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
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Cost of financing receivables
Cost of collection
Bad debts
Factors influencing the size of
receivables
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Size of credit sales
Credit policies
Terms of trade
Expansion plans
Relation with profit
Credit collection efforts
Habits of customers
Forecasting the receivables
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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
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Quality of trade accounts or credit standards
Length of credit period
Cash discount
Discount period
Executing credit policy
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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.