Printed on: 06/23/2017. Please go to http://policy.umn.edu for the most current version of the Policy or related document.

ADMINISTRATIVE POLICY

Managing Billings to and Receivables from External Customers

Responsible University Officer(s):

  • Associate Vice President and Controller

Policy Owner(s):

  • Director of Accounts Receivable
  • Assistant Controller

Policy contact(s):

Date Revised:

July 2015

Effective Date:

July 2015

POLICY STATEMENT

Departments are responsible for accurate, timely billings to customers for non-sponsored receivables. Sponsored Financial Reporting (SFR) is responsible for generating accurate, timely billings to sponsors for sponsored receivables. These billings must be recorded in the University’s Enterprise Financial System (EFS) or a financial system approved by the Controller or designee. Departments should record receivables at the time the goods or services have been provided and not at the time the payment is received. Departments must have appropriate internal controls when working with accounts receivable.

Individuals must select a payment term to be applied to the billing, not to exceed the term of Net 30 days unless otherwise stated in approved contract. Payment methods accepted by the University are cash, check, electronic funds transfers (EFTs) and credit/debit cards (non-sponsored only). Selling departments will be charged for all fees associated with EFT or credit card payments. All payments to the University should be in US Dollars.

Departments must collect sales tax that is applicable for the customer's tax status, location, and the item or service being sold.

If a customer has a pattern of non-payment to the University as a whole, they may be deemed not creditworthy. Departments may choose to discontinue providing goods or services or halt research until such a time as the internal credit rating has improved and the risk of non-payment has decreased.

Late fees may be charged on past due balances as provided by law and as permitted by contract.

Departments, SFR and Accounts Receivable Services have a shared responsibility to monitor and follow a regular collection schedule with appropriate escalation actions for those not paid in full within the 30 days.

Accounts Receivable Services is responsible for the collection of non-sponsored receivables residing in EFS. Sponsored Financial Reporting is responsible for the collection of sponsored receivables residing in EFS. Departments provide assistance with collection as necessary.

Any outstanding balance, regardless of the billing system, may be referred to either the Office of the General Counsel (OGC) or collection agencies if not resolved in a specified time period.

Fees paid to collection agencies will be deducted from any monies collected from the customer.

Departments must provide the non-sponsored account number (chartstring) to be used for a write-off if there are amounts deemed uncollectible after all reasonable collection efforts have been taken. Write-offs over $500 must be approved by the Controller’s Office.

Any adjustment or change to an existing invoice (credit only, credit and rebill, or chartstring correction) should be adequately documented and justified, in order to provide a complete audit trail.

Departments must use non-sponsored funds to pay for costs charged to sponsored projects that will not be collected from the sponsor for reasons of unallowability, unallocability, dispute with or bankruptcy by the sponsor, or other reasons. Sponsored Financial Reporting (SFR), Sponsored Projects Administration (SPA), or a responsible department may determine the costs are uncollectible. Once that determination is made, departments are responsible for moving the uncollectible costs to a non-sponsored program within the guidelines in the Administrative Policy: Processing Internal Accounting Transactions. If the department does not move the uncollectible costs, SFR will process the transaction to move the uncollectible costs to the default program and charge the department a fee to perform this service. If the uncollectible costs (or portion thereof) are subsequently collected from the sponsor (bankruptcy settlement, legal settlement, repayment plan, etc.) the collected amount will be credited to the chartstring that covered the uncollectible costs.

Student accounts receivables are handled separately from this process.

REASON FOR POLICY

To maximize the University's cash flow through the timely collection of receivables; minimize exposure from uncollectible receivables; and to increase the integrity of the financial statements through consolidation of receivables and revenues. Promotes oversight and accountability for uncollectible costs by ensuring that all costs incurred in connection with the conduct of a sponsored project are managed by the responsible units. Timely movement of uncollectible costs to a non-sponsored program will result in proper classification of expenses, which will lead to more accurate and complete financial information, and increased compliance with sponsor regulations regarding costs and cash management.

PROCEDURES

FORMS/INSTRUCTIONS

APPENDICES

FREQUENTLY ASKED QUESTIONS

CONTACTS

Subject
Contact
Phone
Fax/Email
Primary Contact(s)
612-624-0929
612-624-5007
Non-sponsored receivables
David Laden
612-624-0929
External Sales
Keith Jansen
612-624-5540
Deposits
Bonnie Anderson
612-625-7535

DEFINITIONS

Accounts Receivable
Amounts due the University of Minnesota for credit sales of goods or services to external customers, including sponsors of University research. An account receivable is created upon the shipment of a product, rendering of a service, accumulation of costs, or satisfaction of a performance step as outlined in an agreement. An account receivable may be due or not yet due; a receivable that is due is a claim against a customer that the University has the right to collect at the present time.
Accounts Receivable Aging
The aging is the starting point for the evaluation of the collectability of accounts receivable and often triggers appropriate actions to mitigate the potential for bad debt. The aging summarizes receivables into aging categories of 0-30 days, 31-60 days, 61-90 days, 91-120 days and over 120 days.
Allowance for Uncollectible Accounts
An estimate of amounts that will likely not be collectible, intended to accomplish these two results: a) to charge the loss for accounts that prove to be uncollectible against the period that caused the loss; and b) to show the estimated realizable value of the customers' accounts.
Budget Overruns
Allowable and allocable direct costs that are incurred and charged to a sponsored project, but are in excess of the awarded amount.
Customer
Any entity that is not “Regents of the University of Minnesota”. These can include individuals (including faculty, students, and staff), businesses, non-profit organizations and foundations, other colleges or universities, and government agencies that acquire goods or services or contract for research with University departments, auxiliaries, or ISOs. This includes some organizations which are closely affiliated with the University of Minnesota but are separate legal entities. Some examples include: The University of Minnesota Foundation, University of Minnesota Alumni Association, University of Minnesota Physicians, and Registered Student Organizations.
Credit Balance
A balance due to a customer as a result of returned goods previously paid for by the customer, or the granting of later credits and allowance for various reasons such as unsatisfactory performance. These balances represent obligations of the University that will have to be satisfied either by cash payments or providing a replacement good/service.
Creditworthy
An internal designation by the University after evaluating the payment history of an individual customer.
Default Program
Chart of Account default programs set up for DeptIDs that historically have sponsored activity. Target program for uncollectible costs on sponsored projects.
Function Code
Function codes answer the question, "How does this transaction accomplish the mission of the University?" Function codes are required as attributes to all Program and Project values. The Function code indicates the purpose of a project or program, such as instruction or research.
Invoice/bill
The document that notifies the customer what is owed for a particular transaction or time period.
Letter of Credit
A commitment, certified by an authorized certifying officer of a Federal program agency, specifying a dollar limit available to a designated recipient organization. Weekly or monthly (depending on federal agency), on a cost reimbursable basis, funds are drawn from the various letters of credit via the federal agency system.
Program Income
Gross income earned by the recipient that is directly generated by a sponsored activity or earned as a result of the award (2.CFR.200). Examples of program income include:
  • income generated from the use, or rental of equipment purchased or fabricated with project funds during the project period.
  • proceeds from the sale of excess supplies or equipment purchased or fabricated with project funds during the project period.
  • proceeds from the sale of software, CDs, or publications during the project period.
  • income from the sale of research materials such as animal models during the project period.
  • fees from participants at conferences or symposia during the project period.
  • sales of products with an accompanying material transfer agreement during the project period.
  • royalties from patents and copyrights [see special situations].
  • income from fees for service performed or use of resources such as laboratory tests during the project period.

Program income does not include for example:

  • patient care credits
  • interest earned on advances of federal funds
  • credits, discounts, rebates
Revenue Recapture Program
A program authorizing the Minnesota Department of Revenue to recapture taxpayer refunds and apply them to debts the taxpayers owe to other state agencies, the University of Minnesota and to certain local governmental units. A debtor under this program is an individual person who is obligated to pay a debt to a claimant agency.
Sponsored Project
Any externally funded activity that is governed by specific terms and conditions. Sponsored projects must be separately budgeted and accounted for subject to terms of the sponsoring organization. Sponsored projects may include grants, contracts (including fixed price agreements), and cooperative agreements for research, training, and other public service activities.
Unallocable Costs
Costs that are allowable but are not assignable to a sponsored project because they do not provide relative benefit to the project, or were otherwise not allocable under sponsor guidelines or the specific sponsor agreement. Example - late charges (charges for goods or services that are allowable but incurred after the project end date).
Unallowable Costs
Costs that cannot be charged to a project per sponsor guidelines or any other costs incurred by the University that Office of Management and Budget (OMB) Uniform Guidance specifies cannot be included in the development of the indirect cost rate charged, or as a direct cost to a federally sponsored project, nor included in ISO/department recharge rates.
Uncollectible Accounts Receivable
An amount for which payment from a customer is not expected, for reasons such as disputes over pricing; contractual terms; budget overruns; allowability; allocability; performance or receipt of product; bankruptcy or other legal proceeding.
Uncollectible Costs
Any costs charged to a sponsored project that will not be reimbursed by the sponsor. They include:
  • Budget overruns;
  • Unallowable costs;
  • Unallocable costs; and
  • Other uncollectible costs that do not meet any of the above criteria, but that the sponsor is otherwise unwilling or unable to pay, (e.g., amounts that are disputed by the sponsor, or amounts deemed uncollectible due to sponsor bankruptcy).
Unit
Any organizational entity within the University that has budgetary authority. Includes, but is not limited to colleges, departments, centers, institutes, offices and programs.
Write-off
The actual removal of an amount from the accounts receivable subledger once it has been determined that the customer will not pay an amount owed.

RESPONSIBILITIES

Accounting Services
Set up initial uncollectible programs using the appropriate function codes of non-sponsored research, non-sponsored instruction, and non-sponsored public service.
Accounts Receivable Services (ARS)
Responsible for customer maintenance, printing and mailing of non-sponsored invoices, non-sponsored accounts receivable, payment application, billing correspondence, and collections (non-sponsored in EFS). Receive and process checks (non-sponsored) returned by the bank because of non-sufficient funds or funds drawn on a closed account.
Sponsored Financial Reporting (SFR)
Responsible for managing the external financial reporting and invoicing requirements of sponsored University projects. Other functions include payment application, sponsored accounts receivable, collections (sponsored in EFS), letter of credit draws, audits and close outs of sponsored projects. Receive and process checks (sponsored) returned by the bank because of non-sufficient funds or funds drawn on a closed account.
Sponsored Projects Administration
Ensure that contracts are negotiated to minimize the risk of non-payment of receivables by sponsoring organizations. Provide guidance to Principal Investigators, Unit Heads and Administrators, and others as appropriate on issues that could result in uncollectible costs being charged (e.g., possible OMB Uniform Guidance violations, budget deviations, re-budgeting issues, etc.).
University Budget and Finance
Monitor the elimination of deficits in the default uncollectible programs
University Clusters and Departments
Responsible for requesting new or changes to existing customer records, entry of non-sponsored billing information into the financial system (EFS or approved department system) in an appropriate and timely manner ensuring confidentiality and accuracy, and entry of non-sponsored billing adjustments. Must provide appropriate justification for billing adjustments and obtain departmental approval for adjustments prior to entry. The department is also responsible for reviewing their outstanding receivables on a regular basis and:
  1. Communicating any known customer or sponsor issues to ARS or SFR
  2. Communicating any known inaccuracies to ARS or SFR
  3. Determining if delivery of products, services or research activities should be suspended as a result of the customer's nonpayment of invoices
  4. Determining if a write-off of the receivable is appropriate and discussing with ARS or SFR.
  5. Work with SFR until final invoice or report is completed and submitted to the sponsoring agency.
  6. Advise and work with Principal Investigators so that uncollectable costs are not charged to sponsored projects
  7. Move uncollectible and unallowable costs to the appropriate non-sponsored program within the guidelines and deadlines of the Administrative Policy: Processing Internal Accounting Transactions
  8. Advise and work with Principal Investigator and Unit Head to identify non-sponsored funds against which uncollectible costs can be applied

Departments with an approved department system are responsible for collection of outstanding receivables recorded in the department system.

Dean's Office
Work with Unit Head to resolve open issues on agreements concerning responsibility for uncollectible costs incurred on cross-college sponsored projects. Provide oversight and take corrective action as needed to resolve issues concerning uncollectible accounts receivable.
Principal Investigator
The individual responsible for sponsored projects, ensure that risks of incurring uncollectible costs are managed appropriately by complying with all sponsor terms and conditions and university policy. Identify agreements concerning responsibility for uncollectible costs incurred on cross-college sponsored projects. If uncollectible costs are charged; Work with Unit Head to ensure availability of non-sponsored funds against which those costs can be applied. Ensure that processes are followed to provide timely resolution and prevent future recurrence. Assist in resolution of quality, quantity issues to minimize uncollectible costs.
Unit Head
Ensure the availability and authorize the use of non-sponsored funds to cover uncollectible costs. Work with Principal Investigators to establish agreements concerning responsibility for uncollectible costs incurred on cross-college sponsored projects. Provide oversight and ensure that mechanisms are in place and utilized to ensure timely resolution of uncollectible accounts receivable.

RELATED INFORMATION

HISTORY

Amended:
July 2015 - Comprehensive Review, New Policy. Merges content from three policies into one. Includes language regarding payment methods. Provides new procedures for billings, payments and collections.
Amended:
April 2010 - Updated Contacts Section.
Effective:
July 2008
Supercedes:
Accounts Receivable
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