Anwar Hussain

 Index 1. The Manual4 1.1. The Scope4 1.2. Distribution of the Manual4 1.3. Revision of the Manual5 2. General Rules of Receivables6 3. Definitions7 4. Parties involved and their responsibilities8 4.1. Finance Department8 4.2. Sales & Collection Departments8 4.3. Customer Service Departments8 4.4. Legal Department9 5. Policies, Processes and Process Flows10 5.1. Customer Assessment and Evaluation10 5.1.1. Policy10 5.1.2. Process10 5.1.3. Process Flow12 5.2. Customer Creation13 5.2.1. Policy13 5.2.2. Process13 5.2.3. Process Flow15 5.3. AMICO Credit Policy16 5.3.1. Scope & Responsibility16 5.3.2. Credit Facility Approval16 5.3.3. Credit/Collection Control18 5.3.4. Receipts and matching with Receivables Accounts20 5.3.5. Overdue Accounts21 5.3.6. Segregation of duties21 5.3.7. Applying the Credit Policy to specific Customer22 5.3.7.1. Process22 5.3.7.2. Process Flow24 5.4. Receivables Types and Classifications25 5.4.1. Trade Receivables25 5.4.2. Non Trade Receivables (Other Debtors)25 5.5. Bad / Doubtful Debts reserve and Write offs27 5.5.1. The general policy27 5.5.2. Bad Debts27 5.5.3. Doubtful debt28 5.5.4. Provision for Doubtful/Bad Debt28 6. Process Alignment with Data Base29 7. Reporting30 8. Authority Matrix31 8.1. Overall objectives of the Delegations of Authority Matrix31 8.2. Re-Delegation31 8.3. Guidelines for Delegating Authorities32 8.4. Type of Interactions32 8.5. Authority Matrix33 9. Manual Approval34 10. Attachments35 ===================================== Release Date : Jul 10, 2011 Supersedes : ALL Process Owner: CFO 1. The Manual 1.1. The Scope 10.1.1. The Scope of this manual is to define the proper business policies and processes that generate accurate and reliable output at any given time. The policies and processes are the following four main principles: 10.1.1.1. Reflect the best practice of the industry with consideration to the peculiarity of AMICO business norms whenever this does not pose a business risk. 10.1.1.2. Ensure alignment with the ERP principles especially SAP being the most probable choice by AMICO. 10.1.1.3. Optimize the number of documentations needed to manage and monitor the process while ensuring adequate control and clarity on next steps. 10.1.1.4. Clear reporting manual and authority matrix that allow management to run business smoothly with adequate level of follow up and monitoring. 10.1.2. In this manual the concept is explained in terms of its policy, the process and then the process flow charts that are numbered in the same sequence of the process text that supersedes it. For example, if the process flow chart under section 5.4.3 has a box carrying number 7, this is explained as text in the section preceding it 5.4.2.7. The flow charts are laid out using the SAP standard symbols as shown and explained in attachment (1). 10.2. Distribution of the Manual 10.2.1. The Process Owner is the controller of this manual. All enquiries and requests for revisions relating to matters included in this manual should be addressed to and approved by him. 10.2.2. This manual should always be kept in a safe place and must not be copied or revealed to third parties without the written permission of the controller of this manual. 10.2.3. Distribution of this manual, in whole or in part, will be made only to designate executive positions as approved by the controller of the manual. 10.2.4. Copies of this manual, in whole or in part, will be designated to Senior Management and Department Heads only. A further copy will be available in a designated place (specified by the Process Owner) for employees to refer to if so desired. 10.2.5. Each set of this manual shall be serially numbered. Distribution/circulation of this manual is controlled and monitored by the Process Owner. 10.3. Revision of the Manual 10.3.1. Revision of this manual is the principal way of implementing and communicating changes in the policies and procedures of a specific business area. Those may arise in response to the changing needs and requirements of the business. Such revisions provide flexibility and ensure that the manual remains relevant at all times. 10.3.2. The objective of formalizing the manual revision procedures is to ensure that all amendments, additions or deletions to the manual are properly documented and authorized / approved prior to implementation. 10.3.3. Requests for revision of this manual can originate from any executive reporting directly to the Process Owner. In case any other staff member wishes to introduce any revisions to this manual, the request for such revisions shall be routed through the respective departmental managers. The requests for revision of this manual shall be addressed to the Process Owner. 10.3.4. The Process Owner shall consider and discuss the proposed revisions with relevant management team. If the proposed changes are material in nature, the Process Owner, Process Sponsor / Management team will approve the revision. 10.3.5. If the revision proposal is not approved, the Process Owner will send notification to that effect together with the reason to the originator. 10.3.6. If the proposal is approved, the Process Owner shall ensure that suitable revisions are made to the relevant pages of the manual. He will then distribute the new Release of the Manual to all custodians, along with a covering letter explaining the changes and the Approval sheet (section 9 of the manual). 10.3.7. When a revision is made to any page of this manual, a full revised and approved release of the manual is issued. 11. General Rules of Receivables 11.1. The Trade Receivables amount should be measured at net realizable value. The net realizable value is the invoiced amount less provision for any doubtful debts. 11.2. Adequate control over Receivables ensures better working capital. 11.3. All efforts should be made to ensure the prompt issuance of Sales Invoice as per company’s policy and agreed terms and conditions, if a contract exists. 11.4. The Collections should be performed as soon as payments become due as per credit terms. 11.5. An authentic and pragmatic credit control policy backed by a well-designed collection plan is the key for the receivables to be managed within controllable limits. 11.6. In case of the bounced cheques, the Trade Receivables Accountant should ensure a high collection rate through the timely processing of returned cheques. Timely collection of receivables that are due is totally dependent on the ability of the collection team as well as the level of customers’ satisfaction. 11.7. Adhering to the company policy for receivables will maximize cash flows, reduce bad debts write-off and will ensure that the trade receivables balance and bad debt reserves are appropriately stated in the company’s financial records. 11.8. Invoicing the customer after the confirmed receipt of sold goods (Proof of Delivery “POD”) results in improved timely collection and reducing the probability of bad and doubtful debts. 12. Definitions 12.1. Revenue: It is the income that AMICO derives from its business activities with its customers. Revenue does not differentiate between collected or non-collected. A company may make high Revenue, but be poor in Cash if it does not collect all its due money. In that case all its revenue is still Receivables. In addition to the Operational Revenue from the normal business, there are non-operational types of Revenue like Investment Earnings, Revenue from Sale of Assets, etc. 12.2. Cash: It is a term used to include currency, cheques, money orders, negotiable instruments and charge card transactions. Cash received by means of trade receivables, cash sales, sale of assets or any other business transaction that generated liquid money are termed as cash received. 12.3. Credit Sales: A sales transaction where the buyer is allowed to take immediate possession of the purchased goods and pay for it at a later date. It is also known as non-cash sales. 12.4. Trade Receivables: Money owed by customers to AMICO, in exchange of goods or services that have been delivered or used, but not yet paid for. Receivables usually come in the form of operating lines of credit and are usually due within a relatively short time period, ranging from few days to a year. There are cases when Receivables extend to more than one year. Those are classified as long-term receivables in the books of accounts. 12.5. Non-Trade Receivables: Non-Trade Receivables are other types of transactions and may be written promises to pay moneys later on. Examples are advances to employees, claims against other non-business entities, insurance claims and financial receivables like, but not limited to, dividends and interests receivables. 12.6. Notes Receivables: A written promise from a client or customer to pay a definite amount of money on a specific future date is called Notes Receivables. 13. Parties involved and their responsibilities Each of the parties listed in this section coordinates their activities for AMICO’s receivable process. They are responsible for parts of the different processes and share the overall responsibility for the results of this business area: 13.1. Finance Department: 13.1.1. Credit Control and receivables accountants are mainly responsible to manage the Company’s receivables. 13.1.2. The Finance department will offer its support for reviewing the credit limits / terms and conditions of payment, L/C required in case of procurement from supplier, credit/debit notes in case of disputes, approving sales order, approving revaluation of damaged/disputed goods, unsatisfactory services, initiating the aging report and to collect cash/cheque from the sales/collection department. 13.1.3. The Finance department should then account for reporting the trade receivables in AMICO’s financials as per approved policy in line with accounting standards prevailing in the country of operation with special emphasis on International Financial accounting and reporting standards. 13.2. Sales & Collection Departments: 13.2.1. The Sales department has a key role in the evaluation of customers. 13.2.2. Evaluation of receivables for the provision of debts. 13.2.3. The Collection department works closely with the Sales department and Credit control for efficient efforts on collection and reconciliation of the customer accounts. 13.3. Customer Service Department: 13.3.1. The Customer Service Department (CSD) is responsible for the process of “Creation of Customer” locally via the filling and approval of the Form, and centrally in the verification of information provided and for the system update. 13.3.2. The CSD follow ups and confirm receipt of POD and to generate a sales invoice. CSD sends a copy it to the Sales and Finance departments for confirmation and collection purposes. 13.4. Legal Department: 13.4.1. The Legal department works in coordination with Sales and Finance departments in drafting a number of sales contracts associated with different types of sales, the Sales of Goods, Services, Consignment, Profit sharing and leasing contracts. 13.4.2. The Legal department is responsible for settling the customers’ issues. The Legal department will take all possible measures to ensure the collection of due receivables which are in Litigation. The Legal department represents AMICO, in courts of law, for all legal matters and to resolve out of court settlement, if mutually agreed. 14. Policies, Processes and Process Flows 14.1. Customer Assessment and Evaluation 14.1.1. Policy 14.1.1.1. Customer Assessment is a vital step in ensuring the business risk. It is maintained within the reasonable acceptable levels for the owners and the Management of AMICO. Potential Customers are assessed before being treated as Customers and granted payment terms on signing the business contracts with AMICO. 14.1.1.2. After the creation of customers in the ERP system and the business dealing is in progress, AMICO needs to periodically evaluate the performance of the customers. This may result in improving the “relationship” for example longer payment terms from 45 to 60 days or allowing higher credit limit if the performance is satisfactory. If the evaluation of the customer is unsatisfactory, the terms and condition of business dealing with the customer should be secured through stringent credit terms and / or securing by LCs or LGs. 14.1.1.3. The Assessment and the Evaluation have to be a standardized practice with specific frequency (annual, bi-annual, or every two years). The Managers dealing the assessment and evaluation process needs to adhere to AMICOs prevailing business practices. 14.1.1.4. As per the Credit Policy of AMICO as discussed in section 5.3 of this manual, potential customers must demonstrate their financial, commercial and technical capability to fully meet AMICO’s standard requirements. 14.1.1.5. To mitigate the Business Risks, AMICO should periodically review the performance of existing credit customers and the credit terms, both in period and amounts. 14.1.2. Process 14.1.2.1. The Credit Controller will develop the criteria that should be followed when evaluating a Customer. 14.1.2.2. The Credit Controller will generate performance evaluation criteria pertaining to Sales, Returns, Payments, Credit Terms, Credit Limits, Discounts, Payment Terms and Business References from the master record of the Customer. 14.1.2.3. The Credit Controller will then request for operational feedback from the different departments that deal with the Customer. 14.1.2.4. The Finance department (Receivable Accountants) will submit a feedback about financial performance of the Customer. 14.1.2.5. The Sales department will submit a feedback about Sales & Returns made by the Customer. 14.1.2.6. The Supply Chain department will submit a feedback about the Business references and general behavior of the Customer. 14.1.2.7. The Credit Controller will collect all the feedback and prepare Periodic Performance Evaluation Report (PPER). 14.1.2.8. The Credit Controller will then decide on the Customer Performance Evaluation Results. If the result is acceptable the decision is to start (new customer) or continue (existing customer) business dealing and end the process. 14.1.2.9. If the result is not satisfactory or there are serious concerns, Credit Controller will highlight the areas, which need improvements, based on the PPER results. 14.1.2.10. The Sales department will receive the PPER with the comments of the Credit Controller and add the inputs / suggestions / comments. 14.1.2.11. Finally the PPER will reach to the Authorized Management for review before sending to the Customer. 14.1.2.12. The customer will receive the PPER and decide to accept or reject the suggestion about areas of improvement. If the Customer agrees and accept the suggested areas of improvements in PPER, Credit Controller will start (new customer) or continue (existing customer) business dealing and end the process. 14.1.2.13. If the Customer disagrees with suggested areas of improvements in PPER, Authorized Management will decide the future action plans to deal with the Customer. Action Plan could be reduction in Credit Facilities, increase in Credit Coverage, etc. Action Plan should consider the existing Receivables (debts) situation and try to collect the major portion before implementing restrictions or before stopping the Credit Sales. 14.1.2.14. The Complete action plan should be communicated to the Sales department and the process ends. 14.1.3. Process Flow 14.2. Customer Creation 14.2.1. Policy 14.2.1.1. For any Standard Sales operation, in contrast to Walk-In Customer Sale operation, Customer data should exist in the ERP system. This sale operation can be a Sale of Goods and Services, Contractual Agreement involving Leasing or Profit Sharing on Assets, or Loan Agreements where Goods / Assets are transferred to the Customer for a period of time as part of a business strategy. (See Revenue manual, section 5, on types of sales.) 14.2.1.2. For Walk-In Customers, AMICO has a general account named Cash Customers, to record this type of sales in the ERP system. 14.2.1.3. When an existing customer require Cash Sales, it is performed as shown in the Revenue Recognition manual, Section 5, as a normal Credit Sales with an expedited process and modifications to fit its Cash and rush nature. 14.2.1.4. As noted in the Revenue manual, Section 5.2, when creating the Customer in the system, all the data related to the customer should be updated in the system. Such data includes but not limited to: 14.2.1.4.1. All customers data, credit terms, limits and credit history 14.2.1.4.2. All quotations and invoices issued to the customers 14.2.1.4.3. All agreements with AMICO including Service Warranty Type 14.2.1.4.4. All Loans, Demo and Consignment products at customers’ possession, etc 14.2.2. Process 14.2.2.1. The process is initiated when a new Customer places a Sales Order and willing to do business with AMICO on Credit Sales basis or when the Sales department is willing to update the records of an existing customer, like changes in customer address, assigned payment terms, credit limits, etc. 14.2.2.2. The Sales department is responsible to collect the required information of prospective customer and submit the “New Customer Creation form” to the customer. 14.2.2.3. New customer provides all the required supporting documents to the sales department, which are mentioned in the company’s Credit policy. (See section 5.3 of the manual.) 14.2.2.4. The Sales department along with the Finance department is responsible for confirmation of details mentioned in the supporting documents provided by the Customer. 14.2.2.5. Customer Service department (CSD) will decide through the inputs received from the Sales and Finance departments about sales or service type, credit limits, payment terms conferring to AMICO’s present Credit Policy. CSD will send the completed New Customer Creation form to the Authorized Management for approval. 14.2.2.6. If the Authorized Management is not satisfied with the details provided, it will not approve and send back the form to the CSD. Otherwise if Authorized Management decided to approve the form, it should forward the approved Customer Creation form with all supporting documents to the Central Customer Service Department. 14.2.2.7. In AMICO, Central CSD is responsible to create the unique Customer ID in the ERP system and update the related information into customers’ database. 14.2.2.8. All the parties involved should be notified, as appropriate about successful creation of new customer before ending the process. 14.2.3. Process Flow (as per Revenue Recognition section 5.2.2): 14.3. Credit Policy 14.3.1. Scope & Responsibility 14.3.1.1. The Credit policy applies to all AMICO employees, who are either involved in recommending and authorizing credit, affecting and recording credit sales, monitoring and controlling credit or in collections. It is to: 14.3.1.1.1. Document a system of Credit & Collection Control for products sold on credit. 14.3.1.1.2. Ensure uniformity in dealing with all customers. 14.3.1.1.3. Assist in the minimization of bad debt risk. 14.3.1.2. Follow-up on collections is the primary responsibility of the Sales department. Credit Control should review the payment schedules, maturity dates in consideration of AMICO’s rights and obligations of the terms and conditions covered by the Sales Contract. Upon receipt of collection from customers, Credit Control should ensure the timely recording of collection in the customers’ accounts. It is the responsibility of collector to ensure that customers receive the cash receipt for every payment. 14.3.1.3. Authorized Management should make necessary changes in the Credit Control policy, at regular intervals, according to the mode of business operations in that particular period. Define a penalty policy in case of customers’ default or cancellation of Sales Orders, etc. 14.3.1.4. The Credit Control department and the Customer Service department will maintain the customer’s file separately. 14.3.2. Credit Facility Approval 14.3.2.1. A signed Credit Facility Contract should exist stipulating specific credit terms (including credit limits, credit periods, credit cover, etc.) for all current credit customers who regularly request products from the Company to govern the relationship. This Credit Facility Contract, duly signed by both the parties should serve as a legal document on occurrence of any dispute. 14.3.2.2. For new credit customer and for re-evaluation of existing customers, the Sales department will initiate a Credit Application / Re-Evaluation Form. In addition, the following information will also be compiled and noted thereon in order to help the relevant Authorized Managers to establish the credit worthiness of the new/existing customer and to determine its initial/modified credit limit, which must be reviewed as per the terms of the contract: 14.3.2.2.1. Data about Ownership & Management: Ownership of the business Financial rating in the business community Copy of Audited Financial Statements Estimated Size / Nature / Volume of the business Owners / Chief Executives profile Business Contact Details 14.3.2.2.2. Size and Capacity of the Company: Valuation of Business Assets & Ethics Market reputation for payment / obligations Records confirming system generated payables & receivables Bank details and confirmation letter from the bank 14.3.2.3. Finalization of a Credit Facility 14.3.2.3.1. A completed Credit Application Form will be reviewed by the CFO to decide on the following and discuss the recommendation with the Sales department to agree on the final form of the proposal to the Authorized Management and the Customer. 14.3.2.3.2. The CFO will, if satisfied with the review, propose to the Authorized Management granting the Credit Approval and/or renew the approval. 14.3.2.3.3. In the event that credit is disallowed due to perceived financial instability, the Customer will be requested in writing to provide a bank guarantee. Alternatively, the customer will be treated as cash customer and goods will be delivered on advance payment of cash or upon cash on delivery basis. 14.3.2.3.4. In the event that credit is allowed, the CFO will advise the Sales Department and prepare a letter for the Customer of the approved Credit Limit, which will be clearly noted in the Customer’s Credit File and in the ERP System. AMICO should ensure that all new approved customers should sign the Credit Facility Contract, before the commencement of the business deals. 14.3.2.4. Defining Monetary Credit Limit 14.3.2.4.1. A Monetary Credit Limit (MCL) will be established for each approved Credit Customer. 14.3.2.4.2. Customers’ payments may be in transit or not yet received at the time of accepting the orders. However, no shipments, exceeding the MCL, should be made unless and until it is approved by the Authorized Management. 14.3.2.4.3. MCLs will be reviewed periodically taking into consideration, factors such as usage of the facility and adherence to agreed credit period may be increased or decreased by the Authorized Management. 14.3.2.5. Defining Credit Period 14.3.2.5.1. The Company’s Standard Credit Period will vary based on the customer’s class and be competitive, relating to the market segment in which AMICO operates. 14.3.2.5.2. All invoices and statements issued will show the Credit Period to remind customers of settling the obligations. The monthly statement will show age wise analysis of invoices due dates in class intervals of 30, 60, 90, 120 and above 120 days. 14.3.2.5.3. An individual Credit File will be maintained at each Regional Sales Office for each approved Credit Customer. This will contain details of all relevant correspondence, including: copies of credit references, copies of Credit Facility/ Contracts, copies of Letters regarding disputes/ resolutions, collections and follow-up letters, Reconciled statement of Accounts, etc. 14.3.3. Credit/Collection Control 14.3.3.1. Guidelines 14.3.3.1.1. The credit control department needs to ensure that customers’ credit both in number of days and amounts should not be exceeded, as per the terms and condition of the contract or agreement. 14.3.3.1.2. Any deviations should be reported to the concerned authority to review and take appropriate actions for future dealing with such customers. However exceptions with justified reasons through approvals from the Authorized Management should be treated separately. 14.3.3.1.3. An aging analysis report should be prepared and reviewed periodically, to be set and agreed as per AMICO’s requirements, highlighting deviations and serving as the tool for collection and credit control for the next corresponding period. 14.3.3.2. Control by Monetary Credit Limit (MCL) 14.3.3.2.1. The dispatches of products will not normally occur if this will cause the customer’s MCL to be exceeded, exceptions will require the approvals of the Authorized Management. 14.3.3.2.2. To ensure that existing approved credit limits do not hinder sales growth and also to act as an early warning to the customers that the approved credit limits might become fully utilized. The customer is required to settle the account in order to bring the balance below the MCL to secure future deliveries. 14.3.3.2.3. In case the MCL is exceeded the Credit Controller will report the matter to the Regional Sales Manager. The Regional Sales Manager will formally communicate it to the Customer, either directly via the responsible Salesman. 14.3.3.2.4. The Regional Sales Manager will also provide a weekly update to the CFO, Country Manager on the efforts made to collect any outstanding amounts in excess of an MCL. 14.3.3.3. Control by Credit Period 14.3.3.3.1. Customers’ statements of accounts are generated periodically. It is dispatched to the customer on the agreed date after review and approval by the Finance department. 14.3.3.3.2. The Credit Controller will send the formal written reminders to the customers to speed up the overdue collections. 14.3.3.4. Control by Bank Guarantees 14.3.3.4.1. The Bank Guarantees are used to secure special deals with customers agreeing to a special payment terms. A single large deal or a new project usually fit in this category. 14.3.3.4.2. The issuing of aging report, statement of accounts and reminders will be on the same parameters in the same manner as discussed in 5.3.3.2 and 5.3.3.3 above. 14.3.3.4.3. Generally two (2) months before the maturity of the Bank Guarantee, the Credit Controller will send a notification to the Customer asking for an extension or a renewal of the same, if the project is still continuing. 14.3.4. Receipts and Matching with Receivables Accounts 14.3.4.1. All cheques must be issued in favour of AMICO and deposited in the relevant bank accounts after proper scrutiny. 14.3.4.2. Each Salesman must issue pre-numbered receipts for all cash collected and sign on a copy of the cheque to confirm the receipt. 14.3.4.3. As a general rule, cash sales is strictly on a cash basis and should be collected on immediate delivery of goods / services and should preferably be deposited into the relevant bank on the same day or latest by the next working day with justified reasons for delay. 14.3.4.4. Cash receipt should be issued immediately at the time of receiving the cash payment from the customer and only for the actual amount received. Under no circumstance, a cash receipt should be issued for future payment on behalf of a customer promise. 14.3.4.5. In very rare cases, if a customer is unable to pay the full amount of a cash invoice at the time of delivery, the salesman should ensure that the receipt given is equal to the amount paid and not the full value of the invoice. 14.3.4.6. The remaining amount should be collected on agreed date and no further delays should be allowed. Deviations, if any, should be notified and approved by the Authorized Management. 14.3.4.7. Any payment from the Customer that is not related to specific invoices will be automatically applied to the oldest outstanding Invoices until the payment has been fully applied. The Credit Controller is responsible for allocating the payments with the outstanding Invoices. 14.3.4.8. It is the responsibility of the Credit Controller to ensure that all customers’ credit accounts are reconciled at regular intervals, possibly on a monthly basis. In case of any discrepancy found while reconciling with the customers’ accounts, all efforts should be made to resolve the issues identified with the help of Sales and Collection personnel, while safeguarding AMICO’s financial interests and within minimum possible time. 14.3.5. Overdue Accounts 14.3.5.1. It is the responsibility of the Credit Controller to ensure that all credit customers should be approached for collection as soon as an invoice become due or upon collection date as per agreed terms and conditions. The Credit Controller should review the aging report regularly and exercise all possible control measures to ensure strict control over receivables. 14.3.5.2. Overdue accounts will be the amounts that have either exceeded the approved MCL or the agreed Credit Period for that customer. Any invoice or amount disputed by the customer will continue to appear on the statement of accounts and will be considered past dues, until resolved. 14.3.5.3. At the end of the month, Credit Controller will send the statement of accounts for all customers showing all due amounts. The statement of accounts has a message to the recipient stating a request for all payments to be settled by the 15th of the month. In case of discrepancies, the customer should notify AMICO within 10 days, otherwise the statement would be considered as acceptable. 14.3.5.4. The Area manager will be notified by the Credit controller in case of non receipt of payment and continuous delays. Consequently, all business dealings with the customer will be suspended until all over due amounts are cleared. 14.3.6. Segregation of duties for better internal control should always be maintained, wherever possible: 14.3.6.1. One person is responsible for issuing the Cash Sales Invoices. 14.3.6.2. One person is responsible for issuing the Official Cash Receipt. 14.3.6.3. One person is responsible for registering the payments in the ERP system. 14.3.6.4. The collection is either in cash or cheque in the normal course of business. A collector/ cashier should not accept any money without issuing a cash receipt, which should be given to the person who pays the cash for the actual amounts paid. 14.3.6.5. The Chief Accountant is responsible for safe keeping the cash receipts books, handing them over to the concerned/ authorized person according to the serial numbers (wherever possible) and taking back the used ones to replace them with new ones keeping in consideration the numerical serial. 14.3.6.6. The Authorized Management should specify the maximum limit of cash at the minimum possible given time (per day/week/month). The limit should be in accordance with the amount of cash received during that period. 14.3.6.7. As a general rule, the cash amounts collected must be deposited at the bank at the end of each day or if necessary the next working day at the earliest. 14.3.6.8. The Authorized management should assign a responsible person to check cash on hand at appropriate intervals. 14.3.6.9. The Cashiers should be warned of placing any personal cash amounts that is significant and which doesn’t relate to the Company’s cash. 14.3.6.10. The treasury holder is not allowed to have any direct relationship with the debtors, updating the records or revising the banks’ statements. 14.3.6.11. The Authorized management should issue a mandate, which specifies the Employees authorized to receive cash and to deposit cash in the banks. Unauthorized Employees are forbidden to carry out these functions. 14.3.7. Applying the Credit Policy to specific Customer 14.3.7.1. Process 14.3.7.1.1. The process starts upon receiving a Purchase Order from a Customer not interested in Cash Sales and requests to deal with AMICO on Credit Sales basis. 14.3.7.1.2. The sales department is responsible for evaluating the customers’ credit by obtaining and analyzing the customer credit data like, credit application and other required documents, as mentioned in the Revenue manual. 14.3.7.1.3. The Sales department should obtain the latest Credit Sales policy as mentioned in the manual. 14.3.7.1.4. The Sales department should review the customer credit application in light of the existing credit policy (most recent) and suggest the proper credit limits as per the established credit decision table. 14.3.7.1.5. The Sales department should obtain the required approvals from the Authorized Management in the Sales and Finance departments. 14.3.7.1.6. The Sales department should request the CSD to open new customer file and ensure that “Customer Creation process” should be followed completely. 14.3.7.1.7. The CSD should ensure that credit limits should be assigned on the basis of established credit decision table. 14.3.7.1.8. The Sales department is responsible to conduct the credit and collection reviews on periodic basis. 14.3.7.1.9. The Credit Controller is responsible to resolve the issues identified by the Sales department during periodic reviews-. The Credit Controller is also responsible to conduct the credit and collections review on periodic basis. Customers’ credit limits could be adjusted accordingly depending upon the performance-. During the periodic reviews, if any issues emerge, the Credit Controller will solve the issue as follows:-. Put Customer Sales Order on hold-. Adjust / issue the Customer Credit -. Process the Sales Return-. In case of any pending issues, discuss a counter offer to deal with the Customer in cash / bankers’ cheque, till credit limit is approved and regularized. The process ends after the updates of ERP. 14.3.7.2. Process Flow 14.4. Receivables Types and Classifications The Receivables are recognized only when a sale is concluded and an Invoice has been issued. That is, Billing has taken place. Billing should be prepared in accordance with Sales Contract, agreed terms and conditions and after the deliveries as per agreed delivery schedules. For timely billing process, all sales invoices should be delivered to the customers as soon as possible after completion of delivery procedures or after rendering services or as mentioned in Sales Contract. The Credit controller should ensure that the customers should return an approved copy of signed delivery note (POD) or approved copy of the Sales Invoice. 14.4.1. Trade Receivables 14.4.1.1. Trade Receivables usually come in the form of operating lines of credit and are usually due within a relatively short time period, ranging from few days to a year. By KSA Law “SOCPA”, Trade receivables need to be classified in the financial statements into: 14.4.1.1.1. Customers’ Trade Receivables 14.4.1.1.2. Intercompany (Affiliate Companies) Trade Receivables 14.4.1.2. The first type of Trade Receivables is related to normal Sales operation of with the customers. This type, describes the receivables generated from the operating revenue with an agreement to defer payment, as per an approved Credit Policy. 14.4.1.3. The second type of Trade Receivables is the Sales operation to the Companies within the Group. This type is very similar to the first type with the only difference is that the ownership of the seller and the buyer is common in the majority of the stake holding. An example of that can be when AMICO KSA is selling goods to AMICO UAE or Syria or vice versa. 14.4.2. Non Trade Receivables Non Trade Receivables can arise from: 14.4.2.1. The advances to the employees 14.4.2.2. The claims against non-business entities like Insurance claims 14.4.2.3. The financial receivables like, but not limited to dividends and return on investment (ROI) 14.4.2.4. Intercompany related due payment: In differentiation to the Trade receivables this describes the payments due between companies in relation to claims or management agreements. It is not related to Sales operation, but is related to the core business of the companies. 14.5. Bad Debts provision and Write offs 14.5.1. General policy 14.5.1.1. The Trade Receivables should be stated at gross less estimated non-collectable doubtful debts. Provision for doubtful debts should be made if: 14.5.1.1.1. Receivables are due for more than one year. 14.5.1.1.2. If there is sufficient evidence that receivable amount cannot be collected, regardless of the age of the receivables. 14.5.1.2. Any write-off should be affected and recorded in the customers’ account, only after proper approval from Authorized Management and in accordance with the approved Authority Matrix. 14.5.2. Bad Debts 14.5.2.1. A bad debt is an amount that is written off as a loss to the business and classified as an expense because the debt owed to the business is unable to be collected and all reasonable efforts have been exhausted to collect the amount owed. This usually occurs when the debtor has declared bankruptcy or the cost of pursuing further action in an attempt to collect the debt is more than the debt. 14.5.2.2. When bad and doubtful debts are identified, the Sales Manager will advise the CFO as soon as a debt is known to be irrecoverable and forward full details within 3 working days. The CFO will consult with the Legal department and advise the Country Manager of the status of recovery. 14.5.2.3. If appropriate, an action plan will be drawn up by the CFO (e.g. debt collection agency, initiation of legal action) and implemented; conversely a recommendation may be made to write off the bad debt immediately. 14.5.2.4. Prior to each fiscal quarter end the CEO, Country Manager and the CFO will review all outstanding receivables in the current provision list. The purpose is to review the adequacy of the provision for bad and doubtful debts and to amend, if appropriate. 14.5.2.5. The debt is immediately written off as per policy by crediting the debtor's account and therefore eliminating any balance remaining in that account. 14.5.3. Doubtful debt 14.5.3.1. The Doubtful Debts are those debts which a business is unlikely to be able to collect. The reasons for potential nonpayment can include disputes over supply, delivery, and conditions of goods, the appearance of financial stress within customers’ operation. When such a dispute occurs it is prudent to add this debt or portion thereof to the provision for doubtful debt. 14.5.3.2. This is done to avoid over-stating the assets of the business as trade debtors account is reported net of doubtful debt. When there is no longer any doubt that a debt is uncollectable the debt becomes bad. An example of a debt becoming uncollectable would be: once final payments have been made from the liquidation of a customer's limited liability company, no further action can be taken. 14.5.4. Provision for Doubtful/ Bad Debt 14.5.4.1. The above is listed within current asset section of the balance sheet. Doubtful debt provision (reserve) will hold a sum of money to allow a reduction in the accounts receivable ledger due to non-collection of debts. This can also be referred to as the allowance for bad debts. Once a doubtful debt becomes uncollectable, the amount will be written off. 14.5.4.2. There are two methods to account for bad debt: 14.5.4.2.1. Direct write off method: A receivable, which is not considered collectible, is charged directly to the income statement. 14.5.4.2.2. Allowance method - An estimate is made at the end of each fiscal year of the amount of bad debt. This is then accumulated in a provision, which is then used to reduce specific receivable accounts as and when necessary. 14.5.4.3. Because of the matching principle of accounting, revenues and expenses should be recorded in the period in which they are incurred. When a sale is made on account, revenue is recorded along with account receivable. Because there is an inherent risk that clients might default on payment, accounts receivable have to be recorded at net realizable value. The portion of the account receivable that is estimated to be uncollectible is set-aside in a contra-asset account. 14.5.4.4. Allowance for doubtful accounts: At the end of each accounting cycle, adjusting entries are made to charge uncollectible receivable as expense. The actual amount of uncollectible receivable is written off as an expense from Allowance for doubtful accounts. 15. Process Alignment with Data Base 15.1. Customer Creation 15.1.1. When the Customer Service department (CSD) comes across a situation where the master record about customer data is not available in the system, CSD initiates the customer creation process and if the customer is not expected to be a regular customer then the process should be treated as walk-in/ cash customer. 15.1.2. CSD should collect the down payment from the customer, as per directives of Authorized Management (if any) and post the down payment in to the ERP to update the system. 15.1.3. After the data entry of Sales & Collection documents, Accountant should verify the documents and post in the ERP system. 15.2. Credit Sales Operation 15.2.1. The Receivables Accountant is responsible to verify the data entries made by the CSD and post into the ERP system. 15.3. Provision and Write off 15.3.1. At the end of each accounting cycle, adjusting entries are made to charge uncollectible receivable as expense. The actual amount of uncollectible receivable is written off as an expense from Allowance for doubtful accounts. 16. Reporting 16.1. Report on database of customers with special emphasis on change in status. 16.2. Periodic Collection Report by customer. 16.3. Aging report by Customer, starting with Invoice number, Type of Sale, Delivery date, POD and aging periods 16.4. Status Report on Account Statement sent to customers showing critical comments. 16.5. Report the action plan on customers over 180 days. 17. Authority Matrix The Delegation of Authority Matrix bears with it the obligation to exercise sound discretion and good business judgment and to accept responsibility for such actions. Approval indicates knowledge of the transaction or item being approved for action or payment and that, insofar as they apply, goods or services have been received, processed and that AMICO’s interests are protected. 17.1. Overall objectives of the Delegations of Authority Matrix are: 17.1.1. To ensure that the Operating Plans and Budgets are executed in a manner consistent with the company's mission and business strategic objectives. 17.1.2. To ensure that the executive management is managing the business associated risks. 17.1.3. To provide for appropriate consultative involvement of applicable staff groups, (e.g. Finance, Sales, Supply Chain, Administration, etc) in major business decisions. 17.1.4. To document delegations of authority in sufficient details, to promote accountability, responsibility and adequate internal control measures, over the authorization and execution of business transactions. 17.1.5. To monitor and ensure appropriate control over Capital Expenditure Projects. 17.2. Re-Delegation: 17.2.1. AMICO Executive Management has the primary responsibility for assuring compliance with the objectives of the Delegation of Authority Matrix in their respective business and staff groups. 17.2.2. The prevailing authority can be re-delegated to the lowest level of subordinates required to efficiently and effectively administer AIMCO’s business. Any re-delegations, whether permanent or temporary, below the Chairman level, must be documented and approved by the Chairman. 17.3. Guidelines for Delegating Authorities throughout the Organization: The following guidelines should be followed in the administration of this Delegation of Authority Matrix: 17.3.1. Authority to execute business decisions outlined should be delegated to the lowest practical organizational level. Such authority should be sufficient to allow individuals to complete their job responsibilities. 17.3.2. Delegations are related to a position, not to an individual. Accordingly, an individual’s authorities end upon their changing or leaving the position. 17.3.3. In the absence of a Director for certain functions, the subordinate manager(s) (i.e. two managers collectively) will assume the responsibility of delegation. 17.4. Type of Interactions There are three types of interactions between AMICO personnel (Managers/ Section Heads and Subordinates), Management Team (Directorate Level) and Executive Team (General Manager and Group Chief Financial Officer), as follows: Type of Interaction Description of responsibility Initiates Has the primary responsibility for completing the task and ensuring personally timely submission. The individual is not required to perform the task, he may delegate to sub-ordinates, and however the responsibility of preparation lies within his jurisdiction. Reviews Conducts in-depth review of recommendations/ contents/ ideas presented, challenges output and rationale, investigates alternative ideas, and contributes to the refinement of content/ ideas/ recommendation. Approves Provides formal approval for the recommended position, content and/or ideas. This step is required before enacting the recommendation. 17.5. Authority Matrix Action Initiates Reviews Approves Customer Creation and Assessment Customer creation Customer periodic assessment Credit Control Accountant Credit Control Manager CFO Credit Policy Assigning specific policy for specific customer Credit Controller CFO GM Adjustments to AMICO Credit Policy Head of Section Finance Manager CFO Trade Receivables Identify Doubtful Receivables Regional Sales Manager CFO CEO/GM Adjustments to Trade receivables (Up to SR 15,000) Head of Section Finance Manager CFO Adjustments to Trade receivables (Up to SR 50,000) Head of Section Finance Manager CFO/GM Adjustments to Trade receivables (More than SR 50,000) Finance Manager CFO CEO/GM Reconciliation with General Ledger Finance Manager CFO Release of Blocked Customers Credit Control Manager CFO GM Writing-off Doubtful Receivables (Bad Debts) Up to SR 30,000 Head of Section Finance Manager CFO Up to SR 100,000 Head of Section Finance Manager CFO/GM More than SR 100,000 Finance Manager CFO CEO/GM 18. Manual Approval - Process Owner: CFO: - Related Parties; - Sales: - BU: - Supply Chain: - IT: - HR: - Process Sponsor:CEO: - Periodic Review Date:(3/6/9/12 Months) =========================================== 19. Attachments: 19.1. SAP standard Process Flow Symbols Attachment (1) SAP standard Process Flow Symbols Flow Chart Symbols Symbol Description Start of Process Process Decision Making Comment Made by End User Automatic Decision Made by Software Predefined Process Reference Part of a Predefined Process Reference Document Printed Financial Implication Document Multi-Document Manual Input of Information or Data Manual Operation / Activity / Task Connector Between to Tasks within a Process Flow Database End of Process