CollectMax Accounting Overview

CollectMax accounting is designed to be flexible enough to adapt to most commonly used collections accounting arrangements.

 Debtor accounts:

A debtor account is a group of debtor names, claims, history notes, and other items comprising an account in CollectMax.

• Financial accounting is generally not concerned with debtor accounts since all of the financial transactions affect claim accounts and not debtor accounts  per se.
• In most practices, a debtor account contains only one claim account, but some practices deal with subdivided debtor accounts and require multiple claim accounts per debtor account.
• CollectMax allows up to 999 claims to be included under a single debtor account. In this document the term "claim" is often used to mean "claim account".
• Within a debtor account, there is no specific attachment of debtor names to particular claims. For instance, if an account carries two debtor names and three claims, both debtors are equally responsible for all claims.  If separate claim assignment is needed, open separate accounts for each debtor.
• A debtor account is always attached to one client account.
• A debtor account cannot be added unless the associated client account already has been established in the system. Likewise claim accounts can be added only to existing debtor accounts.
• Client accounts may have any number of debtor accounts attached. Clients in CollectMax may be either direct creditors or forwarders representing plaintiff creditors.

 Claim accounts:

A claim account is the statement of the debt owed by the debtor. In CollectMax, the debt balance is maintained as principal, interest, fees, costs, and other.

• The balances presented on the claim screen always show the affect of transactions entered to the current date. The claim balances change immediately in response to financial transactions entered by the user.
• Payments from debtors are posted to claim accounts as they are received and are remitted to the client as a separate process. Entering a payment from the debtor decreases the balances owing by the amount of the payment.
• When a new claim is added, the initial balance owing is entered as part of the account setup information.
• Balance charging transactions (Prin, Int, Fees, Costs, and Other) can be used to add to the balance owing as required at a later time.
• Entering a cost transaction increases the claim balance and possibly generates an invoice item to the client to recover firm monies advanced.
• Interest charges are always shown calculated through the current date and are automatically posted to the claim just prior to payment application.
• Client accounting option settings are available to adapt the system to many different collections accounting arrangements.
• Claim accounts may be viewed in a variety of ways: claim screen grid, detail buttons show cumulative payments and charges, activity report shows a running balance, and history shows a detailed log of each transaction.

 Client accounts:

In CollectMax, a "client" is either a direct creditor or forwarder. The "plaintiff" in CollectMax is the person or entity represented by the forwarder.

• Client accounts are generally concerned with tracking client monies held in escrow by the law firm or agency.
• Debtor accounts containing claim accounts are always attached to client accounts.

Client accounting arrangements

CollectMax allows for three different accounting configurations for client accounts. Selection of the configuration appropriate to the client before claims are added is of the highest importance because changing the selection can be difficult after transactions have been entered.

 Retail Accounting (Multi-claim remittance report with client level cost funds):

Most collections practices use "Retail" (Accounting option #1) for medical, credit card and other consumer debt. Usually, collected monies are remitted to the client once per month with a consolidated statement. (In earlier Dos versions of CollectMax, this accounting arrangement was called "multi-debtor" accounting).

• Client monies are held in a general account and optionally can be shared among debtor accounts to fund costs and direct payment commissions.   
• Also, with retail accounting, current debtor payment monies optionally can be used to fund costs in the current accounting period.
• Invoices to the client may include charges from multiple claim accounts.
• Debtor payment monies available to fund costs are subjected to payment release date criteria to minimize the chance that an NSF debtor payment might give rise to an unfunded court cost. In the event an NSF payment occurs in this situation, the Returned Check and Returned Check Reimbursement transactions can be used to remedy the trust account balance.
• Retail accounting supports the "sharing" of collected monies from one debtor to fund the costs of a different debtor within the scope of the same client account.
• In this Help documentation, handling of client monies in this way is referred to as "client level" accounting.

 Commercial Accounting (Single claim remittance reports with claim level cost funds):

For practices that deal with large commercial debts, (Accounting option #2) is used.  In the earlier Dos versions of CollectMax, this type of accounting arrangement was called "individual" accounting.

• The Commercial accounting arrangement treats each claim as a totally separate account for client monies.
• Remittance reporting results in a separate report for each individual claim account.
• Invoices to the client will always be claim specific.
• Moving funds from claim to claim is only supported through adjusting transactions.
• In the Help documentation, handling of client monies in this way is referred to as "claim level" accounting.

 Retail with Claim Escrow (Retail with claim trust management) :

Some law firms prefer to manage collections accounts as a combination of the Retail and Commercial methods. CollectMax includes (Accounting option #3) for these firms. (Older Dos versions of CollectMax did not support this arrangement.)

• With this arrangement, each claim trust account is handled in isolation from other claims but a consolidated statement is produced for remittances.
• Invoices to the client may include charges for multiple claims.
• Financial transactions entered at the client screen usually apply to the client in general and are not claim specific. However, when claim specific invoices are paid at the client screen, claim transactions are generated automatically in addition to the manually entered transaction.  
• Moving funds from claim to claim is only supported through adjusting transactions.
• This arrangement is useful to track claim-specific client advances when a consolidated statement is preferred for remittance reporting.

Client Withholding Methods

CollectMax provides preference settings to control many aspects of the remittance process. When collected funds are remitted to the client, there are several commonly used business arrangements for payment of the collection fee to the law firm.

• A "Net" remittance arrangement results in the firm withholding all monies due from the collected funds and a net proceeds check is sent to the client.
• A "Gross" remittance arrangement results in all collected monies being sent to the client along with an invoice for the collection fee and costs advanced.
•  A "Bill for Costs" arrangement results in a net remittance for collection fees and a gross remittance of costs recovered and an invoice for costs advanced.

Bank Accounts

CollectMax requires a minimum of two bank accounts for collections accounting: (1) trust account and (2) firm operating account. Some firms may wish to employ additional bank accounts to physically isolate cost monies from other funds.

• CollectMax supports an unlimited number of bank accounts assigned to one or more clients.
• Four types of bank accounts are supported by the program:(1) Trust, (2) Firm Operating, (3) Client Cost and (4) Firm Cost.
• CollectMax is delivered with a trust bank account (T01) and a firm operating bank account (F01) predefined. Bank name, address and account numbers should be entered as part of the initial setup.
• Additional bank accounts can be added if needed.
• Some collections firms have employed special purpose bank accounts to provide additional authority in demonstrating proper handling of cost monies. In higher editions of CollectMax, special bank accounts called Client Cost accounts and Firm Cost accounts can be employed. They are optional and are included for compatibility with legacy accounting methods.

 Trust Bank Account:

A trust bank account is set up to contain client monies separate from your firms monies.

• Internal accounts are arranged to allow you to keep the money of many clients in the same trust bank account. The balances of these internal accounts are automatically monitored by CollectMax to prevent accidental overdrafts when money is disbursed.
• The primary use of the trust account is to receive debtor payments. When you enter a PMT transaction to record a debtor payment, CollectMax can automatically generate an entry for a deposit slip for the trust bank account.
• Depending on the arrangements you have with your clients, the trust account may also be used to hold client payments for court costs and other expenses.
• CollectMax monitors the balance of each trust account and either prevents overdraft disbursements or warns the user of an inevitable negative amount due to an NSF check entry. An NSF reimbursement transaction is provided to remedy this situation.

 Firm Operating Bank Account:

The firm operating bank account is generally used as a source of firm funds when it is necessary to pay court costs in advance of receiving reimbursement from the client.

• When costs advanced checks are written to cover filing fees, etc., the firm operating bank account is typically the account they are written on.
• In most firms, this account is also used as the expense account for office and payroll expenses.
• If the "monitor" setting is enabled, a cost allocation can be established within the firm operating account. Except for transient credit balances, client monies should not be held in this account type.

 Client Cost Bank Account:

The client cost bank account contains monies that have been advanced by the client to fund costs associated with collections.

• When enabled for a client, cost checks will be drawn from this account instead of the trust account.
• CollectMax monitors the account as funds are disbursed to avoid overdrafts.
• Payments from the client for invoices due may also be held in this account prior to transfer to the firm.
• This type of bank account is considered to be a special purpose trust account and should not be used to hold firm monies.

 Firm Cost Bank Account:

The firm cost bank account contains firm monies set aside to be used to fund costs advanced.

• When enabled for a client, costs advanced checks will be drawn from this account instead of the firm operating account.
• CollectMax monitors the account as funds are disbursed to avoid overdrafts.
• Except for transient credit balances, client monies should not be held in this account type.

Claim Interest Charging

Simple interest can be charged on claim balances owing according to the settings in place for each claim account.

• Typically interest is charged only on the principal balance, but settings are provided to allow interest to be charged on fees, costs, and other balances owing.
• For special situations, different interest rates can be charged on each balance component, depending on the settings selected.
• Annual interest rates up to 999% are supported.
• Interest is calculated by determining the number of days during the accrual period, computing the annual interest and prorating the charge based on a 365 day year.
• Settings are provided for pre and post-judgment interest rates. CollectMax will automatically choose the interest rate according to the judgment date for the claim.
• When a claim account is viewed, the interest shown is current through the system date using the appropriate rate.
• When a debtor payment is entered, interest is posted just prior to application of the payment.
• Separate interest transactions may be entered when needed.
• Interest owing may be projected to any future date using the "Project Interest" button on the financial tab of the claim account screen.
• A back interest calculation feature is available to update the interest for legacy accounts.

Commissions, Collection Fees, Fees, Suit Fees and Contingent Suit Fees

For those in the field of legal collections, the term "fees" can have many meanings. The uses of "fees" in CollectMax are in line with the language used by many collections law firms. Apologies are offered if our uses are contrary to local parlance.

 Commissions and Collection Fees:

Commissions are calculated portions of debtor payments that will be paid the law firm when collected monies are remitted to the client.

• For normal debtor payments, these monies are held in the trust account until transferred to the firm.
• CollectMax calculates commissions using the rate or formula associated with each claim account.
• Many options are available to control the amount and timing of commission charges.
• Flat amount charges to the client for collections services can be entered separately using the CFEE transaction.
• Invoices for collection fees are generated by remittance processing.
• Claim balances owing by the debtor are not affected by collection fees.

 Fees:

Fees are additions to the claim balance owed by the debtor appearing in the fees column. Most firms apply court awarded fees in this category. Some jurisdictions never award these fees and therefore this term may be novel to attorneys living in these states.

• Typically a fee is a percentage (in the range of 10% - 25%) of the principal owing at time of judgment. Often the rate is contractually specified, but may be freely adjusted by the court. Interest usually is not charged on the fees balance.
• Traditionally, debtor monies applied to fees are commissioned in the same way as monies applied to principal, but there is a wide variation in handling of these monies.
• CollectMax provides settings to allow various options for fees treatments.

 Suit Fees:

Suit fees (sometimes called "non-contingent suit fees") are fees charged the client prior to filing suit for a particular claim. Suit fees usually are applied for commercial collections with more complex litigation requirements than consumer debts.

• When a suit fee (SFEE) transaction is entered, an invoice is generated internally in CollectMax and may be printed at the users option.
• Client payments applied to suit fees invoices may be placed directly in the firm operating account or they may be held in the trust account pending suit filing or judgment date.
• Claim balances owing by the debtor are not affected by suit fees.

 Contingent suit fees:

Contingent suit fees are additional commission amounts charged after filing or judgment date.

• Optionally, contingent suit fees can be charged only on collected monies in excess of a threshold amount.
• These fees are calculated by the debtor payment transaction based on settings entered on the claim account screen.
• Amounts charged the client will appear on remittance reports and in transaction details shown in claim history.

Costs, Conditional Costs and Client Expenses

Costs and expenses are expenditures associated with collections that are either pre-paid (advanced) by the client or are initially paid (advanced) by the firm and then reimbursed from client funds. Notice that the term "advanced" is used to describe both a client action of a prepayment or a firm action of a short term loan to the client This is common terminology in the collections business.

 Costs:

Costs are expenditures associated with claims that are charged to the debtor balance.

• Court costs are usually applied as costs.
• When a cost transaction is entered, options are available for selecting the funding source for the cost.
• Depending on settings in the client account, cost monies may be drawn from client funds in trust, from current debtor payments, or advanced from the firm operating account.
• Because the firm cannot reasonably expect to be reimbursed by debtor payments, the client is billed for costs advanced. (However, see conditional costs below.)

 Conditional Costs:

Conditional costs are costs advanced by the firm that are recovered only from debtor payment receipts for the associated claim. If the debtor does not pay the debt, the firm bears the expense of the cost.

• A special setting is available in the client account to enable conditional costs.
• Once set, all costs for claims attached to the client are recovered only from debtor payments.

 Client Expenses:

Client expenses are charges to the client that are not added to the claim balance owing by the debtor.

• Advances by the firm for client expenses are recovered from current debtor payments, from available client funds or by invoicing the client.
• Settings in the client account control preferences for recovery methods.
• Conditional cost settings do not influence client expense recovery by the firm.

 Invoices for costs:

Invoices for costs and client expenses advanced by the firm will be generated automatically with remittance processing.

• If desired, cost invoices may be generated prior to remittance. With the appropriate settings in the client account, current cost charges can be paid from debtor payments with no invoice being generated.
• Payments against cost invoices can be received into any bank account associated with the client. Refer to CAC transaction processing for more information.
• Remittance processing will generate transfer checks to move funds from trust or client cost accounts to the firm.

 Debtor Payments

Payments from debtors against claim balances owing can be posted as regular payments received by the firm, direct payments received by the client, or receiving attorney payments.

• The payment method option on the payment transaction screen is used to specify the type of payment.
• To help avoid problems associated with NSF checks from debtors, a release date can be used to prevent remittance of a payment prior to a selected date.
• CollectMax handles a number of processes when a debtor payment is entered. First, interest is accrued to the current date, then the payment is applied to the claim balance components of principal, interest, fees, costs and other. Next the firm commission is calculated and displayed. At this point the user may intervene and override the calculated values if desired.
• When the Save button is clicked, the interest and payment transactions are posted to the account and the payment plan, if in effect, is advanced to track the next payment due.
• Also, a debtor payment acknowledgment letter can be generated automatically.
• Settings in the claim accounts determine the debtor payment application scheme, the commission rate, the interest rate, and the payment plan parameters.

 Retained Funds

Using client and claim settings, it is possible to establish constant amount (impress) funds to support "recycling" of debtor payment monies for court costs.

• The user can choose to retain collected monies to satisfy a specified funding level or an option can be checked to simply retain all debtor payments applied to cost recovered.
• Collected amounts to be designated as retained funds are determined by remittance processing.
• The retained funds feature is not allowed if a client cost account is utilized.
• Refund transactions are available to disburse final amounts to clients when cases are closed or business is terminated for the client.