Universal Weather and Aviation. Global Credit Policy and Procedures #

Transcription

1 Universal Weather and Aviation Global Credit Policy and Procedures # Approved on March 28, 2011

2 Table of Contents Policy Purpose Scope Responsibility Policy Guidelines and Procedures Credit Application Procedures Credit Underwriting Procedures Credit Limit Approval Credit Risk Management Credit Enhancement / Security Payment Terms Collection Responsibilities and Procedures Reporting Miscellaneous: Definitions: References: Exhibits... 9 Exhibit 1 Credit Underwriting Template: Exhibit 2 Credit Risk Management Process Maps Exhibit 3 Collections Process Maps Exhibit 4 Credit Application... 18

3 Policy Title: Global Credit Policy and Procedures Policy #: Process Owner: UWA Headquarters Credit Manager Approved by: Corporate Controller Approval Date: March 28, 2011 Effective Date: March 28, 2011 Revision Date: Revision No.: Policy 1.0 Purpose This policy is to establish operating procedures and controls to ensure ongoing compliance for granting credit to customers, collecting accounts receivable, and managing credit risk. 2.0 Scope This policy applies to the Directors, officers, and employees of the Company and its majority owned subsidiaries or joint ventures. 3.0 Responsibility Universal Weather and Aviation s Credit Manager is responsible for the maintenance and enforcement of the policies and procedures set forth within this document. Universal Weather and Aviation s Regional Controllers and Vice Presidents are responsible for the maintenance and enforcement of the policies and procedures set forth within this document and the spirit in which it is intended and its customization to their specific local market conditions and statutory requirements. Universal Weather and Aviation s Local Finance Managers and Country Managers are responsible for compliance with this document and it s customization to their specific local market conditions and statutory requirements. Any variations/exceptions to this policy must first be communicated to the Corporate Controller who will validate all variations prior to submission to the Chief Financial Officer for final approval for policy changes. Universal Weather and Aviation Page 1 of 23 4/12/2011

4 4.0 Policy Guidelines and Procedures Universal Weather and Aviation s Credit and Collections function is governed by this policy, the Delegation of Authorities Policy No including the Global Credit Approval Authority Addendum, and the Allowance for Doubtful Account Policy No Each local office is responsible for providing procedures to document adherence to this policy and associated procedures. 4.1 Credit Application Procedures Application for Credit / Credit Agreement o A completed Application for Credit is required for all direct bill clients for the extension of secured and/or unsecured credit. The Application for Credit should include: full legal name of the applicant; physical address of the applicant; business type and classification; ownership details i.e.: parent company, officers, General Partner, proprietor, etc.; aircraft registries, make, model serial #, Home Base ICAO, owner name; credit limit requested; three trade references and a banking reference; and the most recent audited financial statements with accompanying notes. o This application should be used locally and may be amended for any restrictions due to statutory requirements. o The Application for Credit / Credit Agreement is attached as Exhibit 5 and is also located on Universal s website via the following link: Credit Underwriting Procedures Credit underwriting entails an independent analysis of the applicant s creditworthiness as a means of determining whether an unsecured or secured credit limit is warranted. Credit underwriting shall include, as appropriate, a review of the following information: o audited and/or unaudited (signed by an officer) financial statements including associated notes and management discussion and analysis; o personal and/or corporate tax returns when applicable; o historical payment habits, longevity of the relationship and credit standing with Universal, and Corporate Segmentation; o credit agency reports if available and cost effective; o bank and trade references as it pertains to third party payment history; Universal Weather and Aviation Page 2 of 23 4/12/2011

5 o documentation available via a detailed independent internet search; o certificate(s) of incorporation or formation; o detailed summary of the corporations legal structure; to include any affiliations the applicant may have; o entity and or affiliates prior payment and credit history with Universal and or Universal affiliates and Joint Ventures; o review of MK Denial software for potential issues o and any other relevant information that may support an independent review of the entities current and future financial performance, cash flow generating ability, and/or ability to remain a going concern. The above are minimum guidelines which are to be used. However, the addition of any other appropriate means of credit valuation can and should be employed to determine creditworthiness. Unsecured credit should not be extended without the appropriate level of credit due diligence, and should be performed by the Credit and Collections Department. This approach establishes a proper delegation of duties and responsibilities among the commercial and credit risk management function. All granting of credit must adhere to the guidelines as set forth within the Delegation of Authority Policy No and the Global Credit Approval Authority Addendum. 4.3 Credit Limit Approval Credit Limit approval is governed by the Global Credit Approval Authority, which is an addendum to Policy No Delegation of Authorities. Credit limit determination is a function of the credit underwriting process. 4.4 Credit Risk Management Ongoing credit risk management shall be conducted by the Headquarters Credit Department (Headquarters), and the non-headquarter offices as it pertains to their respective clients and associated portfolios. o Headquarters is a resource to the non-headquarters offices and their respective finance teams as it pertains to conducting credit due diligence, credit reviews, and collection activities. o Headquarters will act as a liaison and credit lead for non-headquarters offices and their respective finance teams as it pertains to the coordination of credit risk management activities for shared clients/accounts. Headquarters shall employ a portfolio credit risk management discipline/approach, which shall include but not be limited to: Universal Weather and Aviation Page 3 of 23 4/12/2011

6 o conducting relationship (parent, subsidiary, affiliate) credit reviews, and thus quantifying, reporting, and obtaining credit approval for the aggregate relationship; o creating an awareness to macroeconomic and regional issues impacting the portfolio; and o recognition of the inherent benefits associated with portfolio diversification. The timing and frequency (annual, semi-annual, quarterly, etc.) of relationship credit reviews shall be a function of the following factors: o current and historical payment habits; o the client s risk code and thus implied credit risk; o credit quality deterioration and or improvement signals; o amount of unsecured credit (credit limit) extended; o credit exposure and or credit risk concentration issues; o And repeatedly exceeding of the customers credit limit Credit reviews will be subject to the credit underwriting procedures outlined in Section 4.2 of this policy, and shall include, at a minimum, a review and/or reaffirmation of the client s account status, credit rating, risk code, credit limit, and security requirements. Credit underwriting guidelines and templates will be utilized as a means of ensuring standardization and consistency for the extension of unsecured credit and when appropriate the request for security (Reference Exhibit 1). The Credit Check process is performed in connection with Credit and Collections ongoing review of the Trip Credit Action List, housed within CAPPS. The Credit Check process entails, at a minimum, a review of: o an existing customer s historical payment habits and associated DSO, aged debt profile, internally classified Account Status/Credit Rating, and credit limit availability; whereas o new customer s are required to prepay (satisfied via credit card payment, wire transfer/ach, or in limited cases by check) for any product/service and/or submit a Credit Application seeking the establishment of unsecured credit. 4.5 Credit Enhancement / Security If it is determined during the credit underwriting and or credit risk management process that security is warranted then the following forms of security, subject to Credit Department review, are acceptable: o cash security deposit(s); and o stand-by irrevocable letter of credit in a form acceptable to Universal in its sole discretion. The aforementioned forms of security shall be denominated in United States dollars. Universal Weather and Aviation Page 4 of 23 4/12/2011

7 Other acceptable forms of credit enhancement include corporate and personal guaranties; however, acceptance of this form of security shall require a standalone credit underwriting to determine the respective guarantor s creditworthiness and the amount of security warranted. 4.6 Payment Terms Standard payment terms (from invoice date) are as follows: o Net 30 Days International (Non-headquarter) clients; o Net 20 Days - Domestic (Headquarters direct traffic) clients; and Domestic based Management/Charter accounts terms are Net 30 Days. Modifications and/or exceptions to standard payment terms are governed by the Global Credit Approval Authority. o Modifications and/or exceptions to standard payment terms should meet the objectives of the enterprise as they pertain to risk assessment and financial performance. o Approvals should be documented in the system of record (Reference Delegation of Authority Policy No Addendum Global Credit Approval Authority). Changing terms after a sale is permitted: o to correct an error on the original invoice; or o when a customer in default has agreed to a payment plan and documentation has been received, signed by both parties, in accordance with the Credit Approval Authority. Renegotiated terms related to payment plans must reference the original invoice. Original invoiced terms should not be changed in the relevant systems and the account should continue to age based on the original due date. Negotiated payment plans must not extend past one year from the original due date. If warranted, the Legal Department should be consulted to ensure adequate protection is afforded both parties and that all legal and/or regulatory issues have been addressed. Late fees/interest charges may be applied to delinquent accounts at rates determined by the Corporate Controller or as applicable the Regional Financial Controller in compliance with local regulations. 4.7 Collection Responsibilities and Procedures Headquarters is responsible for establishing and implementing a sound and viable collection strategy, including a process for collection escalation, and appropriate internal and external communication thereon. Universal Weather and Aviation Page 5 of 23 4/12/2011

8 Headquarters, and each local office, are responsible for the timely collection of direct bill accounts. Collection of past due receivables shall be initiated promptly, documenting collection efforts and client s responses in the respective system of record. Headquarters is responsible for communicating the status of aged debt to the client, the commercial and operations staff, functional management, and executive management on an ongoing basis and as appropriate. Formalized credit and collections meetings concerning the status of past due receivables shall occur at least once per month and should include representatives of the sales/commercial group, operations, finance/accounting and client relations. Headquarters and local offices shall engage the aforementioned groups/representatives on an ongoing basis and as appropriate as a means of maximizing collectability of delinquent receivables and cash flow, while minimizing bad debt and any associated losses. Extending unsecured credit is not generally offered to customers with delinquencies beyond 60 days without the approval of the Corporate Controller and/or Headquarters Credit Manager, in accordance with Credit Approval Authority limits and in compliance with this policy. Clients placed on Credit Hold or No Services (results in the suspension of services and/or sale of product/fuel including the use of UVAir Fuel cards, i.e.: no additional unsecured credit available) will be reassessed in due course (see Section 4.2 Credit Underwriting Procedures), to determine if the extension of unsecured credit is warranted. Headquarters is a resource, for local/non-headquartered offices, to facilitate collections, notably when the client is non-responsive. Collection Procedures/Guidelines include but are not limited to the following: o Send customers, whom currently maintain a past-due receivable balance, a monthly statement highlighting all outstanding transactions (invoices and unapplied payments/credit). o Based on the stated collection strategy, contact client(s) (phone call, fax, and/or ) concerning any past-due receivable balance, including the undisputed portion of disputed invoices. o If a client fails to respond to the initial collection efforts/strategy, a series of phone calls and/or letters may be sent for example: a firm request for payment (can be sent at any time); a warning of possible interruption of services; or a notice of Credit Hold which results in the suspension of services and/or sale of product/fuel. o The previously noted collections efforts do not have to follow the order noted. Accounts may be placed on Credit Hold at any time deemed necessary to minimize financial loss. Universal Weather and Aviation Page 6 of 23 4/12/2011

9 o Document all collection efforts (call attempts, letters sent, client s payment commitment, reported disputes, etc ) into the system of record for collection activities. Critical Account Procedures o At a minimum, critical accounts are those with: balances aged sixty (60) days from the invoice date; identified as at risk of non-payment or default; exhibiting cash flow deficiencies; and/or on a payment plan. o Once identified: notify Headquarters Credit Manager, Corporate Controller, and Regional Financial Controller as applicable, as the client may have other accounts or affiliates with other Universal offices; and adhere to Headquarters Collections Procedures/Guidelines noted herein, notably enforcing Credit Hold, No Services, and/or utilizing an outside collection agency as appropriate. 4.8 Reporting Standardized reporting, and communication and distribution thereof to the appropriate internal user groups and executive management, is a critical component of the credit and collections function. Headquarters is responsible for the distribution of key credit and collection reporting information to executive management and Universal s commercial and operations staff. The reporting function includes standard and ad-hoc reporting. Key reports include, but are not limited to: o Executive Committee Reporting which includes an accounts receivable aging analysis including accounts receivable balances greater than 60 days; o The Weekly Credit Memorandum which highlights proposed changes to a client(s) account status; o Credit Over-limit Reporting which denotes credit exposure in excess of an approved credit limit adjusted for security (cash deposit or letters of credit) held; o Portfolio Analysis Reporting which provides an overview of key credit risk management and collection information including, but not limited to, accounts receivable aging, credit limit, security, historical DSO, account status, credit rating, risk code, corporate segmentation, regional break-out, etc.; Universal Weather and Aviation Page 7 of 23 4/12/2011

10 o Monthly Bad Debt Reserve Accrual Report which provides a comprehensive analysis, review, and recommendation of bad debt expense as it pertains to the headquarters portfolio; and o Semi-annual Bad Debt Review which outlines what account receivable write-offs are being recommended and includes supporting information. Non-headquarter offices are required to provide a monthly Financial Reporting Package which shall include: a receivables aging report; an explanation of collection actions taken to-date; and the respective client s response(s) concerning the cause/status of any delinquent balances. Headquarters shall review the aging reports and collection explanations to opine and evaluate Universal s global credit exposure by client and relationship, along with potential collection opportunities. 4.9 Miscellaneous: Bankruptcy o No sales shall be made to a customer who has declared bankruptcy (Chapter 7, 11 or 13) without dual approval from the Corporate Controller, Headquarters Credit Manager, and a Regional Financial Controller when applicable. o Headquarters Legal Department or its designated representative must approve the undertaking of any formal legal action. o Each country shall have a bankruptcy procedure clearly defined and documented. This shall include internal notification to Headquarters. Allowance for Doubtful Accounts and Write-offs to Bad Debt o Refer to Policy No Allowance for Doubtful Accounts Policy 5.0 Definitions: DSO Definition: The Days Sales Outstanding (DSO) calculation is based on a rolling 12-month sales average as compared to a fixed month net AR balance (example below). Calculating DSO monthly for each customer and total for all accounts provides data to track client payment patterns (improving or deteriorating) and a performance metric for the local office s receivable management. o DSO Calculation Example: Net AR divided by the prior 12-months net sales amount. Take the result and multiply by 365. Net AR = 1,244M Net Sales = 3,245M Universal Weather and Aviation Page 8 of 23 4/12/2011

11 1,244 / 3,245 =.38 or 38%.38 * 365 = days DSO = days 6.0 References: Policy No Delegation of Authorities Global Credit Approval Authority (addendum to the Delegation of Authorities) Policy No Allowance for Doubtful Accounts Policy 7.0 Exhibits Exhibit 1 Credit Underwriting Template: Exhibit 2 Credit Risk Management Process Maps Exhibit 3 Collections Process Maps Exhibit 4 Credit Application Universal Weather and Aviation Page 9 of 23 4/12/2011

12 Exhibit 1 Credit Underwriting Template: Credit and Collections Credit Assessment Customer Name/ Acct. Unsecured Credit US$ # Limit: Phone # Security Required: US$ Fax #: Secured Credit Limit: US$ DUNS #: UVAir Fuel Card Term: _ Months Company Website(s): Customer Class: Primary Contact / E mail Customer Segmentation Ultimate Parent: Country: Parent Website(s): Approver(s): Purpose: Executive Summary/Recommendation: Customer Background/History: Financial Information / Analysis: Recent/Key News Releases: Current Receivable & Aging of Accounts: Trade Reference(s): Bank Reference: D&B Report: Current PAYDEX Three month PAYDEX Financial Stress Class (a) Credit Score Class (a) Judgments Filed UCC Filings a Scale: Lowest risk = 1; Highest Risk = 5 Financial Stress Score (Comments): Commercial Credit Score (Comments): PAYDEX Score (Comments) : Commercial Comments/Perspective: Other: Universal Weather and Aviation Page 10 of 23 4/12/2011

13 Attachments: Universal Weather and Aviation Page 11 of 23 4/12/2011

14 Exhibit 2 Credit Risk Management Process Maps Universal Weather and Aviation Page 12 of 23 4/12/2011

15 Universal Weather and Aviation Page 13 of 23 4/12/2011

16 Universal Weather and Aviation Page 14 of 23 4/12/2011

17 Universal Weather and Aviation Page 15 of 23 4/12/2011

18 Exhibit 3 Collections Process Maps Universal Weather and Aviation Page 16 of 23 4/12/2011

19 Universal Weather and Aviation Page 17 of 23 4/12/2011

20 Exhibit 4 Credit Application Universal Weather and Aviation Page 18 of 23 4/12/2011

21 Universal Weather and Aviation Page 19 of 23 4/12/2011

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