Collections, Write-offs, and Allowance of Accounts Receivables

Scope

This policy provides guidance for management of and accounting for uncollectible receivables and applies to the University’s portfolio of student accounts, student loans and to non-student miscellaneous receivables.  Grant and patient receivables are not addressed in this policy.

Reason for Policy

Generally Accepted Accounting Principles (GAAP) require the University to make every effort to collect receivable balances, to evaluate and write off receivables determined to be uncollectible and to estimate and record receivable amounts that will become uncollectible in the future. This policy provides guidance on evaluating and accounting for the uncollectible portion of accounts receivable including writing off of uncollectible receivables and calculating an uncollectible receivable estimate.

Policy Statement

Collections
A receivable becomes past due if payment is not received by the payment due date.  A concerted effort should be made to collect accounts, including the current amount due applicable to installment payments.  Each campus is responsible for establishing written collection procedures for the accounts receivable.  Collection procedures for Federal loans must follow Federal guidelines and collection procedures for University loans must follow restrictions placed on the individual loan funds by the grantor or donor.

Collection actions may include but are not limited to: sending additional notices, making phone calls, reporting the account to the credit bureau, or referring the account to an outside collection agency.  Any efforts to collect overdue accounts receivable performed by University employees must be documented. These efforts must be conducted according to the provisions of the Federal Fair Debt Collection Practices Act.

Write-Offs of Uncollectible Accounts
While routinely executing collection procedures some receivables will be determined to be uncollectible. Accounts should be written off the University’s financial accounting records when all collection actions have been completed and management determines the receivable to be uncollectible.  Each campus maintains criteria and guidelines establishing the point when receivables become uncollectible and is responsible for consistently performing write off of receivables.  This ensures a stable and reasonable receivable balance, is an important element in reporting accurate financials, achieving reporting consistency and usefulness during the year, and reflecting the true net realizable value of the University’s accounts receivable.  Amounts written off are no longer reflected in the University financials and are no longer used in calculating the Allowance for Uncollectible Accounts.

Allowance for Uncollectible Accounts
The process of calculating the estimate for uncollectible balances requires a rational estimate that follows GAAP.  The University will use the allowance method in which estimates of the uncollectible accounts are applied as a percentage to the revenues earned.  This allows for the allowance of uncollectible accounts to match with the revenue, which adheres to the matching principle in GAAP.

The estimate the University will use is based on historical data on collections for each type of receivable.   The goal in recording the Allowance for Uncollectible Accounts is to show, as accurately as possible, the net realizable value of accounts receivable on the University’s financial statements.   The UM System Controller’s Office is responsible for establishing the allowance calculation that is necessary for compliance with GASB standards. 

The allowance calculation will use a balance sheet method in which accounts are put into buckets by age to create an Aging Report. The age of the receivable and history of collections must be utilized to arrive at an estimated uncollectible percentage.  A new percentage will be calculated annually for fiscal year-end reporting and shall be reflective of the collectability of accounts of each campus individually and applied to the outstanding accounts receivable balance at fiscal year-end.    The Allowance for Uncollectible Accounts will be updated at fiscal year-end to reflect the estimated uncollectible amounts based on the calculation.

Definitions

Student Accounts Receivable - amounts owed by a student as a result of enrolling in classes at the University. This may include amounts for tuition, various fees, books, supplies, housing and fines.

Student Loans Receivable - amounts lent to students that are retained in the University’s loan portfolio and represent the student loan receivable.

Miscellaneous Accounts Receivable – amounts owed to the University for goods or services provided not included in the Student Accounts Receivable or student loan receivable

Write-off of Uncollectible Accounts – the process to remove an amount owed to the University from the receivable balance after a thorough collection process is followed and it is determined the balance will not be paid.  The balance is no longer considered an asset and is not reflected in the financial statements.

Allowance for Uncollectible Accounts—a reasonable estimate, based on historical collections or other reasonable rationale, of the amount of accounts receivable that will become uncollectible. This amount is reflected as a contra-asset on the statement of net position.

Aging report— Receivable aging begins at the time the debt is incurred or the date of the last payment depending on the type of receivable.  An aging report is a list of accounts receivable grouped and summed based on the age of each receivable.

Accountabilities

UM System Controller’s Office:

• Establish the allowance calculation for uncollectible accounts.
• Monitor the campus Allowance for Uncollectible Accounts calculations for reasonableness.

Campus Accounting Offices:

• Provide guidance and advice to campus billing departments and assist in establishing campus collection and write off procedures.
• Work with Cashier, Student Loan Collections and miscellaneous billing departments to prepare allowance calculations and entries.
• Assist departments that utilize the miscellaneous billing system in collection efforts and the write off of uncollectible accounts.
• Year-end review of campus accounts receivable activity.

Campus Cashier’s Offices:

• Collect student receivables
• Maintain written collection and write-off procedures and monitor for compliance
• Monitor aging of student receivables
• Write-off receivables after exhaustion of collection efforts
• Reverse write-offs for amounts subsequently collected
• Provide campus accounting with documentation of Student Accounts Receivable and calculation of Allowance for Uncollectible Accounts.

Student Loan Collections Offices

• Collect student loan receivables
• Maintain written collection and write-off procedures and monitor for compliance
• Monitor aging of student installments
• Write-off balances after exhaustion of collection efforts
• Reverse write-offs for amounts subsequently collected
• Provide campus accounting with documentation of Student Loans Receivable and calculation of Allowance for Uncollectible Accounts.

Miscellaneous Billing Operations

• Monitor aging of non-student Miscellaneous Accounts Receivables
• Maintain contact with customers to ensure collection of receivables.
• Routinely write-off Miscellaneous Accounts Receivables when necessary.
• Reverse write-offs for amounts subsequently collected
• Supply Campus Accounting Office with documentation of Miscellaneous Accounts Receivable and calculate of Allowance for Uncollectible Accounts.

Additional Details

Forms

Related Information

Policy 27009 on Uncollectible Grants Receivable

History

This policy combines the following former policies:

• Accounting Policy 10.05.01 – Allowance and Write-off for Miscellaneous Accounts Receivable (revised 6/6/2011)
• Accounting Policy 65.05 – Allowance and Write-off for Uncollectible Student Accounts Receivable (revised 8/28/2011)
• Accounting Policy 65.10 – Allowance and Write-off for Uncollectible Student Loans (revised 8/8/2006)

Procedure