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Chapter 18-RECEIVABLES MANAGEMENT

RECEIVABLES

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Lingaraj Sarangi
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2K views14 pages

Chapter 18-RECEIVABLES MANAGEMENT

RECEIVABLES

Uploaded by

Lingaraj Sarangi
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Chapter

RECEIVABLES MANAGEMENT

18
RECEIVABLES MANAGEMENT

Copyright 2008, Dr Sudhindra Bhat

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Excel Books

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LEARNING OBJECTIVES
Say what are accounts receivables and their characteristics

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Define accounts receivables management


Explain, objectives, benefits, costs of receivables management Discuss the modes of payment f credit Say what is credit policy? Types of credit policies with their advantages and

disadvantages
Explain the credit policy variables Discuss the aspects of receivables management Explain the steps involved in credit evaluation

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Meaning of Accounts Receivables

RECEIVABLES MANAGEMENT

The term receivable is defined as debt owed to the firm by customers arising from sale of goods or services in the ordinary course of business.(2) When the firm sells its products services on credit, and it does not receive cash for it immediately, but would be collected in near future. Till collection they form as a current assets. CHARACTERISTICS OF RECEIVABLES
1. 2. Risk Involvement: Receivables involve risk, since payment takes plBajaj in future, and future is uncertain so they should carefully analyzed. Based on Economic Value: Accounts receivables are based on economic value. The economic value in goods or services passes to the buyer currently in return the seller expects an equivalent value from the buyer latter. Implies Futurity: Buyer will make cash payment of the goods or services received by him/her in a future period. [i.e generally after credit period]

3.

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Meaning of Accounts Receivables Management

RECEIVABLES MANAGEMENT

Accounts Receivable management means making decisions relating to the investment in these current assets as an integral part of operating process, the objective being maximization of return on investment in receivables.

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Excel Books

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Objectives of Accounts Receivables Management
Maximizing the Value of the Firm: Optimum Investment in Sundry Debtors Control and Cost of Trade Credit

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Opportunity Cost / Capital Cost Collection Cost Bad Debts

RECEIVABLES MANAGEMENT

Costs of Accounts Receivables Management

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RECEIVABLES MANAGEMENT

Benefits of Accounts Receivables Management


Increased Sales: Providing goods or services on credit expands sales, by retaining old customers and attraction of prospective customers. Market Share Increase: When the firms able to retain old customer and attract new customer automatically market share will be increased to the extent of new sales. Increase in Profits: Increased sales, leads to increase in profits, because, it need to produce more products with a given fixed cost and sales of products with a given sales network, in both cost per unit comes down and the profit will be increased.

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RECEIVABLES MANAGEMENT

Factors Influencing the Size of Investment in Receivables


Volume of Credit Sales Credit Policy of the Firm Trade Terms Seasonality of Business Collection Policy Bill Discounting and Endorsement

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Credit Policy Variables
Credit standards Credit analysis collection period default rate

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character
capacity condition capital

collateral

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Credit Policy Variables
customer categories
good accounts bad accounts marginal accounts

RECEIVABLES MANAGEMENT

numerical credit scoring


ad hoc approach simple discriminant approach multiple discriminant approach

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Credit Policy Variables
Credit terms credit period cash discount

RECEIVABLES MANAGEMENT

Collection policy and procedures regularity of collections clarity of collection procedures responsibility for collection and follow-up case-by-case approach cash discount for prompt payment

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Credit Evaluation of Customers
Credit information financial statements bank references trade references

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Credit investigation and analysis analysis of credit file financial analysis analysis of business and management

Credit limit Collection efforts

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Monitoring Receivable
Collection period Aging schedule Collection experience matrix

RECEIVABLES MANAGEMENT

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Case Study for Class Discussion
Case One From Text Book.. Case 1. YAHOO.. PRODUCTS LIMITED

RECEIVABLES MANAGEMENT

Case 2 CREDIT LIMIT DECISION BAJAJ ELECTRONICS COMPANY Case 3 - CREDIT DECISION AGARWAL CASE

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Excel Books

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