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Reversing dormant account credit memos and payments is unlawful
Every day, many companies across America do something unlawful -
they reverse credit memos and on account payments from accounts that
are dormant, or from customers that have gone out of business, or
from customers that do no realize that the seller owes them money
[in the form of credit memos or unapplied cash.] This is unlawful
because companies are required to report when property has been abandoned
or unclaimed to the State in every State in the Union.
Because a seller/creditor does not have the right to arbitrarily reverse credits
or write off unapplied cash under the laws of escheatment, the company should
make a reasonable effort to locate and notify the owner of the abandoned property.
If a creditor is unable to do so, and if the credit balances have remained
unclaimed for the time period specified by applicable State law, the creditor
must report the account to the State ---- and it must remit to the State the
credit balance through a process called "escheatment." Specifically,
creditors are required to remit payment to the State each year it holds escheatable
funds that have exceeded the dormancy period permitted by law. Each State provides
a form for the creditor's use in making an annual report and payment of escheatable
funds. The State will hold the money indefinitely for the benefit of the rightful
owner.
Failure to report unclaimed property, or conversion of unclaimed property [such
as writing off credits or on-account cash] may subject a creditor company to
penalties including fines, penalties, interest and other damage claims. These
can be asserted against a creditor even if the mishandling of escheatable property
is the result of poor bookkeeping or sloppy record-keeping practices.
To avoid problems and penalties, creditors should:
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Maintain proper accounting systems,
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Develop controls to prevent credits from being absorbed
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Write policies and procedures that describe the escheatment process
in the State or States in which the company does business
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Create reports that identify and age on-account cash, and open
credit memos
The best way to avoid escheatment problems is to maintain clean
accounts. This means working hard to reconcile accounts on a regular
basis. It also involves issuing credits in a timely manner, and working
with customers to find out how payments are to be applied - and encouraging
customers to use credit memos issued to them.
© 2001 All Rights Reserved
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