Debt Collection Fees

We are sending Customers to a Debt Collection Company, how do we record this in our system?

Solution

New General Ledger accounts need to be set up

• A Control Account for the Debt Collection Company, money in a liability account, Debt Recovered

• Another account for the Debt Collection fees 

• If this is being passed onto the Customers, it can go into the Balance sheet using the same account above
• If your business is NOT going to pass on those charges, it should be an expense account  

 When a Customer debt is passed to the Debt Collection Company

• The Customer record should be flagged to NOT print statements
  • they can be sent out manually, but not as part of the normal monthly statement run
  • unless you plan to add a note to the statement that the debt has been passed onto the Debt Collection Company
• The Customer is put into a separate group
  • Because they’re going to get the calls, notices etc from Debt Collection Company
  • And we don’t want I-Collect or any emails etc going out to them from our business.

Supplier Invoice or Cashbook Payment

When the invoice/ money is transferred in from the Debt Collection Company,  it will either be processed as a Cashbook receipt or a Supplier invoice.

• Process the money collected against the first General Ledger account  (9021)
• Process the fees against the second control account (10-3161)

The value in those control accounts is to be distributed to the appropriate Customer accounts

• Use a Customer adjustment to distribute the money received from the  customer
• Negative (-ve) to reduce the Customer balance and remove value from the first control account

• Use a Customer adjustment if the Company wish to pass on the fees and charges of the debt collection to the customer(s)
• Positive (+ve) to increase the Customer balance and remove the value from the second control account

• process a Customer payment to allocate the debt recovery amount against the appropriate invoice(s)