credit application package in a "Company Name" folder on the S: Drive/Finance/Accounts Receivable Coordinator/Credit Applications.
6. Contact the Business Development Coordinator and advise them of the completed status.

Customer Records

Finance Department credit file shall contain the following as deemed necessary:

• Credit application form
• Completed credit references
• Dunn & Bradstreet credit reports
• "Credit rating" notes are recorded on file

Business Development Department shall maintain up-to-date customer records in Unity including:

• Customer name, contact name, address and telephone numbers
• All known shipping locations
• Billing address(es)

The Finance Department is to inform the Business Development Coordinator of any bad debts, questionable payment practices or “credit status” changes for all customers. The Business Development department is to inform the Finance Department of any customer contact, address or business changes that have a potential credit impact.

Attachments

• Credit Application Form
• Credit Reference Form