Receivables Management

Characteristics of Receivables Risk Involvement Based on Economic Value Implies Futurity

Objectives of Accounts Receivables Management Maximizing the value of the firm Optimum Investment in sundry debtors Control and managing the cost of trade credit

Costs of Accounts Receivables Management Capital Cost Collection Cost Bad Debts

Benefits of Accounts Receivables Management Increased Sales Increase in Market Share Increase in Profits

Factors Affecting The Size of Investment in Accounts Receivables Volume of credit sales Credit policy of the firm Trade terms Seasonality of business Collection policy Bills discounting & endorsement

Credit Policy Lenient Credit Policy Advantages Disadvantages Increase in sales Higher profits Disadvantages Bad debt loss Liquidity problems Stringent Credit Policy Advantages Less bad debt losses Sound liquidity position Disadvantages Less sales Less profits

Credit Evaluation Obtaining credit information Credit analysis Quantitative Qualitative –5C’s Character Capacity Capital Collateral Conditions

Monitoring Accounts Receivables Receivable Turnover Ratio = Credit Sales/Average Debtors Average Collection Period (ACP) = 365 / Receivables Turnover Days Sales Outstanding = Receivables at time ‘t’/ Sales per day