CCP Advanced Level

Advanced Collections Management flashcards

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What is the difference between a general collection policy and a specific collection policy?

General: the organisation-wide framework (escalation timetable, authority limits) applying across the whole portfolio. Specific: a tailored variation for a particular product line, customer segment or risk category, such as a distinct policy for SME trade credit versus consumer lending, because their collection dynamics genuinely differ.

What is best possible DSO, and what does comparing it with actual DSO reveal?

Best possible DSO is the theoretical minimum DSO if every customer paid exactly on their stated terms. The gap between actual DSO and best possible DSO is the delay owed to collection performance; best possible DSO itself reflects the payment terms. A high DSO close to its best possible level is not a collections failure.

What is a non-performing asset (NPA)?

A credit facility where the borrower has stopped making scheduled payments, typically 90 days or more past due under Kenyan prudential practice. It has moved from a performing to a distressed state and needs active management rather than routine servicing.

What are the four types of trade credit insurance product?

Whole turnover: the entire trade receivables portfolio, the most comprehensive and commonly used. Selected part: a defined portion, such as one product line or region. Selected buyers: receivables from a defined list of buyers only. Single buyer: exposure to one buyer, often for a particularly large or concentrated exposure.

When does a simple contract debt become statute-barred in Kenya?

Under the Limitation of Actions Act, most simple contract debts must be sued on within six years of the cause of action arising. After that the debt is statute-barred and generally unenforceable through the courts, however genuinely it is still owed. Check a case study's dates against the six-year window before recommending litigation.

How is the 80/20 rule used in collection planning?

Planning identifies the minority of accounts that hold most of the value and weights staff capacity toward them, instead of splitting staff evenly by headcount. Example: in a KES 2,000,000 portfolio of 10 accounts, two accounts of KES 800,000 each hold KES 1,600,000, which is 80% of the value from 20% of the accounts.

Who are the external and internal customers of a collections function?

External: the debtors being collected from, whose cooperation and relationship value must be weighed throughout. Internal: other departments, such as sales and finance, who depend on collections' outcomes and whose decisions (for example the credit terms sales offers) shape collections' workload and difficulty.

What are the three types of fee paid to debt collectors?

Contingency fee: a percentage of amounts actually recovered, aligning the collector's incentive directly with recovery. Flat fee: a fixed fee per account regardless of outcome, simpler but with weaker incentive alignment. Retainer plus contingency: a base fee combined with a success-based part.

How is the estimated doubtful debt worked out from a receivables ageing?

Apply a rising doubtful-debt rate to each ageing bucket separately, then add the results. Example: (15m x 2%) + (8m x 10%) + (4m x 30%) + (3m x 60%) = 0.3m + 0.8m + 1.2m + 1.8m = KES 4.1 million. The common error is applying one blended rate to the whole overdue balance.

What is a garnishee order?

A specific form of attachment of debts directed at a bank holding the judgment debtor's funds, compelling the bank to pay the judgment creditor directly from the debtor's account. Attachment of debts generally redirects amounts owed TO the debtor by third parties to satisfy the judgment.

What is meant by restricting the application of certain collection policies?