Receivables Management
Concept of Receivables Management
The
receivables are normally arising out of the credit sales of the firm.
What is meant by the accounts receivable?
It is an
asset owed to the firm by the buyer out of the credit sales with the terms and
conditions of repayment on an agreed time period.
1 Meaning of the receivables management
The
receivables out of the credit sales crunch the availability of the resources to
meet the day today requirements. The acute competition requires the firm to
sustain among the other competitors through more volume of credit sales and in
the intention of retaining the existing customers. This requires the firm to sell
more through credit sales only in order to encourage the buyers to grab the
opportunities unlike the other competitors they offer in the market.
2 Objectives of Accounts Receivables
i) Achieving
the growth in the volume of sales
ii) Increasing
the volume of profits
iii) Meeting
the acute competition
3 Cost of Maintaining the Accounts Receivables
Capital cost
Due to
insufficient amount of working capital with reference to more volume of credit
sales which drastically affects the existence of the working capital of the
firm. The firm may be required to borrow which may lead to pay certain amount
of interest on the borrowings. The interest which is paid by the firm due to
the borrowings in order to meet the shortage of working capital is known as
capital cost of receivables.
Administrative cost
Cost of
maintaining the receivables.
Collection cost
Whatever
the cost incurred for the collection of the receivables are known as collection
cost.
Defaulting cost
This may
arise due to defaulters and the cost is in other words as cost of bad debts and
so on.
4 Factors Affecting the Accounts Receivables
i) Level of sales
The
volume of sales is the best indicator of accounts receivables. It differs from
one firm to another.
ii) Credit policies
The
credit policies are another major force of determinant in deciding the size of
the accounts receivable. There are two types of credit policies viz lenient and
stringent credit policies.
Lenient credit policy
Enhances
the volume of the accounts receivable due to liberal terms of the trade which
normally encourage the buyers to buy more and more.
Stringent credit policy
It
curtails the motive buying the goods on credit due stiff terms of the trade put
forth by the supplier unlike the earlier.
iii) Terms of trade
The terms
of the trade are normally bifurcated into two categories viz credit period and
cash discount
Credit period
Higher
the credit period will lead to more volume of receivables, on the other side
that will lead to greater volume of debts from the side of buyers.
Cash discount
If the
discount on sales is more, that will enhance the volume of sales on the other
hand that will affect the income of the enterprise.
Management of Accounts Payable/Financing the
Resources
It is
more important at par with the management of receivable, in order to avail the
short term resources for the smooth conduct of the firm.
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