ACCOUNTS RECEIVABLE POLICY

POLICY AND PROCEDURE

Prepared By: Approved By: Revision Date: Effective Date:

PURPOSE:
This accounts receivable policy establishes guidelines relating to receivable management, in particular how and when to reserve a receivable, write-off a receivable and recover a receivable. The objective of this policy is to ensure consistency in Company Xs accounting treatment of receivables.

SCOPE:
The intended use of this policy is for corporate operations and subsidiaries of Company X.

POLICY:
Company Xs philosophy of receivable management is predicated on the presumption that the overall credit quality of Company Xs customer base is good and the likelihood of bad debts is minimal. The respective operating units will set up a reserve after a specific time period when it is deemed that the collection of an account receivable is in doubt. This method serves to bring focus on the collection of the receivable from the appropriate operating groups within the company. In addition, the company will set up a general corporate reserve to cover extraordinary items that may occur.

PROCEDURES:
1.0 INVOICING Company Xs office locations are responsible for processing accounts receivable invoices. When possible, invoicing should be done on a daily basis. At a minimum, invoicing should be done once a week. Invoices are triggered by the following events: closing a job, completing and issuing a survey, achieving project milestones, shipping significant line items (materials), receiving sub-contractor invoices, and reviewing job costs for invoicing at month-end. Project and office managers should review on-going job costs at month-end. The project and office managers must approve accounts receivable invoices before they are sent to the customers. With each invoice, the project and office managers should review a job cost report, where applicable, for reasonableness to ensure that the current invoice amount is appropriate in relation to job costs incurred to date. Once approved, the invoices should be promptly mailed to the customer. 2.0 CASH RECEIPTS 2.1. Lockboxes are to be utilized for the receipt of customer check payments.

2.2. In the instance where a check/cash receipt is received at a company address/location, such
receipts should be forwarded to the accounting manager and stored in a locked receptacle until sent to the bank for deposit in the lockbox account. When the check amounts to $X or greater in one day, or if receipts are received within the last two business days of the month, the checks shall
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be sent to the lockbox via overnight mail. Otherwise, the checks are mailed to the lockbox daily via regular mail. A copy of each check and accompanying documentation should be retained for security purposes to ensure that the checks are deposited into Company Xs account appropriately.

2.3. ACH, wire transfers and merchant funds from credit card vendors will be processed into Company Xs bank account as received.
3.0 CASH POSTING

3.1. All receipts are to be entered into the accounting system on a one-business-day lag from the time
they are deposited into Company Xs bank account.

3.2. Corporate accounts receivable is responsible for maintaining a daily log of all cash receipts
entered into the system. The log should independently reflect the daily totals for lockbox, ACH payments, wire transfers and merchant receipts entered into the accounting system.

3.3. Short-paid invoices should be forwarded to the corporate credit and collections department for
resolution for the domestic offices or handled internally for subsidiaries. 4.0 RESERVING A RECEIVABLE It is Company Xs policy that accounts receivable be recorded at face value and that an offsetting reserve account be established for bad debts, returns and allowances, and customer allowances, e.g., value-added reseller allowances. This reserve account shall be set at such a level so as to bring the accounts receivable to their estimated net realizable value. The reserve account is comprised of three separate parts: the reserve for bad debts account; the returns and allowances account; and the customer allowances account.

4.1. The reserve for bad debts account shall be valued to cover receivables which have been
specifically identified as probable or highly probable uncollectible accounts.

4.2. The returns and allowances account is made up of two parts: the specific reserve and the general
reserve. The specific reserve shall be valued to cover probable or highly probable revenue reduction exposures. The general reserve portion shall be valued at an amount to sufficiently cover revenue reduction exposures that have not been specifically identified. These exposures include returned product, billing errors, pricing allowances, customer disputes, duplicate shipments and estimated future bad debts. The factors to be considered in setting the value for the returns and allowances reserve account should include the following:

Loss history of both Company X and the industry The economic conditions of the marketplace The existence of "special credit" programs for riskier customers Accounts receivable aging history Number of accounts in "dispute"

4.3. The customer allowances account shall be valued at a level sufficient to cover both actual and
estimated contractual and program obligations. The factors to be considered in setting the value for the reserve account should include the following:

Current and predicted sales levels Current and predicted inventory levels Current earned benefits information provided by program administrators Historical analysis of actual trends
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 Information on current as well as proposed sales/marketing programs Marketing projections of the competitive marketplace and the resulting forecasted action to
be taken Budgeted information Reseller business environment The accounting entry to reserve a receivable should at least be done quarterly, but may be done sooner within the quarter. Receivables with extended payment terms should be reserved based on the earliest payment due date in default. If at any time a receivable is doubtful, it should be reserved immediately. 5.0 WRITE-OFF OF A RECEIVABLE Refer to the companys credit and collection policy. 6.0 RECOVERY OF A RECEIVABLE AFTER BEING RESERVED If a receivable is collected after being reserved, make the appropriate accounting entry. All recoveries should be done through the accounts receivable module in the accounting system. 1 1 2 Debit - cash Credit - accounts receivable Debit - allowance for bad debt Credit - revenue reserves If a receivable is collected after being written off, make the appropriate accounting entry 1 1 Debit - cash Credit - revenue reserves

7.0 CREDIT MEMOS Credit adjustments to customer accounts are to be evidenced by the issuance of credit memos. In general, credit memos originate from transactions that create a need to adjust an existing/past accounts receivable balance, which consisted of an overcharge, erroneous billing or refund situation. These occurrences may arise from sales tax, freights, return goods, price, quantity or policy. This list is not meant to be all-inclusive, but instead is representative. Upon identifying the need for adjustment to a customers balance, office personnel are to locate a copy of the relevant original invoice. An explanation and documentation as per the procedure for a specific occurrence (e.g., material receipt, tax exemption certification) is to be attached to the invoice. This paperwork is to be signed by the originator and routed to the executive vice president (>$X ) or office manager (<$X) for verification and approval. After approval, credit is to be issued to the customers account and applied to the appropriate invoice. One copy of the credit memo is to be forwarded to the customer, one copy is to be attached to the original invoice paperwork and maintained in the project file, and one copy is to be forwarded to corporate credit and collections with the offices monthly invoices. 8.0 CREDIT AND COLLECTIONS Refer to the companys credit and collection policy.

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