Chapter 18-RECEIVABLES MANAGEMENT.PPT
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RECEIVABLES...
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RECEIVABLES MANAGEMENT
Chapter
18 RECEIVABLES MANAGEMENT
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RECEIVABLES MANAGEMENT
LEARNING OBJECTIVES
Say what are accounts receivables and their characteristics
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 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.
Risk Involvement: Receivables involve risk, since payment takes plBajaj in future, and future is uncertain so they should carefully analyzed.
2.
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.
3.
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]
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Meaning of Accounts 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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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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Costs of Accounts Receivables Management Opportunity Cost / Capital Cost Collection Cost Bad Debts
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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 firm’s 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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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
character capacity condition capital
collateral
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Credit Policy Variables
customer categories good accounts bad accounts marginal accounts
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
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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RECEIVABLES MANAGEMENT
Credit Evaluation of Customers
Credit information
financial statements
bank references
trade references
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
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Case Study for Class Discussion… Case One From Text Book.. Case 1. YAHOO.. PRODUCTS LIMITED Case 2 – CREDIT LIMIT DECISION BAJAJ ELECTRONICS COMPANY Case 3 - CREDIT DECISION AGARWAL CASE
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