Monil Shah May 2016 003077-0004

IB BUSINESS AND MANAGEMENT HL INTERNAL ASSESSMENT

Research question:

Should Vikalp Tubes pvt.ltd stop providing trade credit to improve cash flow and increase
profitability?

Candidate name: Monil Viren Shah

Candidate number: 003077-0004

Centre name: Fazlani L’Academie Globale

Advisor: Miss Suzanne Patel

Word Count: 1967

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Monil Shah May 2016 003077-0004

Acknowledgements

I would like to acknowledge Vikalp Tubes pvt.ltd for giving me easy access to their financial data

and especially the owner who gave me the opportunity to interview him at length.

I would also like to thank Miss Suzanne for giving me an opportunity to work on this topic and

guiding me to complete it to the best of my ability.

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Executive Summary
Vikalp tubes started off its business practices by mainly focusing on buying and selling of second-

hand pipes which later modified to stocking goods from a range of manufacturing companies.After

interviewing with the owner, I realised that the company is facing cash flow problems in

conjunction with effectively allocating trade credit. Hence, the research question "Should Vikalp

Tubes pvt.ltd stop providing trade credit to improve cash flow and increase profitability?”

I have assessed this decision through quantitative as well as qualitative tools both of which are

backed by primary and secondary data. The Primary Data used is the questionnaire conducted of

customers (by the Random Sampling Method) and an interview. The secondary data obtained was

the financial position of the company. This data is represented visually through graphs, tables and

charts.

The next step was to assess the data through non-financial methods for which I used Lewin’s Force

Field and Ishikawa fish bone. Quantitate methods employed include Debtor Days and Stock

Turnover.

After analysing all the data, I arrived at the conclusion that Vikalp tubes should not stop providing

trade credit but focus on improving factors such as debtors, amount of loan and trade policies.

(Word Count - 198)

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Table of Contents
Serial Number Title Page Number

I Research Proposal 5

II Introduction 10

2.1 Background Information 10

2.2 Significance of Research Question 10

III Kurt Lewin’s Force Field 12

3.1 Diagram of Lewin’s Force Field 12

3.2 Evaluation of Driving & Restraining Forces 12

IV Secondary Data 16

4.1 Revenue Generated by Vikalp Tubes in 5 years 16

4.2 Debtors Outstanding of Vikalp Tubes over 5 years 17

4.3 Analysis of Secondary Data 18

4.4 COGS for Vikalp Tubes in 5 years 19

4.5 Stock in Hand for Vikalp Tubes in 5 years 20

4.6 Analysis of Secondary Data 21

4.7 Loans Outstanding of Vikalp Tubes over 5 years 22

4.8 Interest Payments by Vikalp Tubes in 5 years 23

V Ishikawa Fish bone 25

VI Primary Data 26

6.1 Analysis of Questionnaire 26

6.2 Analysis of Primary Data 29

VII Conclusion, Evaluation & Recommendations 30

VIII Works Cited 32

VIIII Appendices 33

7.1 Interview with CEO 33

7.2 Questionnaire 35

7.3 Action Plan 36

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1.0 Research Proposal

Research Question:

Should Vikalp Tubes pvt.ltd stop providing trade credit to improve its cash flow and increase

profitability?

Rationale:

Vikalp Tubes is incurring high interest rates due to short and medium term borrowing caused by

trade credit employed to improve their cash flow problems. This has impacted its future business

prospects right from buying new materials for inventory to expanding its operations. However, the

increase in profit margin while providing trade credit induces the company to continue with its

credit practices. Thus, this research proposal will give a fair idea to the company about whether

discontinuing trade credit will be a good option. Moreover, it will provide me with the practical

knowledge of assessing a real life dilemma that a business is facing and how research can be

employed to resolve this issue.

Theoretical Framework:

The analysis of this research is based on a twofold approach. I plan to analyse both quantitative and

qualitative factors while conducting the research. I shall focus on the financial tools of Debtor days

and Stock turnover. To examine the qualitative factors, I will conduct a Questionnaire of Vikalp’s

customers (B2B) and use Lewin’s Force field and Ishikawa Fishbone analysis to evaluate the

suitability of the proposed change.

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Methodology:

Primary Research:

• An interview with the owner of Vikalp Tubes to procure information relating to the company’s

history, current and future financial position. The interview will also throw light on the trade

credit position and possible effects of declining trade credits to its customers.

• A survey of Vikalp Tubes customers who avail these credit facilities. I will request 30 customers

(B2B) via e-mail to give their response for reasons for requesting trade credit and how

discontinuing this service might affect them.

Secondary Research:

• I will investigate the financial position of the company Moreover, to understand better, the needs

to reduce interest payments, I will look into the company’s history of acquiring external sources

of finance and how it has affected them.

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Anticipated Difficulties and Solutions:

The major difficulties anticipated for this research project and possible solutions to solve them are

summarised in the table below:

Possible Problems Solutions

Answers from interviewees can be biased given Double check with available company

vested interest. information to reduce bias possibility.

Constuction of an effective survey without bias Include both close and open-ended question.

to collect meaningful and useful data

Primary data collected through Vikalp Tubes Assure the customers of the ethical

clientele may not prove to be completely honest considerations that I will adhere to while

due to personal interest or hampering of buyer- conducting market research.

seller relationships.
Obtaining the completed surveys from Vikalp Plan ahead. Allow for a larger margin of time to

Tubes customers may prove to be a tough task receive the questionnaires so the schedule is not

due to their busy schedules hindered. Ensure regular followup with the said

customers.

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Key Areas of Syllabus:

• Unit 1.7 Organisational planning tools

1) Force field analysis

2) Ishikawa Fish bone analysis

• Unit 3.6 Efficiency ratio analysis

1) Stock Turnover

2) Debtor days

• Unit 4.4 Market Research

1) Surveys (or Questionnaire)

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Action Plan1:

Activity April May June July August

1-15 16-30 1-15 16-31 1-15 16-30 1-15 16-31 1-15 16-30

Choice of
organisation

Choice of
Topic

Meeting with
the owner of
the company

Collection of
secondary
data

Preparation
and
distrubution of
Questionnaire
s

Analysis of
data

Submission of
first draft to
supervisor and
then make
amendments.

Submission

1 Detailed Action plan included in Appendix 3

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2.0 Introduction:
2.1 Background Information2
Vikalp Tubes Pvt.Ltd. is a family owned business established since 1962 and is one of the largest

stockist of seamless and ERW pipes, hydraulic and boiler tubes in India. Late Nagardas Kanji Shah

commenced the business by mainly focusing on the trade of second-hand pipes.With the passage of

time, the business achieved great success by establishing a loyal customer base by providing them

with goods that were competitively priced compared to its rivals. Today, its clientele include some

of the biggest companies in India such as L&T, Reliance industries, BHEL, GAIL etc.

2.2 Significance of this research question

Operating for more than 50 years in this field, Vikalp Tubes has gained considerable experience and

reputation3 . Meeting their customers needs has been a top priority and to do so means providing an

up to date stock list to allow their customers to choose from.

Since the past two years, customers have been failing to make payments on time and this has

created cash flow problems4 . Hence, Vikalp has been forced to opt for short to medium term loans

which has reduced their competitive advantage5 . Further, the method employed to resolve their cash

flow problem backfired and resulted in high interest payments to financial institutions, thus

worsening their liquidity positions.

2Interview with CEO - Appendix 2

3 Interview with CEO - Appendix 2
4 Interview with CEO - Appendix 2
5 Interview with CEO - Appendix 2
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Moreover, statistics show that generally on average, debtors represent over 40% of a company’s

current assets6. Therefore the need to protect the balance sheet and shareholders’ funds against the

failure of debtors is of paramount importance.

Figure 17

Hence, the research question Should Vikalp Tubes pvt.ltd stop providing trade credit to

improve its cash flow and increase profitability? would give Vikalp a better understanding of the

merits as well as the demerits of enforcing a change in their practices.

6 "JLT." Trade Credit – Australia. Web. 15 June 2015. <https://www.jlta.com.au/trade.aspx>.

7 "JLT." Trade Credit – Australia. Web. 15 June 2015. <https://www.jlta.com.au/trade.aspx>.

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3.0 Kurt Lewin’s Force field analysis

Driving Forces Restraining Forces

4/5 Improve credit rating Less Profit Margin 4/5

4/5 Interest Saving Lose Customers 5/5

STOP
PROVIDING
TRADE
4/5 Expansion Less Sales 4/5
CREDIT?

4/5 Procure Inventories Less Profits 4/5

16/20 17/20

The weightages provided has been approved both by the finance and marketing manager.

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3.1 Evaluation of Force field analysis

3.1.1 DRIVING REASONS TO STOP TRADE CREDIT FOR VIKALP TUBES:

Improve Vikalp’s credit rating: Timely payments from debtors will ensure Vikalp can make its

payments on time which will consequently impact their credit rating in a positive way.This will

open doors to credit facilities which will help them tackle unforeseen changes in the dynamic

business environment.

Interest saving: Cash in hand will allow Vikalp to pay their own debt, thus, reducing high interest

payments which will eventually help them increase their profit margin. Moreover, interest saving

would lead to a better gearing ratio which would further aid procurement additional finance when

required.

Expansion and Procurement of Inventories : A steady working capital cycle would enable

Vikalp tubes to purchase new assets, build new facilities, buy new stock which would not only help

them increase the value of their business but also capitalise on sales, gaining further market share.

This can hold true if businesses are optimistic about the economy. However, the Indian economy’s

recent slowdown has stirred up some new problems for Vikalp as expanding their operations during

a slowdown would be very risky and thus, needs to be delayed.8

"Economic Slowdown Means States' Revenue-raising Capacity May Be Limited: RBI Study." Timesofindia-economictimes. Web. 13
July 2015.

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3.1.2 RESTRAINING FORCES FOR STOPPING TRADE CREDIT FOR VIKALP TUBES:

Less profit margin: The customers who are provided with trade credit mostly purchase in bulk9

and this generates a higher profit margin for the company. Failing to provide trade credit would

mean losing bulk purchase clients that would diminish profitability.

Lose customers: Customers are always striving to get the lowest possible prices and overall are

looking to conclude a deal that is advantageous to them10. Trade credit is one of the benefit that

customers seek as they buy in bulk from Vikalp Tubes. In addition, the large payments cannot be

made in one go11 . Declining trade credit could mean a shift to its competitors.

Less sales and profits: Discontinuing trade credit would create a cascading effect by directly

affecting the gross and net profit. This would hamper future prospects for Vikalp tubes.However, if

cost reduce drastically or the customers who do not buy on trade credit, increase consumption then

the negative impacts would reduce considerably. But this is highly unlikely given the nature of the

industry.

9 Interview with CEO - Appendix 2

10 Interview with CEO - Appendix 2
11 Interview with CEO - Appendix 2
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Conclusion:

The restraining forces outweigh the driving forces by a point. So, bringing about a change in their

practices would affect Vikalp Tubes negatively as explained by the points above. However, the

given weights could have been subjective rather than based on facts to emphasise a change.

To reduce the negative impacts of trade credit, Vikalp tubes could use a system of Credit control. By

setting norms and conditions to credit period given, the company would be able to reduce risk and

regulate their debtors to ensure that they make their payments on time. Thus, a Force field analysis

has given a better insight into the effects for a predicted change and concluded that Vikalp should

not stop providing trade credit.

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4.0 Secondary data

4.1 Revenue generated over five years

Year 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014

Revenue (INR) 25,36,11,027 45,56,15,084 42,35,46,875 27,76,28,470 20,99,31,550

Revenue (INR)
500000000

45,56,15,084
42,35,46,875
375000000
Revenue (INR)

27,76,28,470
250000000
25,36,11,027

20,99,31,550

125000000

0
2010-2011 2011-2012 2012-2013 2013-2014 2014-2015

Financial Year

*Figure 2

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4.2 Debtors outstanding over five years

Year 2009 - 2010 2010-2011 2011-2012 2012-2013 2013-2014

Debtors in 133351474.77 190991009.93 191811186.3 171710480.58 144823147.38

value (INR)

Debtors in value
200000000

19,09,91,009.93 19,18,11,186.3

17,17,10,480.58

150000000
Debtors outstanding (INR)

14,48,23,147.38

13,33,51,474.77

100000000

50000000

0
2010-2011 2011-2012 2012-2013 2013-2014 2014-2015
Financial Year

*Figure 3

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4.3 Analysis of Secondary data

Decreasing revenue and debtors - In the past couple of years revenue has almost halved in value

which is a big concern for the company as seen from Figure 2. Although, the value of debtors have

decreased but it still continues to remain high. This can be seen from Figure 3. The table below

presents the calculation of Debtor days. Debtor days ratio measures the number of days it takes a

firm, on average, to collect money from its debtors12.

Debtor days

Debtor Days = (Debtors ÷ Sales revenue) x 365

Year Calculation Debtor days

2009 - 2010 (133351474.77/253611027) * 365 192 days

2010 - 2011 (190991009.93/455615084) * 365 153 days

2011 - 2012 (191811186.3/423546875) * 365 165 days

2012 - 2013 (171710480.58/277628470) * 365 226 days

2013 - 2014 (144823147.38/209931550) * 365 252 days

High Debtor days value - Between 2012-2014, it took Vikalp tubes a significant number of days to

recover payments from its debtors. The usual number of days for receiving payments in this type of

business is 150-180 days.13 This means the business is converting credit sales into cash slower than

previously, therefore, raising concerns. This could be attributed to a lack of demand in the industry .

Moreover, due to China’s involvement in the Indian pipe market, domestic businesses have suffered

from losses in the form of low sales revenue.14

12 Hoang, Paul. Business Management. 3rd ed. Melton, Vic.: IBID, 2014. Print.
13 Appendix 1 - Interview with CEO
14

"India Launches AD Investigation for Seamless Pipe Imports from China." SteelOrbis RSS. Web. 16 July 2015.

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A suggestion to improve this situation would be to impose interest rates on delayed payment,

threaten legal action or give incentives in the form of discounted prices for payment against

delivery.

4.4 Costs of goods sold incurred over five years

Year 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014

Costs (INR) 29,15,25,758 41,20,98,257 37,64,55,332 25,16,20,860 14,25,93,746

Costs (INR)
500000000

41,20,98,257
375000000
37,64,55,332
Costs (INR)

29,15,25,758
250000000
25,16,20,860

125000000 14,25,93,746

0
2010-2011 2011-2012 2012-2013 2013-2014 2014-2015
Financial Year

*Figure 4

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4.5 Stock in hand over five years

Year 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014

INR 72664814 65084753 64134346 80458957 56125890

stock in value
90000000

8,04,58,957

7,26,64,814
67500000
6,50,84,753 6,41,34,346
Stock in hand (INR)

5,61,25,890

45000000

22500000

0
2010-2011 2011-2012 2012-2013 2013-2014 2014-2015
Financial Year

*Figure 5

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4.6 Analysis:

Stock Turnover

Stock Turnover (number of days) = (Average stock ÷ Cost of goods sold) x 365

Year Calculation Stock Turnover (days)

2009-2010 (72664814/291525758) * 365 91 days

2010-2011 (65084753/412098257) * 365 58 days

2011-2012 (64134346/376455332) * 365 62 days

2012-2013 (80458957/251620860) * 365 117 days

2013-2014 (56125890/142593746) * 365 144 days

Increasing stock turnover days: The above data indicates a rapid rise in the number of days it

takes Vikalp to sell its stock. This will have important implications as one of their objective of

keeping an up to date inventory would not be possible if it cannot sell its stock in time.15 This would

also affect the liquidity which translated as a zero rate of return on investment. Non-saleable items

would increase storage and other holding costs. To improve the situation, Vikalp tubes could

introduce Just in Time system of inventory control. However, it could negatively impact the

business if there is a sudden rise in demand. In addition, strict supervision over inventory

purchasing could also help.

15 Interview with CEO - Appendix 2

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4.7 Loans outstanding from various sources

Year 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014

INR 13062978.7 28448599.6 112246050 135189074 121475012

Loans outstanding
140000000
13,51,89,074

12,14,75,012

11,22,46,050
105000000
Loans outstanding (INR)

70000000

35000000

2,84,48,599.6

1,30,62,978.7

0
2010-2011 2011-2012 2012-2013 2013-2014 2014-2015
Financial Year

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4.8 Interest payments over five years

Year 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014

INR 2750535 3476073 10341727 14370998 12186563

Interest (INR)
16000000

1,43,70,998

12000000
1,21,86,563
Interest payments (INR)

1,03,41,727

8000000

4000000
34,76,073
27,50,535

0
2010-2011 2011-2012 2012-2013 2013-2014 2014-2015
Financial year

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4.7 Analysis:
Financial Year Loan (INR) Change % Interest payments Change %
(INR)

2009- 2010 13062978.7 2750535

2010 - 2011 28448599.6 117.8% 3476073 26.4%

2011- 2012 112246050.0 294.6% 10341727 197.5%

2012 - 2013 135189074.0 20.4% 14370998 39.0%

2013 - 2014 121475012.0 (10.1%) 12186563 (15.2%)

The transition from year 2011-2012 to 2012-2013 have resulted in an exponential change in both

the amount of loan borrowed and the interest paid on it. This can be a problem as it certainly affects

the gearing ratio of Vikalp. Moreover, Interest payments can be more severe than tax as even if the

business doesn’t make profits, it will still need to pay interest. Thus, Vikalp Tubes needs to focus on

this aspect of the business too.

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5.0 Ishikawa Fish bone16

Absence of credit Lack of follow
policies increasing the up of debtors.
risk of debtor default.

Policies People

Unfavourable cash flow

Economy Process

A sharp rise in the

Lack of demand in the
amount of loan.
economy reducing
borrowed from
sales and its revenue.
financial institution.

The root causes can be allocated to ‘Policies and Process’ which are highlighted in bold. Clearly,

these causes add more to the presence of the effect, that is, unfavourable cash flow. Absence of

credit policies withholds the company from undertaking necessary steps required to follow up on

delayed payments and improve the cash flow situation. Moreover, a sharp rise in the value of loan

taken translates as high monthly interest payments. In the fiscal year of 2013 - 2014 alone, Vikalp

tubes payed INR 1,21,86,563 as interest. This certainly seems to be an increasing amount of interest

as compared to 3 years ago. To get a better understanding of these root causes, Ishikawa fishbone

needs to be used in collaboration with other decision making tools as it does not offer a solution but

identifies the problems.

16 Hoang, Paul. Business Management. 3rd ed. Melton, Vic.: IBID, 2014. Print.
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6.0 Primary Research

30 of Vikalp’s existing customers (B2B) were asked to fill out a questionnaire of which the results

and analysis is provided below. These clients were selected on the basis of random sampling

technique. This survey was conducted to understand Vikalp’s clients perspective on trade credit as

they themselves are businesses and offer trade credit to its clients.

6.1 Analysis of Questionnaire

Q1. As a business yourself, What duration do you allow for payments from your

debtors?

30 days 90 days
180 days over 180 days

Source: Primary Data collected

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Q2. If over 180 days, What steps do you undertake to ensure timely payments?

Charge interest Discount on products

Take legal action Time extension

Source: Primary Data collected

Q3.1 Do you continue to supply clients whose payments are outstanding ?

Yes No

Source: Primary Data collected

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Q3.2 Why? Select from reasons mentioned below.

Long standing customer

Future Revenue potential
Financial crunch

Source: Primary Data collected

Q4. Do you establish credit limit for customers?

No Yes

Source: Primary Data collected

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6.2 Analysis of Primary data

The results of the questionnaire highlight that most clients of Vikalp tubes provide a 90 day float to

their debtors to make payments. However, they pay Vikalp only after 180 days and thus, Vikalp’s

debtor days ratio is so high. It must be noted that the questionnaire utilised random sampling

technique, thus limiting the possibility of selecting businesses with almost similar scenario. Also,

small, medium as well as large businesses were chosen limiting the accuracy of the research.

The feedback also revealed methods utilised by Vikalp clients to receive debts which have been

prolonged for a long time. These included extended payment period , discounts and few cases

where in a penalty interest was levied to to improve the promptness of payment dispatch.

This being said, most of Vikalp’s clients continue to sell their goods to debtors who are outstanding

in their payment because the associated benefits compensate for the delay.

Hence, it can be concluded that the main problem lies within the business and the methods it

employs to collect their debts from other business on time.

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7.0 Conclusion and Recommendations:

7.1 Comparison of data:

Financial year Revenue Costs of goods Debtor days ( in Stock Turnover

sold days) ( in days)

2009 - 2010 25,36,11,027 29,15,25,758 192 91

2010 - 2011 45,56,15,084 41,20,98,257 153 58

2011 - 2012 42,35,46,875 37,64,55,332 165 62

2012 - 2013 27,76,28,470 25,16,20,860 226 117

2013 - 2014 20,99,31,550 14,25,93,746 252 143

The analysis of the secondary data indicated that revenue has decreased while the number of days

debtors has increased. Due to the following drop in sales revenue, the stock turnover ratio in days

has also increased.

The primary data reveals that it takes an average of 90 days for majority of other business to acquire

debts in comparison with Vikalp’s 180 days. This could be due to lack of demand in the market

which has affected other business ( some of them being Vikalp customers) which in turn have

delayed payments from their customers.

7.2 Evaluation:

Tools Used Stop providing Trade credit Continue providing Trade credit

Quesionnaire Yes

Force field analysis Yes

Ishikawa fishbone Yes

Debtors days Yes

Stock Turnover ratio Yes

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Since, the company is weighing the decision to improve their cash flow by limiting or stopping

trade credit, it would lose out on several substantial benefits that can be reaped when providing

trade credit as seen from the Lewin’s Force Field Analysis. Moreover, Ishikawa’s Fish bone analysis

indicates the root causes to be absence of credit policies and an increase in the gearing ratio, it is

advisable that the company enforces a system of credit control to reduce the risk of debtors default

and reduce the amount of loan which would neutralise the problem.

Thus, after analysing the quantitative as well as qualitative factors, it is recommended that Vikalp

tubes pvt.ltd should not stop providing trade credit but rather focus on improving factors such as

debtors, amount of loan and credit policies to improve cash flow.

The recommendations and the tools used are based on historical data and assumptions that are

subject to change in the dynamic business environment.

Apart from the recommendations provided, Vikalp tubes should bear in mind that there are other

numerous factors that still needs to be considered before arriving on a more conclusive solution.

Further data variables and tools (such as PEST) need to be understood before deciding on how this

change will affect the organisation.

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Works Cited

Hoang, Paul. Business Management. 3rd ed. Melton, Vic.: IBID, 2014. Print.

"India Coming out of Economic Slowdown: OECD - The Times of India." The Times of India. Web.

16 July 2015. <http://timesofindia.indiatimes.com/business/india-business/India-coming-out-of-

economic-slowdown-OECD/articleshow/45205917.cms>.’

”India Launches AD Investigation for Seamless Pipe Imports from China." SteelOrbis RSS. Web.

16 July 2015.

"JLT." Trade Credit – Australia. Web. 15 June 2015. <https://www.jlta.com.au/trade.aspx>.

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Appendices
Appendix 1- Interview with the CEO

Q1. Could you give me a brief outline about Vikalp Tubes Pvt.Ltd.?

Mr. Viren Shah - “My father started this company in 1962 dealing only in second-hand pipes. But as

time passed, we diversified into selling first-hand pipes and tubes and our business excelled in its

field. We always believed in satisfying our customers needs and wants and that is exactly what we

did. Few years down the line, by providing goods that were relatively inexpensive than our

competitors we established our loyal customer base and thus gained considerable reputation

amongst them.”

Q2. What are the challenges Vikalp Tubes is currently facing?

Mr. Viren Shah - “In this ever changing business environment and currently a slow economy, the

challenges Vikalp Tubes is facing is to effectively allocate and manage trade credit to improve its

cash flow in comparison with previous years. The continuos late payments from our customers has

resulted in much uncertainty about the future and has prolonged our working capital cycle.

Normally, in this industry 150-180 days are given as trade credit period. However, our debtors are

far exceeding this period. Moreover, due to lack of demand, revenue has fallen over the last couple

of years which has resulted in our company’s revenue to decrease by half.”

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Q3. Could you provide further clarity as to how late payments by customers has

affected your business?

Mr. Viren Shah - “Late payments meant that the cash flow forecast was affected which in turn

affected our future decisions making process. This resulted in large fluctuations in the amount of

stock that was needed to be kept at our warehouses to provide our customers with varied choices.

Ironically, the very much debtors who did not make payments on time did not get enough items to

choose from. Now, to prevent this fluctuations, we borrowed money from financial institutions with

hefty interest charges. But, still due to the prolonged delay in payments, our situation only worsened

and the preventive measures taken back fired on us.”

Q4. If an idea of not providing trade credit is proposed, how would that benefit

Vikalp Tubes?

Mr. Viren Shah - “There would be numerous advantages if we decide to decline trade credit. Firstly,

trade credit is directly related to cash flow so not providing it would mean an improvement in cash

flow situation. This, in turn, would save us on interest that we have to pay to banks and other

sources to improve our cash flow. In addition, customers would not be able to delay payments

because we would not sell our products on credit and we would be able to increase our inventory

list, thus, providing much choice to our existing and potential customers.

Q5. What would be the constraints of not providing trade credit?

Mr. Viren Shah - “Our customers our are top priority and we wish not to disappoint them. So, not

providing them credit would mean they would prefer to buy goods from our competitors. This

would lead to a series of reactions as sales would reduce which will most definitely reduce our

company’s profit, Moreover, there is a higher profit margin that we receive when we sell our goods

on credit but due to the delay in making payments the benefit is somewhat reduced.
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Appendix 2- Debtors - Business Planning Questionnaire

Business Name:

Questionnaire

1. Do you prepare a Monthly Debtors Analysis? Yes No

2. How long does it take your business to collect your debts from your debtors? All
approximates

▪ Thirty days
▪ Ninety days
▪ One - eighty days
▪ Over one - eighty days

Charge Interest
If over one - eighty days, what measures do you
Discount on products
undertake to improve the promptness of dispatch of Take legal action
debtors’ statements? Time extension

3 Do you regularly chase-up outstanding debtors so as to ensure that they

abide by your stated terms of trade? Yes No

4 Have you told your customers what your terms of trade are? Yes No

5 Do you take legal action against outstanding debtors? Yes No

6 Do you continue to supply debtors who are outstanding in their terms of

trade? Yes No

• Why? Regular customer Future Revenue Potential Financial crunch

7 Do you establish credit limits for customers? Yes No

8 Do you confirm to customers in writing your terms of trade, their credit limit
Yes No
and inform whether you charge interest on overdue accounts?

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Appendix 3- Action Plan: (Timeline)

• April 1 – 15th

Selecting an organisation that could be researched and obtaining the co-operation of the firm
concerned.

Discussion with the supervisor about the possible topics and shortlisting topics. Finalise the topic
with the subject teacher. This includes framing the appropriate research question.

• April 16th- 30th

Make the first visit to the firm to analyse the set up and environment. Conduct interview with the
CEO

• May 1st - 30th

Obtain secondary data from the employees. Research and gather information from the internet and
books, which would help me in writing the report.

• June 1st - 15th

Prepare the questionnaires/questions for interview for the visit to the selected organization. Mail the
questionnaires to all the customers (B2B).

• June 16th - July 31st

Analyse all the data and highlight the important information and take notes on the important points.
st
Prepare the 1 draft using all the highlighted points and analysed data.

• August 1st – 15th

st
Submit the 1 draft to the supervisor for review. Make the amendments to the project and prepare
the final draft.

• August 16th – 30th

Submission of the final draft to the supervisor for grading.

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Appendix 4- Trading and Profit and Loss A/C and Balance Sheet

Vikalp Tubes pvt.ltd operates its accounts under the name of M/S. Nagardas Kanji Shah who
is the proprietor’s father. Thus, the balance sheet is created in M/S. Nagardas Kanji Shah
firm’s name.

Kindly find appended the required documents:

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