Policy 2.3.7 Appendix A

Effective: April 1, 1999
Responsibility: Vice-President and Chief Financial Officer



APPENDIX A
PROCEDURES AND GUIDELINES


1. ESTABLISHING, EXTENSION AND APPROVAL OF CREDIT

  • In establishing credit approval, the Corporate Manager, Credit and Collections may engage external agencies to establish the credit rating of clients and individuals. The information provided by these agencies, in conjunction with information gathered from other sources, should be used in making sound decisions for the establishment, extension and approval of credit. Credit limits should not be automatically increased when the amount of an invoice or contract causes the amount of the credit limit to be exceeded. The credit limit should be used as a tool to assist in the follow-up and collection process.
  • Under normal circumstances, credit must be approved in advance before the sales department can extend credit to a client. However, in certain circumstances where time and scheduling is a factor, the Corporate Manager, Credit and Collections may authorize the local Sales Manager to pre-approve credit on the understanding that all such pre-approvals will be subject to confirmation by Credit and Collections. If a pre-approval is denied, the Sales Manager will act immediately to stop any further use of the credit and assist in collecting the outstanding balance. In a similar manner, the Corporate Manager, Credit and Collections may authorize the Regional Sales Manager to approve credit up to $5,000.00. In this case, the Corporate Manager, Credit and Collections must be advised in writing of any such credit approval.
  • Co-production contracts require supplementary approval by Finance and Administration. If the contract does not cover any dealings with third parties or financial institutions, the network Senior Financial Officer must also co-sign any other financial arrangements with such institutions as per Corporate Policy 2.9.3 - Delegation of Signing Authority. In some instances, the Corporation may incur costs on behalf of the co-producer for various reasons and such costs are sometimes recovered only when the co-producer receives funding from other agencies, which is usually long after the program has been completed and aired. In such instances, special consideration, arrangements and terms for repayment, such as the following, may have to be negotiated:
    • Confirmation from agency of the amount to be paid to the co-producer
    • Confirmation of payments to third parties (i.e. banks)
    • Withholding of license fees and/or other payments to co-producer


The Granting of Credit

There are two prime factors to be considered relative to the process of granting credit. They are agency/direct status and credit worthiness. It is the responsibility of the sales representative to ensure that agency recognition, if applicable, is appropriately requested and the application for credit is duly processed.

Agency Recognition

In order to qualify for the 15% agency commission, the agency must be recognized. Recognition is granted by the General Manager, Marketing and Sales or delegate for Toronto and the General Manager, Commercial Services or delegate for Montreal. Credit cannot be granted until recognition is established.

There are two types of agencies, In-house agencies and Independent agencies.

In the case of in-house agencies, the recognition process is the same as for independent agencies with one exception. Where the agency is an in-house agency, an acceptable guarantee of payment is required (see Appendix F). The guarantee is not required for independent agencies. The parent of the in-house agency can normally be considered an acceptable guarantor, subject to an assessment of credit worthiness. Again, the sales representative is responsible for arranging the "written guarantee". Credit cannot be released until the guarantor is approved.

Credit Granting Considerations

It is estimated that at any given time, 10% of businesses in Canada are in excellent financial condition and do not represent a credit risk while another 10% are in such poor financial condition that they represent an unacceptable risk for unsecured credit.

For the remaining 80%, whose financial condition ranges between these extremes, those responsible for granting credit must analyze various factors, including:

  • The customer’s financial condition, cash flow, and payment record
  • Economic conditions that have or are likely to have an impact on the customer's solvency or liquidity
  • Marketing and Sales department's marketing objectives (i.e. the need to obtain or retain the account)
  • Potential profit vs. potential loss

Successful collections begin with a conscious analytical effort to establish an appropriate credit worthiness of the customer. The granting of credit is not a pure science and has to be combined with practical fact and the credit grantor's background.

Process for Granting Credit

In order to ensure consistency, the following processes must be followed.

Agencies: Credit for all business is to be granted by the Corporate Manager, Credit and Collections. (or delegate).

Direct Purchases: Same as for agencies above with the exception that the local Sales Manager, for local direct business, may grant credit up to $5,000.00. When the sales manager grants credit, the amount of the credit granted is to be indicated on the credit application form and submitted to the Corporate Manager, Credit and Collections immediately. The Credit and Collections Department will advise the sales manager if/when credit has been granted.

Amount of Credit

Agencies: The amount of credit for an agency will usually be higher than the amount required for a direct purchase because most agencies will have several clients. The amount granted will be dependant of the individual agency's past performance and the credit worthiness of the agency's clients.

Direct Purchases: The amount of credit will be based on the credit worthiness of the client and past performance and is usually based on the equivalent of the sum of the three highest consecutive months of the agreement(s), plus applicable taxes.

Exceptions

No Credit Check is required for the following:

  • Federal, provincial, municipal departments, including school boards.

No Credit privileges will be granted to the following:

  • Political parties, federal, provincial or municipal
  • Companies with a bad credit history according to the credit check
  • Companies with a bad payment history with the CBC/Radio-Canada
  • New companies operating less than six months
  • Third party groups advertising on behalf of a political party or cause
  • Personal individuals


Credit Terms

Clause "5" of the broadcast agreement states that: "The purchaser shall pay to the Corporation in Canadian funds the charges applicable to each broadcast hereunder when the invoice for such charges is rendered. Challenge of specific items of billing in dispute will not justify delay in payment of ‘undisputed’ charges”.

The invoices clearly state that payment is "Due and payable when invoice rendered".

Credit Approval Rating

There are six distinct credit ratings:

  • 00 No credit approved or new client.
  • 01 No restrictions within the credit limit approved.
  • 02 Cash is to be received in advance of airtime.
  • 03 Credit has been granted but agreements are to be released individually.
  • 04 No business is to be done with this company.
  • 05 A third party guarantee of payment is on file.

Credit Applications

Apart from the exceptions listed above, credit applications must be submitted for the following:

  • All new clients. If the client is an agency, the Corporate Manager, Credit and Collections reserves the right to request a credit application for both the agency and their client.
  • Whenever a company changes it's name, regardless if the client states that nothing else is changing. To protect the interest of the CBC/Radio-Canada the credit worthiness of the "new" client must be confirmed again.
  • When a merger of two or more companies takes place.
  • When a partnership is dissolved and, one of the partners stays in business under the old name.
  • When either sales or finance personnel, have some suspicion that the financial situation of the client may be changing (for better or worse)

Sales Made Without Credit Approval

In the even sales are made without credit approval, normal collections process will be followed, which includes the assistance by sales personnel to collect the outstanding amount and sending the account to a third party collection agency. However, if the collection process fails to secure payment, the outstanding balance will written-off in accordance with policy. The Corporate Manager, Credit and Collections must follow-up on all cases where sales are made without credit and request a written explanation from the Sales Manager.

Credit Application Form (Appendix E)

All applications for credit must be submitted on the standard credit application form and should include as a minimum the following information:

  1. Sales location
  2. Name of sales rep
  3. Name and address of purchaser, including phone and fax numbers.
  4. Purchaser's bank, including address and phone number
  5. Name, address and phone numbers of three current creditors.
  6. The dates the ads are to be run
  7. The amount of the contract(s)
  8. The amount of credit requested
  9. If the credit amount is a local buy and is less than $5,000.00, the sales manager must indicate credit approval.

Failure to supply the required information may result in delays in processing the application.

2. FOLLOW-UP AND REVIEW OF CREDIT LIMITS

Credit limits should be monitored on an ongoing basis, and as a minimum, reviewed at least once every three years to determine whether adjustments are required. Credit and Collections may, however, request Sales to submit a new credit application.

3. CANCELLATION OF CREDIT PRIVILEGES

Cancellation of credit, in consultation with the appropriate department/sales rep, will be at the discretion of the Corporate Manager, Credit and Collections. When credit is cancelled, the appropriate sales manager or departmental manager concerned should be advised immediately that credit has been cancelled and that the Corporation must not extend any further credit to that particular client. While credit is cancelled and until outstanding amounts are collected in full, any future transactions with that client require payment in advance with a certified cheque, money order or credit card or any acceptable arrangement approved by the Corporate Manager, Credit and Collections.

When credit is cancelled, the corporate wide impact must be considered, and as such, the Corporate Manager, Credit and Collections must advise the Sales department, the department responsible for billing and the National Payment Centre.

4. SPECIAL ARRANGEMENTS – PAYMENTS OF OVERDUE ACCOUNTS

When accounts become overdue and/or if credit has been cancelled, special arrangements for payments of overdue accounts may be negotiated between the client and the Corporate Manager, Credit and Collections. The Sales Manager, sales representative or departmental manager, in consultation with the Corporate Manager, Credit and Collections, may play an active role in negotiating the terms for the payment of overdue accounts. Collection agencies may be contracted to assist in the recovery of overdue accounts. When all collection efforts have been exhausted, the Corporate Manager, Credit and Collections may engage/involve the Legal Services department, especially in cases involving bankruptcy, to determine whether legal action is warranted.

5. PROVISION FOR DOUBTFUL ACCOUNTS AND BAD DEBTS

An assessment of the uncollectability of all outstanding customer accounts receivable balances is to be performed on a quarterly basis. Each specific receivable balance is to be assessed for uncollectability based on objective evidence and/or factors that exist at the time of the review. Any amounts/balances that are or will be written-off in the period pursuant to section 6 should be excluded from this review process.

The following factors should be considered when making the assessment of uncollectability:

a) The balance in question is in dispute via legal or with a third party credit collection agency;

b) Significant financial difficulty of the customer;

c) A breach of contract, such as a default or delinquency in payments;

d) CBC/Radio-Canada, for economic or legal reasons relating to the customer’s financial difficulty, grants the customer a concession that would not otherwise be considered;

e) It is likely that the customer will enter bankruptcy or other financial reorganization;

f) Observable data indicates that there is a measurable decrease in the estimated future cash flows from a large debtor since the initial recognition of the receivable, although the decrease cannot yet be identified with the individual amounts receivable within the total owing from the large debtor, including:

a. adverse changes in the payment status of customers in the group (e.g. an increased number of delayed payments); or

b. national or local economic conditions that correlate with defaults on the receivables in the group.

If one or more of the factors exist, there is risk that the amount may be uncollectable. It is then assigned a “likelihood of collectability” based on the available rankings in Appendix A-1. The appropriate “likelihood of collectability” is a subjective ranking that will be based on professional judgment and the same factors that were indicators of uncollectability.

A provision will be recognized for the balance in question based on the selected likelihood of collectability ranking as per Appendix A-1. The cumulative amount of all provisions recognized, for all balances with a risk of uncollectability, will form the basis of the overall allowance for doubtful accounts to recognize for the Corporation in the period.

Complete and detailed backup documentation should be retained that can substantiate that all requisite steps were taken in the assessment process, to document any key factors considered in assigning a collectability ranking and to verify the calculation of the provision recognized.

The provision for doubtful accounts will be established by the Corporate Manager, Credit and Collections and confirmed by the Senior Director of the Shared Services Centre and Senior Financial Officers of each network prior to recognition in the financial statements.

6. WRITE-OFF OF UNCOLLECTIBLE ACCOUNTS

6.1 Employees

All requests for write-off of employee receivables must be submitted through the appropriate Network Director of Finance and Administration (in Montreal or Toronto), and for Head Office and Ottawa employees to the Regional Comptroller, National Capital Region, who will ensure that the request is also supported by the appropriate Vice President before submitting to the Vice President and Chief Financial Office, or her/his delegate for final approval. This will ensure that consistent practices are followed. Write-offs must be approved by an individual with the appropriate functional financial authority in accordance with Corporate Policy 2.3.8 – Delegation of Financial Authorities.

6.2 Trade and Miscellaneous

In normal circumstances and in situations where credit was approved by the Corporate Manager, Credit and Collections, the provision for doubtful accounts is offset when accounts are written off. However, if credit was not approved, the bad debt loss will be charged against the department originating the billing. Write-offs must be approved by an individual with the appropriate functional financial authority in accordance with Corporate Policy 2.3.8 – Delegation of Financial Authorities.

6.3 Recovery of Related Taxes

When accounts are written-off, the appropriate accounting entries should be made to recover the related taxes (GST, PST, etc.), which were paid.

7. REPORTING

The Corporate Manager, Credit and Collections must submit a quarterly age analysis of all receivables for each network to the Director, Accounting & Corporate Reporting at Head Office with copies to the designated Senior Finance & Administration Directors at the networks.


APPENDIX A-1
GUIDELINES FOR ESTABLISHING THE LIKELIHOOD OF
COLLECTIBALITY OF OUTSTANDING CUSTOMER BALANCES

Once there is objective evidence that a receivable balance might be uncollectible the same factors used to indicate a risk of uncollectability as well as professional judgement are to be considered in assigning the likelihood of collectability. The allowance for doubtful accounts (AFDA) provision recognized should reflect the expected realizable value of the receivable amount.
Balances that are currently in dispute or are with a third party credit collection agency are to be ranked “Very pessimistic” in all cases.

Likelihood of Collectability

AFDA Provision to Recognize

Excellent

0%

Optimistic

25%

Fair

50%

Pessimistic

75%

Very pessimistic

100%

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