RECEIVABLES MANAGEMENT

Financial Management

Group No. - 007

•Amber Kumar – 004
•Hemlata kein – 028
•Kheeleshwar Prasad –
034
•Jayant Bhatnagar - 055
 Working Capital Cycle

“Any fool can lend money, but

it takes a lot of skill to get it
 RECEIVABLES/DEBTORS
RECEIVABLES / DEBTORS

Receivables or Debtors are

one of the most important parts
of the currents assets which are
created if the company sells the
finished goods to the customers
on credit basis and does not
receive the "Cash" for the same
immediately.

3
MANAGEMENT OBJECTIVES OF RECEIVABLE
MANAGEMENT
• Is to increase the sales to such an extent that the risk of bad
debts is reasonable and within control
• Creating, presenting and collecting accounting receivables
• Establish and communicate the credit policies
• Evaluation of customers and setting credit limits
• Ensure prompt and accurate billing
RECEIVABLES

• Maintaining up-to-date records

• Initiate collection procedures on overdue accounts

4
RECEIVABLES MANAGEMENT
PROCESS
Process
Receivable Management
 OPTIMUM LEVEL OF INVESTMENT IN TRADE
RECEIVABLES
RECEIVABLES MANAGEMENT

OPTIMUM LEVEL OF INVESTMENT IN TRADE RECEIVABLES

Profitability

Costs &
Profitability Optimum Level

Liquidity

Stringent Liberal
RECEIVABLES MANAGEMENT AREA
(1) CREDIT ANALYSIS
The Company has to decide the customer to
whom it should sell its products on credit.
The Credit should be extended only to those
customers by the company whose credit
worthiness is established. Types of Credit
Analysis are as follows :-

 Trade Reference
 Bank Reference
 Credit Bureau Report
 Financial Statement
 Past Experience
 Salesman's Interviews and Reports
CIBIL
RECEIVABLES MANAGEMENT AREA
(2) CREDIT TERMS

The credit terms indicates the terms

on which the company should extend
the credit to the customers. This
involves the consideration of
following aspects :-

 Credit Period
 Credit Limit
 Discount Policy
RECEIVABLES MANAGEMENT AREA
(3) CREDIT COLLECTION
The Credit collection indicates the steps
taken by the company to collect the dues
from the customers. For this purpose, the
company may follow the standard
practices of reminding the customer just
before the due date. This can be done by
sending the reminder letters or making
calls or by paying the personal visits.
While deciding credit collection policy,
following proposition should be
remembered :-

 Cost – Benefit Analysis

 Indian Limitation Act

RECEIVABLES MANAGEMENT AREA
(4) FINANCING THE RECEIVABLES

Whatever sources that are available

to the company for financing the
working capital requirement, are
equally the sources available for
financing the receivables. This is due
to the fact that receivables is a part
of working capital. Some important
sources are :-
 Pledging
 Factoring
RECEIVABLES MANAGEMENT AREA
(5) MONITORING OF RECEIVABLES

It may be necessary to ensure that the

outstanding receivables are within the
framework of the credit policy decided
by the company. For this the company
may be required to apply regular
system to monitor the receivables
properly, for this the company may use
the following techniques :-

• Computation of average age of

receivables
• Ageing schedule
Courtesy: Diagrams and photos taken from some public material available on sites