Filed Under:Agent Broker, Agency Management

Smart Agency Processes

Wrapping up a series, an examination of agency financial matters

Continuing our discussion of how to apply a disciplined process to handling financial matters, (see sidebar, "Disciplined processes: Which area needs the most work in your agency") we now turn from credit policy to the other four areas that need to be addressed:

  1. Underwriters’ payable reconciliation
  2. Payroll
  3. Expense reimbursement
  4. Legal collection

Related: Read Phillip Lieberman's previous column on disciplined processes "A disciplined approach".

Underwriters’ payable reconciliation

Some agencies like to simplify remittances to carriers by rendering an account current to them, while other agencies prefer to keep tighter control by reconciling an item-based statement from the carrier. The account current is less work for the agency because the document is self-generated from the automated billing system, but some carriers, and all wholesalers, insist on rendering a statement to the agency.

No matter which protocol is used, there are likely to be accounting differences along the way, either in the nature of:

  • Omitted or incorrectly billed items
  • Commission differences.

The accounting department should have the responsibility of responding in a timely manner to carriers’ communications about either type of difference. Under the account current system, only the differences the carrier writes up need to be checked out, whereas every item on an item-based statement needs to be examined to ensure the carrier is correct. But either way, accounting must first interact with the CSR to determine the proper billing sequence and commission so that an accurate response to the carrier can be made.

One of the issues with account current carriers is the extent to which individual items can be "crossed off" the rendered account when the check is issued. Quite frequently, this happens when a policy has been cancelled between the time the document is generated and the date the check needs to be issued, or when a large return premium endorsement is known to be coming through. But because the whole idea of an account current is to write one check for a month’s worth of business, carriers look negatively upon too many (or any) such deletions. The agency should be willing to minimize such amendments as the price to be paid for simplification.

One last word: There should be a strict policy that accounting should not advance unpaid net premiums to item-based carriers without approval from the CFO or agency principals. The clock is always ticking, so it is important that reconciliations be dealt with sooner rather than later.


There are only two points to be made about payroll:

  • Don’t do it yourself. There is absolutely no reason not to contract it out to a payroll preparation company, no matter how small your agency.
  • Pay bi-monthly rather than weekly, with checks issued on the 15th and on the last day of each month. The agency should insist that any changes to payroll (voluntary deductions, pay scale adjustments, overtime or part-time wages) must be received by accounting at least one week prior to the scheduled check-issue date in order to be included in that pay period.

Related: Read more about disciplined processes in "Administrative Angst".

Expense reimbursement

Legitimate business expenses paid by employees on behalf of the agency are obviously reimbursable, although some contracts with producers have caps or caveats as to the extent of such expenses. But there should be a strict policy that claims for reimbursement must be on a standard, agency-approved form in order to be approved and paid. That form should list the date, amount, names of individuals involved, type of expense (meals, tickets, auto expense), and justification for the expense incurred (client/prospect sales expense, producer contract, carrier interaction). And don’t forget that all expenses claimed must be accompanied by a receipt.

Producers or others receiving flat monthly automobile expense allowances have the responsibility of keeping documentation supporting such allowances available for examination by the agency or by IRS. Make sure you advise the producer of this when the allowance is first established.

Legal collection

The trick to effective control is the choice of threshold. You obviously would not turn over to a collection attorney an unpaid item of $100; but where your agency would draw the line is up to you. Some would select $250; some $500; others wouldn’t bother unless it was more than $1,000. If the account is located outside your state of domicile, your threshold might be higher than it otherwise might be.

Related: Read Philip Lieberman's "Deceptively dull".

It is certainly worthwhile to send your own letters demanding payment. If you do, your last one should set a specific date after which you state that the matter will be referred for legal collection. If the payment is not received, you should follow through. There are many collection attorneys who can be sourced through the Internet; most will work on a contingency basis, getting from 20 percent to 33 percent of what is actually collected.

There’s a lot to deal with, but the best way to make sure that these disciplined processes are established and carried out in your agency is to build an operations manual. This may appear to be a daunting task, but you don’t have to do it all at once and you can actually get your employees to help you write it. That’s good for morale and increases buy-in by all who are affected.

In my upcoming August column, we’ll begin the fascinating topic of communication, both written and oral, internal and external, demonstrating how important it is in conveying to others who your agency is and what your values are.

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