Due Dates Vs Collection Dates

These are two crucial dates in any finance business. The gap between these two dates creates delinquency. Every lender tries to ensure that both dates (bill/due date and collection date ) are same, so as to avoid ‘delinquency’. It may not happen.

Bur, lenders must avoid creation of artificial delinquency on technical grounds.

In India, private finance lenders take post-dated cheques for all future installments:

1. To ensure prompt collection;
2. To keep collection cost lower; and
3. To take recourse to criminal proceedings in case of dishonor.

But, large finance companies face huge problem of receiving, ensuring accuracy, storing, retrieving, depositing on due dates, getting credit and /or receiving dishonored cheques back from banks.

Imagine a company with 100,000 accounts having 60 dated cheques for each month and account. It totals up to 6,000,000 cheques.

Problem compounds when cheques dated are spread across days of any month, because contracts are sourced across days of a month. This poses a big operational problem, creating risk apart. Some banks offer services for storing and collection.

The Service Level Agreements need to be drawn out carefully with banks; otherwise, banks would make companies pay for their operational failure/ inefficiency.

Due to faulty operations, some customer accounts will be delinquent for no fault of theirs:

1. Cheques do not hit customer accounts on due date.
2. Late credit by banks.
3. Undue late charges, fees and penalties.

Companies are advised to restrict due dates to two, say 10^th and 20^th of each month.

• 10^th can be a uniform due date for borrowers with fixed income like salary, etc. and corporates; and
• 20^th can be a uniform due date for remaining customers. 

This helps collection department to create the right collection cycle for segmentation, reducing operational risk apart. Interest for the period between date of disbursement and due date needs to be collected upfront, as a part of margin money / along with customer equity.

How do we align due dates with collection dates?

This is possible only if we make an arrangement with a bank to give credit for deposits made on due dates (and reverse the credit only on dishonour of the cheque by the customer). Alternatively, company CFO can do the same in the accounting system. This is not against any accounting principle.

With this, a lot of confusion and inaccuracy will be avoided. Accurate measurement of delinquency is paramount to collection. Any thing measured gets done!