1.1INTRODUCTION

Many Indian companies are caught in financial crisis of varying degree because of the less

efficient working capital management. The objective of Corporate Excellence viz., Quality

products, Satisfied Customers, Employees and Investors, High profitability and Comfortable

funds position etc., can be achieved through increased productivity of capital, particularly the

working capital.

Your business has been reaping huge profits for years now, when all of sudden you find yourself

in need of fast cash. If you have tried several solutions without success, you may be interested in

learning more about accounts receivable management.

Accounts Receivable Management

Accounts receivable is an accounting transaction which deals with the billing of customer who

owes money to a person, company or organization for goods and services that has been provided

to the customers. In most business entities this is typically done by generating an invoice and

mailing or electronically delivering it to the customer, who in turn must pay it within an

established timeframe called credit or payment terms.

Definition of Account receivables

The term receivable management is defined as “debt owed to the firm by customer arising

from the sale of goods/ services in the ordinary course of business.” The receivable represents

an important component of the current assets of the firm. Receivables may be known as accounts

receivables, trade creditors or customer receivable. When a firm its products / services and does

not receive cash for it immediately, the firm has said to be granted trade credit to the customers.

Trade credit thus creates receivable / book debts, which the firm is expected to collect in near

future. Accounts receivable are thus amounts due from customers, which bear no interest in

essence, a company is providing no cost financing to the customer to encourage the purchase of

the company’s product/services.

An account receivable is the money owed to a company by a consumer for products and services

purchased on credit. This is usually treated as a current asset of accounts receivable after the

customer is sent an invoice. Accounts receivable are known by various names, such as accounts

receivable aging, accounts payable, days receivable, accounts receivable turnover and invoice

factoring.

According to the experts, accounts receivable or invoice factoring is one of a series of accounting

transactions. These accounting transactions deal with the billing of customers who owe money to

a person, company or organization for goods and services purchased. If you are seriously

considering using accounts receivable as a method of obtaining a more liquid asset, then it is

wise to hire accounts receivable management specialists.

Accounts receivable management specialists can help you in a variety ways

It can cut and maintain your average collection delay or DSO

It can lessen your direct and indirect expenses

It can considerably reduce your bad debt

It can tell you various ways to take advantage of your cash-flow

It can help you capitalize on your internal resources

It can maximize your interventions on sales, service and market share.

Hiring the best accounts receivable management will clear up the common misconception that

the selling of accounts receivable is a loan. Accounts receivable are the amounts that customers

owe a business; this is clearly shown on a company's balance sheet.

Some also call accounts receivable trade receivables and try to classify them as current assets.

Accounts receivable management’s main goal is to take care of all these debts and to record sales

of accounts; one must debit a receivable and credit a revenue account. Accounts receivable

management also looks into issues such as recognizing accounts receivable, valuing accounts

receivable, and disposing of accounts receivable.

Credit Management

Trade credit creates amount receivables or trade debtors also referred to as book debts in India

that the firm is expected to collected in near future. The customers from whom receivables or

book debts have to be collected in the future are called trade debtors.

A credit sale has 3 characteristics

Involves an element of risk that should be carefully analyzed.

Based on economic value.

Implies futurity.

Credit policy Nature and Goals

A firm investment in accounts receivables depends on

The volume of credit sales

The collection period.

There is only one way in which the financial management can affect the volume of credit sales

and collection period, consequently invest in accounts receivables that is through the change in

credit policy is sure to refer to the combination of decision variables.

Credit standards

Credit standards which have criteria to decide the types of customers which have criteria to

decide the types of customers to whom goods could be sold on credit. If a firm has more slow

playing customers it’s invest in account receivables will increase. The firm will also be exposed

to higher risk of default.

Credit terms

Credit terms specify duration of credit payment by customers. Investment in account receivables

will be high if customers are allowed extended time period for making payments.

Collection efforts

Collection efforts determine the actual collection period. The lower the collection period is,

the lower the investment in account receivables & vice versa.

A firm may follow a lenient or a stringer credit policy. The firm following a lenient credit policy

tends to sell on credit to customers on very liberal terms and standards credit is granted for

longer periods over to those customers who credit worthiness is not fully known or whose

financial position is doubtful.

Importance of Receivables Management

It can be argued that revenue generation is the most critical function of a company. Dot-com

companies that created exciting new products but failed to generate significant revenue burned

through their cash and ceased operating. Every company expends substantial resources to

generate increasing levels of revenue. However, that revenue must be converted into cash. Cash

is the lifeblood of any company. Every Rupee of a company’s revenue becomes a receivable that

must be managed and collected. Therefore the staff and processes that manage your receivables

asset

• Manage 100% of company’s revenue.

• Serve as a service touch point for virtually all the customers of Company

• Can incur or save millions of dollars of bad debt and interest expense.

• Can injure or enhance customer service and satisfaction, leading to increases or decreases

in revenue.

If increasing revenue, enhancing customer satisfaction, and reducing expenses are important to

you, read on.

The benefits of effectively managing the receivables asset are

• Increased cash flow

• Higher credit sales and margins

• Reduced bad debt loss

• Lower administrative cost in the entire revenue cycle

• Decreased deductions and concessions losses

• Enhanced customer service

• Decreased administrative burden on sales force