Allowance for Doubtful Accounts

Not all revenue generated from goods and services sold on “credit” or “account” will be collected. Therefore, balances of open accounts must have a provision for uncollectibility to estimate how much of those balances will actually be received. Under generally accepted accounting principles, this is accomplished by establishing an allowance for uncollectible accounts receivables (an offsetting, “contra-asset” account) that creates an allowance “reserve” which nets against total accounts receivable. The net of total accounts receivable less the allowance reserve balance results in a more realistic value of the asset.

The allowance is estimated annually at the end of the fiscal year at the Detail code level by University Bursar Business Operations (BO).

The allowance for uncollectible accounts is calculated by multiplying the receivable balance in the various aging “buckets” (see table below) by a reserve rate. A higher reserve rate is applied to older receivables because the receivables are less likely to be collected. For example, a $100 receivable 366 or more days old is reserved at 95%. Therefore, $95 is credited to the allowance account (53099) in the general ledger. The offsetting entry is a $95 charge to bad debt expense account (186100) in the operating ledger. As the dollar amount of receivables increases or decreases each year for each Detail code, the corresponding allowance and bad debt expense are adjusted accordingly. In addition, the rates used in the allowance calculation are likewise reviewed annually and adjusted as necessary. Examples of reserve rates by aging bucket are shown below:

Build an allowance for uncollectible accounts into your pricing structure by factoring the above calculation into the price you set for the good or service provided. For assistance in calculating your allowance, contact University Bursar BO at 312-413-5950.

Collecting Delinquent Accounts

University Bursar ensures that all delinquent accounts in Banner AR are managed in compliance with all pertinent federal and state laws and regulations. University Bursar maximizes account recovery while providing excellent customer service through the use of internal collectors and third party collection agencies.

University Bursar performs the following activity on all delinquent GAR and SAR accounts in Banner AR:

1. Assess monthly late payment charges in the amount of 1.5% or $1.00, whichever is greater, per month on all invoices that are 30 days or more past due.
2. Assess a monthly past due charge in the amount of $2 on all accounts that are 60 days or more past due.
3. Begin internal collection activity on all accounts that are 30 days past due. Internal collection activity includes:
   • A series of emailed (or mailed in the absence of a valid email address) past due notices and phone calls made to the customer with the goal of collecting payment in full or initiating a payment plan.
   • Skip tracing to locate valid addresses and phone numbers.
   • Placement with the Illinois Comptroller’s State Offset System at 90 days delinquent when the account balance is $500 or more. Accounts placed with the State Offset System intercepts Illinois wages, state tax refunds, lottery winnings, and other state payments.
   • Departments are required to assist with request from the collection office this includes invoice request and dispute resolution.
4. If internal collection activity is unsuccessful after 180 days, accounts are consecutively placed with up to three third party collection agencies. Third party collection activity includes:
   • A series of mailed past due notices and phone calls made to the customer.
   • Skip tracing to locate valid addresses and phone numbers.
   • Closing and returning all uncollected accounts to University Bursar within one year.
5. University Bursar places returned first placement accounts with a different agency as second placements. Second placement agencies perform the same activity as first placements.
6. This process continues till the account is returned from a third placement at that point the account is written off. If the customer returns for future service the written off account will need to be paid and departments should not provide new business to written off accounts.