Solution 2: Apply Payment Discount Policy

Example: An Khang Joint Stock Company Customer Profile

CUSTOMER TRACK PROFILE

Customer name: AN KHANG JOINT STOCK COMPANY................................................. Abbreviation: AN KHANG ..........................................................................................

Address: 96 Le Thanh Tong, Ha Long City, Quang Ninh

Phone: 0203.3695448………………… Fax No. .............................. Email address.................................................................................................

Type of business registration (Joint Stock Company, LLC...): Joint Stock Company ......................................................................................................................

Registered business line: trading in dairy products

Business registration certificate number (Enterprise code): .................................

Date of issue…20/09/2006……Place of issue: Quang Ninh Provincial Tax Department ........................... Tax code: 5700586988 ...........................................................................................

Bank name: Vietcombank – Quang Ninh Branch .................................. Account number: 0901000001864....................................................................................

Legal representative: Le Duc Nghia……Tel: 0975308965 ......................

Transaction person: Nguyen Thi Phuong Thoa……..Phone: 0979037054 .......................

Periodic debt reconciliation

Periodic debt reconciliation at the end of the month helps the company manage closely, not miss any debts to buyers and sellers, monitor details of receivables and payables to have a plan to urge receivables to recover capital early, have a plan to pay payables to avoid overdue debts.

For accounts payable, the company can ask the supplier to send a debt reconciliation statement.

For receivables, the company can refer to the debt reconciliation report for customers according to the following form:

COMPANY………

SOCIALIST REPUBLIC OF VIETNAM

Independence – Freedom – Happiness

Maybe you are interested!

Hai Phong, date…month…year…

DEBT RECONCILIATION MINUTES

- Based on economic contract

- Based on actual payment situation.

Today, date…month…year…At the office of Company…, we include:

1. Party A (Seller): VAN VU JOINT STOCK COMPANY

- Address: 193 Le Loi, Yet Kieu ward, Ha Long city, Quang Ninh

- Phone: (0203).3656.403 Fax:

- Representative: Nguyen Xuan Quang Position: Director

2. Party B (Buyer):…………………………………………………………….

- Address: ………………………………………………………………………..

- Phone:………………..............................Fax:…………………………….

- Representative:……………………………………..Position:………………………

Let's compare the specific values as follows: Beginning debt: ……………VND

Number of occurrences during the period:

Date

Invoice number	Goods price	Tax money	Total amount

3. Amount paid by Party B:……………….VND

4. Conclusion: By the end of the date…………, Party B must pay Van Vu Joint Stock Company the amount of:…………………..

- This record is made in 02 copies of equal value. Each party keeps 01 copy as a basis for future payment between the two parties. Within 03 working days from the date of receiving this debt reconciliation record, if Van Vu Joint Stock Company does not receive a response from your company, the above debt is considered accepted.

REPRESENTATIVE OF PARTY A

REPRESENTATIVE OF PARTY B

Example : Minutes of debt reconciliation of Vo Thi Sau Primary School

VO THI SAU PRIMARY SCHOOL

SOCIALIST REPUBLIC OF VIETNAM

Independence – Freedom – Happiness

Hai Phong, May 31, 2016

DEBT RECONCILIATION MINUTES

- Based on economic contract

- Based on actual payment situation.

Today, May 31, 2016 At Van Vu Joint Stock Company office, we include:

1. Party A (Seller): VAN VU JOINT STOCK COMPANY

- Address: 193 Le Loi, Yet Kieu ward, Ha Long city, Quang Ninh

- Phone: (0203).3656.403 Fax:

- Representative: Nguyen Xuan Quang Position: Director

2. Party B (Buyer): VO THI SAU PRIMARY SCHOOL

- Address: No. 51 Le Loi, Yet Kieu Ward, Ha Long City, Quang Ninh

- Phone: (0203)3874999 Fax:

- Representative: Nguyen Thi Tham Position: Principal

Let's compare the specific values as follows: Beginning debt: 6,584,000 VND

Number of occurrences during the period:

Date

Invoice number	Goods price	Tax money	Total amount
23/05	0000068	4,581,000	458,100	5,039,100

3. Amount paid by Party B: VND 5,039,100

4. Conclusion: By the end of May 31, Party B must pay Van Vu Joint Stock Company the amount of: 6,548,000 VND.

REPRESENTATIVE OF PARTY A

REPRESENTATIVE OF PARTY B

Effective debt collection solutions

The problem of bad debt in enterprises is always a matter of concern for management boards. Therefore, debt management is an essential step for the existence and success of a business. It is always necessary to ensure that cash flow is not blocked by bad debts.

Negotiation methods in debt collection

At all costs, debt recovery must be attempted during the negotiation phase by:

- The company has the opportunity to continue providing goods and services to debtors.

- The company will save money and time.

- The company helps to maintain the debtor's reputation, prestige, and honor and retain the debtor's feelings.

 Provide clear policies in the contract - To minimize future problems, the company needs to provide clear policies such as signing a clear agreement, payment terms and methods. Show specific dates in the contract , clearly state the payment deadline and when the payment deadline is.

 Establish a clear debt collection process for the company – When working with customers, the company should establish a debt collection process to determine which individual will be responsible for the customer as well as specify the time and method for sending reminder letters or phone calls between the company and the customer.

 Document all transactions – Company contacts with customers such as emails, letters, calls, etc. The company may need these for future disputes.

 Initiate a lawsuit According to the provisions of the Commercial Law, the statute of limitations for initiating a lawsuit to request the court to resolve disputes related to bad debts arising from contracts is 2 years from the date of infringement of legal rights and interests. Within 2 years, if the enterprise does not initiate a lawsuit in court, it is considered to have lost the right to initiate a lawsuit.

However, when the statute of limitations expires, businesses can still re-establish a new statute of limitations in the following cases:

- The debtor has acknowledged part or all of its obligations to the enterprise;

- The debtor has partially fulfilled its obligations to the enterprise;

- The debtor and the business reconcile with each other .

3.4.2. Solution 2: Apply payment discount policy

Currently, Van Vu Joint Stock Company has not applied payment discount policy to encourage customers to pay off their debts before due date. Therefore, to improve capital efficiency and recover capital quickly, the company should apply payment discount policy.

The payment discount rate has not been uniformly regulated by the Ministry of Finance. Therefore, the payment discount rate can be based on the company's situation, debt size, early repayment period, bank interest rate and can also be referenced by some businesses in the same industry with similar scale.

The payment discount rate must be specifically stated in the economic contract signed between the two parties. This is a necessary and sufficient condition to serve as a basis for implementing payment discounts for customers.

Account used : Account 635: Financial expenses

Account 635: Financial expenses

Account 111, 112, 131

CKTT for buyers

End of period

Carryover of CPTC

Account 911

Diagram 3.1 : Sequence diagram of payment discount accounting

The company discount rate should follow the interest rate of the bank where the company has an account.

The company is currently opening an account at Techcombank. At this time, the savings interest rate at Techcombank in 2016 is 7.5%/year, the loan interest rate is 12%/year.

To encourage customers to pay early, businesses should choose a payment discount rate higher than the savings interest rate, but not exceeding the bank's lending interest rate. Businesses choose a payment discount rate of 9.5%/year based on Techcombank's interest rate.

Form of discount payment: according to agreement between the two parties.

Payment discount amount enjoyed = Total payment amount x discount rate x number of days of early payment.

Accounting method :

When applying payment discount to customers: Debit account 635: Financial expenses

There are accounts 131,111,112......

At the end of the period, transfer financial expenses to account 911: Debit account 911: Determine business results

Credit account 635: Financial expenses.

For example: Suppose on June 30, 2016, Van Vu Joint Stock Company sold goods to An Khang Joint Stock Company for a total amount of 70,584,000 (including 10% VAT). The payment deadline is July 30, 2016. By July 10, 2016, An Khang Joint Stock Company had paid the entire amount by bank transfer.

So An Khang Joint Stock Company paid 20 days early, so it is entitled to a payment discount of 0.026%/day of early payment (if the discount rate is 9.5%/year).

 Discount = 0.026% x 20 x 70,584,000 = 367,037

Provisions:

Debit account 635: 367,037

Credit account 112: 367,037

3.4.3. Solution 3: Provision for doubtful debts

Currently, according to the conditions of setting up a provision for bad debts, Van Vu Joint Stock Company has not set up a provision. However, in order to control the company's financial resources and avoid losses due to bad debts that may occur in the future in order to preserve business capital, I would like to present the conditions and directions for setting up a provision for bad debts according to state regulations.

Provision for doubtful debts : is a provision for the lost value of overdue receivables, receivables that are not overdue but may not be collected due to the debtor's inability to pay.

Effect of provision for bad debts : setting up provision for bad debts helps the company have financial resources to compensate for losses in bad debts that may occur in the planning year to preserve business capital, ensuring that the company reflects the correct value of receivables at the time of preparing financial statements.

Regarding the legal basis for setting up provisions : accounting is based on Circular TT228/2009TT-BTC issued on December 7, 2009 on guiding the regime of setting up and using provisions for inventory price reduction, loss of financial investments, bad debts and warranty of products, goods, and construction works at enterprises.

Conditions for setting up provisions : Enterprises can set up provisions for doubtful debts when debts meet the following conditions:

- The debt must have original documents, with confirmation from the debtor about the outstanding amount, including: economic contract, contract liquidation, debt commitment, debt reconciliation and other documents.

Debts that are not determined to be receivables under this provision must be treated as a loss.

- There is sufficient basis to determine that the debt is bad debt:

+ Overdue receivables recorded in economic contracts, loan agreements or other debt commitments.

+ Debts receivable that have not yet reached the payment deadline but the economic organization has gone bankrupt or is undergoing dissolution procedures; the debtor is missing, absconding, being prosecuted, detained, tried by law enforcement agencies, serving a sentence or has died.

Enterprises must estimate the possible loss or the age of overdue debts and make provisions for each bad debt, along with evidence to prove the above bad debts. In which:

- For overdue receivables, the provision level is as follows:

after :

+ 30% of the value for overdue receivables from 6 months to less than 1 year

+ 50% of the value for overdue receivables from 1 year to less than 2 years

+ 70% of the value for overdue receivables from 2 years to less than 3 years

+ 100% of the value for receivables overdue for 3 years or more

- For receivables that have not yet reached the payment deadline but the economic organization has gone bankrupt or is undergoing dissolution procedures : the debtor is missing, absconding, being prosecuted, detained, tried by law enforcement agencies, serving a sentence or has died... then the enterprise estimates the level of irrecoverable loss to set up a provision.

After setting up a provision for each bad debt, the enterprise summarizes all the provisions for bad debts into a detailed list to serve as a basis for accounting into the enterprise's business management expenses.

(Source: Circular No. 228/2009/TT-BTC Hanoi, December 7, 2009)

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