Receivables Management

Receivables Management

Introduction A sound managerial control requires proper management of liquid assets and inventory. These assets are apart of working capital of the business. An efficient use of financial resource is necessary to avoid financial distress . Receivable result from credit sales. Receivables constitute a significant portion of current assets of a firm. But for investment in receivable a firm has to incur certain cost. Further there is a risk of bad debts also. It is therefore very necessary to have a proper control and management of receivables.

Meaning of Receivables Receivables represent amounts owed to the firm as result of sale of good or services in the ordinary course of business. These are claim of the firm against its customers and form part of its current assets. Receivables are also known as accounts receivables, trade receivables, customer receivables or book debts.

Cost of maintaining receivables Cost of financing receivables Cost of collection Bad debts

Factors influencing the size of receivables Size of credit sales Credit policies Terms of trade Expansion plans Relation with profit Credit collection efforts Habits of customers

Forecasting the receivables Credit period allowed Effect of cost of goods sold Forecasting expenses Forecasting average collection period and discount Average size of receivables

Receivables Management Receivables Management is the process of making decisions relating to investment in trade debtors. The objective of receivables management is to take a sound decision as regards investment in debtors.

Dimension of receivables management Forming of credit policy Executing credit policy Formulating and executing collection policy

Forming f credit policy Quality of trade accounts or credit standards Length of credit period Cash discount Discount period

Executing credit policy Collecting credit information credit analysis Credit decision Financing investments in receivables and factoring

Formulating and executing credit policy The collection of amounts due to the customers is very important. The concern should devise procedures to be followed when accounts become due after the expiry of credit period. The collection policy be termed as strict and lenient. A strict policy of collection will improve more efforts on collection. This policy will enable early collection of dues and will reduce bad debt losses.