MANAGING ACCOUNTS RECEIVABLE Presented by: Shaheil Hussein & Rejieli Rokosalu.

Objective  Understand debt behavior and models  Dispute Management  Reporting leverage indicators to management.

RE-CAP Types of Accounts Receivables 1.Accounts Receivables - short term credits days 2.Note Receivable - Longer term - May be 1 year or more - Government Bonds 3.Other Receivables - Income Tax Refund - Vat Refund

WHY DO CUSTOMERS SELL ON CREDIT? Create sale Keep the business flowing Competition Cash control Most people or clients do not have cash at the same time.

RECEIVABLE WRITE- OFFS Direct write-off ( not allowed by GAAP) - bad debt expense recorded when account determined to be worthless. - Sufficient evidence that the company will not pay - accounts is more than 7years - owner dead - company liquidates - ghost debtors - no records. - it affects financial statements

Allowance Method - bad debt expense estimated at the end of accounting period. - method allows time for debtors clerk to recover bad debts. Affects income statement. Bad debt expense is estimated by taking a percentage of overdue accounts.

3 steps for managing receivables 1.Screening customers 2.Determining credit terms (30 days) 3. Monitoring Collections

ACCOUNT RECEIVABLE TURNOVER AR TURNOVER= Net Sales/ Average Accounts Receivable Measures how frequently accounts receivable are collected. Based upon collection improvement – how many times or faster collections are made.

DAYS IN SALES Estimates the length of time accounts receivable have been outstanding on average. Days in Sales= Avg AR/ Avg Daily Sales. Comparability Indicates weaknesses and Strengths Lesser the days the more effective the company is.

INTERNAL CONTROL Existence and Occurrence. Completeness Accuracy Valuation Separation of duties Rights

COLLECTION PROCEDURES 1.Initial contact within 7 days of delinquency. 2.Reminder letter followed by phone call 3.Sales force notified 4. Propose for suspension. 5.Last resort reference to collection agency- Data Bureau

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