“A STUDY ON RECEIVABLE MANAGEMENT IN TI CYCLES OF INDIA, AMBATTUR”

BY

R.PREMA

(Reg.No.11807631059)

OF

DEPARTMENT OF MANAGEMENT STUDIES

VEL TECH MULTI TECH DR.RANGARAJAN DR.SAKUNTHALA

ENGINEERING COLLEGE

Accredited by NBA (ISO 9001: 2000 Certified Institution)

Approved by AICTE New Delhi & Affiliated to Anna University

Avadi, Chennai – 600 062

A PROJECT REPORT

Submitted to the

FACULTY OF MANAGEMENT STUDIES

In partial fulfillment of the requirement for the

award of the degree

OF

MASTER OF BUSINESS ADMINISTRATION

INFINANCE

ANNA UNIVERSITY

CHENNAI-25

MAY-2009

VEL MULTI TECH SRI RANGARAJAN SAKUNTHALA

ENGINEERING COLLEGE

Accreditated by NBA

(ISO 9001:2000 Certified institution)

Affiliated to Anna University

BONAFIED CERTIFICATE

Certificate that this project entitles” A STUDY ON

RECEIVABLE MANAGEMENT IN TI CYCLES OF INDIA, AMBATTUR”, is a

bonafied work done by, Ms. R.PREMA (Reg no.11807631059) Who carried out

of the research under my supervision certified further that to the` best of my

knowledge, the work reported wherein does not form a part of any other project

report on the basis of which degree of award was confirmed on earlier occasion

or any other category.

Principal Hod/Dean

Assessed by

Internal Examiner External Examiner

(i)

ACKNOWLEDGEMENT

I express my gratitude to our chairman Mr.RANGARAJAN, M.E. (Elec)., M.E.

(Mech), M.S.(Auto)., and to Dr.Siddhappa Naidu, Ph.D Principal of Vel Tech

Multi Tech DR. Rangarajan DR. Sakunthala Engineering College.

I would like to extend my Sincere thanks to our head of the department

Dr.V.Bala Subramanian, M.com, M.phil, Ph.D, and to my internal guide

Mrs.Niraimathi, MBA.

I wish to express my gratitude and thanks to Mr. GOUDHAMAN, HR Manager for

giving me this wonderful opportunity to do my project work at TI CYCLES OF

INDIA, AMBATTUR, during my course of studying as student of MBA.

I express my sincere thanks to the TI CYCLES OF INDIA, AMBATTUR,

especially to Mr. Rajaseker, Finance Manager for the co-operation and

information he gave.

Finally I thank my parents and friends whose suggestions & support made my

work easier.

(R.PREMA)

(iii)

ABSTRACT

The project strives to “The study on Receivable Management” prevailing at TI

CYCLES OF INDIA and to provide considerable recommendations for better

Debtors management of the company.

The management function consists of granting credit, billing accounts, effecting

collection, analyzing outstanding accounts (aging), and providing for bad debts.

In this project report the deep study of receivables is done which is the main

constitute of working capital

Various tools has been used like Debtor Turnover ratio, Average collection

period, Bad debts to debtors ratio ,Operating cycle and correlation analysis.

In the FOR sales, goods are transported from factory to godown and from

godown to the ultimate customers. In the EX work customer goods are directly

transported from factory to consumers. In the FOR sales the collection period is

calculated between the days from godown to consumers.

The main aim of this study is to find the reason for their outstanding dues and the

Effectiveness of receivable management in TI CYCLES OF INDIA.

(iv)

LIST OF CONTENTS

Chapter no Title Page no

1 Introduction

1.1 Out line of Project 1

1.1.1 Need for the study 3

1.1.2 Scope of the study 4

1.1.3 Objectives of the study 5

1.1.4 Research Methodology 6

1.1.5 Limitations of study 7

1.1.6 Chapterization 14

1.2 Review of Literature 15

1.2.1 Industry Profile 28

1.2.2 Company Profile 36

1.2.3 Product Profile 45

2 Data Analysis and Interpretation

2.1 Correlation analysis 46

2.2 Aging Schedule 48

2.3 Collection period and Credit policies 49

2.4 Operating Cycle 57

2.5 Percentage of bad debts to Debtor’s 59

3 Summary and Conclusion

3.1 Findings 60

3.2 Suggestions 61

3.3 Conclusion 62

4 Annexure A1

5 Reference A2

LIST OF TABLES

S.NO TITLE PAGE NO

2.1.1 Correlation analysis 46

2.2.1 Aging Schedule 48

2.3.1 Debtor’s turnover ratio 49

2.3.2 Average Collection period 50

2.4.1 Operating Cycle 57

2.5.1 Percentage of Bad debts to Debtor’s 59

LIST OF CHARTS

S.NO TITLE PAGE NO

2.2.1 Aging Schedule 48

2.3.1 Debtor’s turnover ratio 49

2.3.2 Average Collection period 50

2.4.1 Operating Cycle 57

2.5.1 Percentage of Bad debts to Debtor’s 59

CHAPTER-1

INTRODUCTION

1.1 OUTLINE OF THE PROJECT

The project entitled “A study on Receivable Management in TI Cycles of

India, Ambattur”.

The term receivable is defined as “debts owned by the firm by customers arising

from sales of goods or services in the ordinary course of business”.

It is an accounts receivables represent the existsion of open-account credit by

firm to other firms or to individuals.

- Van Horne.

Accounts receivables are the open account credit sales. That is, no formal

acknowledgements of debt liability are taken from the buyers. The Receivables

management is also called as trade credit management. Management of

accounts receivables is nothing but the process of making decisions relating to

the investment of funds in this asset which will result in maximizing of the overall

return of the investment of the firm.

It is to promote sales and profit until that point is reached where the return of the

investment in further funding of receivables is less then the cost of funds raised

to finance that attitudinal cost.

Cost and Benefits:

Cost:

(i) Collection cost: These costs are administrative costs. These are

incurred in collecting the receivables from sundry debtors.

(ii) Capital cost: Increase in accounts receivables leads to an increased

investment in assets. Increased investment is to be financed by some

other sources involving a cost. The firm should arrange for additional

funds to meet its obligations until the customers pay the amount.

(iii) Delinquency cost: Some of the customers may fail to pay in time.

This cost arises due to steps taken to collect the over dues such as,

reminders and other collection efforts, legal charges.

(iv) Default cost: The bad debts associated with credit sales and accounts

receivable is termed as “Default cost”.

Benefits:

Growth in sales:

It is a power full marketing tool to increase sales. If the credit is not extended to

them, then they will seek credit from other concerns. Thus in order to keep the

customers with us and to increase the sales, it is essential to have book debts.

Increase in profits:

Increase in sales leads to increase in profit. By giving trade credits, the firm

has additional sales resulting in additional profit.

Capability to face competition:

If there is a tough competition in the market, it is essential that trade credit is to

be extended. If the credit terms are attractive, a firm can protect its customers

from competitors.

Collections

With businesses looking for improved bottom line performance, better account

receivables management, collections is a key focus area along with timely and

accurate billing for organizations across industries. An effective collections

strategy:

 Increases receivables recovery rates

 Reduces bad debts

 Rationalizes costs through streamlined collections processes

1.1.1 NEED OF THE STUDY

This study helps to find the effectiveness of receivable management and the

outstanding amount in TI Cycles of India, Ambattur.

Basically the company deals in the sales activities by providing on the credit

basis and hundis discount to the already existing customers.

The objective of providing these facilities is to increase sales and to attract the

new customers towards their product.

This study helps to find the relationship between sales and debtors by preparing

correlation analysis.

The company main intension is to increase sales and profit and their by reducing

its outstanding dues.

Overall it helps to find the effectiveness of receivable management in TI Cycles

of India, Ambattur.

1.1.2 SCOPE OF THE STUDY

The study aims at analyze the Receivable Management in TI Cycles of

India, Ambattur.

The study finds out the operational efficiency of organization and suggests

proper utilization and allocation of each resource to improve the efficiency

of the organization.

The study helps in identifying the credit policy and collection period of the

company.

It suggests keeping the level of investment in accounts receivables to the

minimum.

The study helps in maximizing the value of the firm and controls the cost

of trade credit.

1.1.3 OBJECTIVE OF THE STUDY

PRIMARY OBJECTIVES

To study the impact of Receivable management on the profitability in

TI Cycles of India, Ambattur.

SECONDARY OBJECTIVES

To identify the relationship between sales and debtors.

To identify the current outstanding amount of the company.

To identify the credit period and collection policies to debtors.

To identify the time gap between the sales and actual realization in cash.

To identify the bad debts of the company.

1.1.4 RESEARCH METHODOLOGY

The project study mainly focuses on the critical assessment of the Receivable

Management in TI Cycles of India, Ambattur.

Definition of research:

“Research comprises defining and refining problems, formulating hypothesis (or)

suggested solutions, collecting, organizing and evaluating data making

deductions and reaching conclusion and at last carefully testing the conclusions

to determine whether they fit the formulating hypothesis”.

- Clifford woody

Definition of Research design:

“A research design is the arrangement of conditions for collections and analysis

of data in a manner that aims to combine relevance to the research purpose with

economy in procedure” The research is descriptive in design.

Research

It is a search for analysis it is done in a scientific and systematic manner is called

research. We can now define business research as an organized, systematic,

data based, critical objective, scientific inquiry or investigation into a specific

problem, undertaken with the purpose of finding answers or finding answer or

solution to it. In essence, research provides the needed information that guides

managers to make informed decisions to successfully deal with problems. The

information provided could be the result of a careful of a careful analysis of data

gathered firsthand or of data that are already available can be quantitative or

qualitative.

Research Methodology

It is a way to solve the research problem systematically the techniques of

analyzing the data, why the research has been adapted, how research problem

has been adapted are been answered.

Research Design

Research design is purely and simply the frame work or plan for a study that

guides the collection and analysis of data. The function of researcher is to

ensure that requires the data collected an accurate and economically.

Analytical research technique was adopted in the project. Generally analytical

studies are designed to analysis some thing and it collects data for a definite

purpose.

Data Collection

Several ethical issues should be addressed while collecting data. As previously

noted, these pertain to those who sponsor the research, those who collect the

data. And those who offer them. The sponsors should ask for the study to be

done to better the purpose of the organization, and not for any other self-serving

reason. They should respect the confidentiality of the data obtained be the

researcher, and not ask for the individual or group responses to be disclosed to

them, or ask to see the questionnaires. They should have an open mind in

accepting the results and recommendations in the report presented by the

researchers.

Method of Collection

The data for the analysis are collected and gathered from the printed reports of

TI Cycles of India like annual report, Official files and records.

Primary Data

As part of strengthening the study personal contacts are made the officials and

staff members of the finance department in the form of discussion and collection

of reports.

Secondary Data

Secondary data refer to information gathered be someone other than the

researcher conduction the current study. Such data can be internal or external to

organization and accessed through the internet or perusal of recorded or

published information.

The data are collected from the annual report, mainly balance sheet, income and

expenditure and other brochures of the company.

Tools and techniques used

Correlation Analysis

Aging Schedule

Debtors Turnover ratio

Average Collection period

Operating Cycle

Correlation analysis:

Correlation is the study of the degree of relationship between two variables. In

statistical analysis the study of two variables where in the change in the value of

one variable produces a change in the value of the other variable.

∑XY - ∑X * ∑Y

Nr =

√∑X² - (∑X) ² √ ∑Y² - (∑Y) ²

N N

Positive correlation:

Two variables are said to be positively correlated if for an increase in the value of

one variable there is also an increase in the value of the other variable or for a

decrease in the value of one variable there is also an decrease in the value of the

other variable; that is the two variables change in the same direction.

Negative correlation:

Two variables are said to be negatively correlated if for an increase in the value

of one variable there is a decrease in the value of the other variable; that is, the

two variables change in opposite direction.

Ageing statement

It is also commonly used techniques particularly among the small and medium

sized enterprises. Under this method outstanding receivables are grouped

against designated time intervals to find out how much of the receivables are

away from the ‘current’.

This schedule is often required by bankers making loan against receivables or

the factors deciding the acceptability of receivables and also the commission.

When sales of a firm is on the rise the current and recent categories will have

more receivables holding which may not speak anything about the efficiency of

the collection department, through it may make then more complacent.

On the other end, when sales are falling, receivables holding in current and

recent categories will also be falling which once again may not speak anything

about the laxity of the collection department. In both the cases the collection

department might be doing its job extremely well by holding on to or improving

upon the established payment pattern which may not be so reflected under the

ageing statement.

Debtor’s turnover ratio:

Debtor’s turnover ratio is also called as receivable turnover ratio. A business

concern generally adopts different methods of sales. One of them is selling on

credit. When the company extends credits it its customers, book debts are

created in the company’s accounts. Book debts are expected to be converted

into cash over a short period and, therefore are included in current assets.

The liquidity position of the company depends on the quality of debtors to a great

extend. Financial analysis apply debtors turnover to judge the liquidity of debtors.

The customers who purchase on credit are called trade debtors. Debtors and

bills receivable are called “accounts receivable”.

Debtors turnover ratio = Debtors

SalesCredit

Debtors turnover ratio indicates the number of times debtors turnover each year.

Generally, higher the value of debtor’s turnover, the more efficient is the

arrangement of credit.

Debt collection period:

The average collection period measures the quality of debtors because; it

measures the speed of their collection. Shorter the average collection period,

their better quality if debtors as a shorter collection period implies the prompt

payment by debtors.An excessively long collection period implies a very liberal

and inefficient credit and collection performance. This certainly delays the

collection of cash and impairs of the company’s liquidity.

Thus the collection period ratio indicates in two aspects:

1. In determining the collection of debtors

2. In ascertaining the company’s comparative strength and advantage

relative to its credit policy a performance vis-à-vis the competitors credit

policies and performance.

RAW MATERIALS

ACCOUNTS RECEIVABLES

CASH

WORK-IN-PROGRESS

FINISHED GOODS

Debt collection period:

DebtorsCredit sales X 365 days

The objective of this ratio is to measure the liquidity of receivable or obtaining the

average period over which receivables are uncollected.

Operating cycle

The average length of time between when a company purchases items for

inventory and when it receives payment for sale of the items. A long operating

cycle tends to harm profitability by increasing borrowing requirements and

interest expense.

Operating cycle = Inventory holding period + Collection period

Operating cycle of a manufacturing business

 

.

1.1.5 LIMITATIONS OF THE STUDY

The study is based on information from the TI Cycles of India, Ambattur.

The project study is mainly based on information gathered from secondary

data mainly balance sheet and profit & loss a/c.

The duration of the project was short to collect all the information required.

Company has some financial information secrecy regarding its policies,

which was not disclosed at the time of the project.

The study is done only with the last 5 years details.

1.1.6 CHAPTERIATION

The project entitled “A study on Receivable Management in TI Cycles of

India, Ambattur” included three chapters.

The first chapter is about Introduction which includes outline of the

project, need for the study, scope of the study, objectives of the

study, limitations of the study, research methodologies, company

profile, industry profile, product profile.

The second chapter is about Data analysis and interpretations

which includes working capital, funds flow statement and Ratio

analysis.

The third chapter is about Summary and Conclusions which

includes finding suggestions and conclusions.

1.2 REVIEW OF LITERATURE

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.

1. Credit and Collections: When Your Customer Stops Paying

By Sam Thacker

Extending credit is a necessary part of many businesses, and the process often

includes collections. When your business extends credit to other businesses

directly, you become their creditor. Being a creditor is easy, as long as your

customers are paying what they owe you on time. When they stop paying as

agreed, the hard work begins.

When someone owes you money, try not to take it personally. Writing off a small

amount of bad debt every year is inevitable, and understanding this from the start

will make the rest of the process easier. Think of it as similar to having a small

amount of inventory that won’t sell and must be written off.

Before you grant credit, ask your customer to fill out a credit application and

credit agreement. Standard forms are available on AllBusiness.com. If you

eventually have to take legal action to pursue collections, a signed application

and credit agreement will make the process more effective.

If you have customers who are not paying past bills but offer to buy your goods

or services COD, consider taking them up on it. After all, you are in business to

generate profitable sales. Take comfort in knowing you are continuing to earn

profits from the customer.

Weigh the overall amount of bad debt your company has in its accounts

receivable with the total A/R. If the percentage is small, you might simply factor

this loss into your cost of doing business. There is a saying among bankers that if

you have no losses in your loan portfolio, perhaps you aren’t making enough

loans. This doesn’t mean you should loosen your credit standards to the point of

having significant losses, but consider that you may be losing profitable business

by not granting enough credit. Many businesses operate year after year with less

than 3 percent bad-debt write-off. Smart business owners understand they must

consider this when setting prices for products or services.

If a significant number of your customers are not paying, consider using a

collection agency that will report to Dun & Bradstreet or other business credit

reporting agencies. Coface is a global credit insurer that writes credit insurance

policies for small, medium, and large companies. It also has its own collections

group. Depending on your industry, Coface can be very effective in collections

because it will flag your deadbeat account and not allow it to be an eligible credit

insurance debtor. Once customers pay, Coface upgrades their payment records,

which benefits the nonpaying customers as well as your business.

If your company has a small problem and your overall nonpaying accounts are

minimal, ask your attorney to write demand letters to deadbeat accounts,

demanding they fulfill their contractual payment obligations. (This is where your

credit agreement comes in handy.) Litigation is seldom cost-effective for

companies trying to collect, but some use small claims court and represent

themselves. Even if you are successful in getting a court judgment, you still have

to take the judgment and find enough of your customer’s business assets to

make the entire process worthwhile.

In the final analysis, business owners must consider the real costs of chasing a

deadbeat customer as well as the lost productivity from allocating resources to

collecting potentially uncollectable money. Making cool-headed business

decisions is the best way to approach this difficult task. .

Choosing the Best Way to Get Out of Debt

By Sam Thacker

Credit is necessary to have and important to protect. If you are in debt, consider

all your options before deciding whether to use a debt consolidation loan, a credit

counseling service, or other method to help reduce it.

If you are ever up at 3 a.m. watching television, you’ve probably seen ads for

debt consolidation loans. These advertisements target consumers who have

allowed debt from multiple credit cards and other unsecured loans to reach levels

where they cannot meet minimum monthly payments. But for most consumers,

debt consolidation loans don’t make sense.

Debt consolidation loans promise one affordable lower monthly payment instead

of many. In many cases, the interest rates on these loans are higher than those

on a person’s existing loans. Worse, typical consumer debt consolidation loans

allow interest rates to skyrocket if even one payment is missed. With some debt

consolidation loans, application and other fees can drive up the cost.

Don’t confuse debt consolidation loans with reputable consumer services that

help reduce your overall debt by negotiating with your creditors and combining

your monthly payments to affordable levels, while still making significant

reductions in debt principal each month. The National Foundation for Credit

Counseling has a locator that can help you find an accredited agency near you.

Debt restructuring loans for business owners often make sense when owners

have relied on personal credit to finance their business. Startups and other

undercapitalized businesses often bootstrap their business financing with

personal credit cards because of the difficulty in obtaining business credit

directly. Business owners who borrow money via personal credit card should

account for the personal debt they incur for business purposes on the company’s

books. It should be shown as a liability on the company’s balance sheet until

repaid. Customarily it is shown on the balance sheet as a loan from a

shareholder, even though the shareholder used a personal credit card to incur

the business debt.

At some point in a business’s life cycle, it will probably be able to obtain credit.

Even nontraditional forms of financing, such as borrowing against a company’s

accounts receivable using factoring, might make sense. Another option if a

business has equipment or real estate assets with available equity is to refinance

those business assets and use some of the loan proceeds to repay the business-

owner part of the personal debt that was incurred for business purposes. Paying

off the owner’s personal credit card loans will put him or her in a much better

position to obtain future personal and business credit and will reduce some of the

owner’s personal financial risk. The balance of the cash obtained in the loan

would serve as permanent working capital, thus making it unlikely that the

business owner would need to use personal credit cards to continue to finance

the business.

Sam Thacker is a partner in Austin, Texas-based Business Finance Solutions.

The Best Ways to Prevent Overdue Accounts

The best way to prevent overdue accounts is to avoid doing business with

customers who have bad credit histories.

"If it were only that simple," you say. If you limited yourself to doing business with

companies with a spotless credit record, your pool of potential customers would

be quite small. And unfortunately, as a growing business, you often have no

choice but to do business with anyone who wants to do business with you. Even

then, you don´t always have complete control of the terms of your sales

agreements. The reality is that your biggest and best clients want to be billed

quarterly and then have 60 days to pay you. And you certainly don´t want to cut

off those clients.

While you don´t want to destroy any potential or established business

relationships by laying down harsh payment terms, you must take some control

of your account receivables to avoid wreaking havoc with your cash flow. You´re

not a bank, after all.

These five steps can help your cash flow without endangering it.

1. Watch for new customers with a bad credit history. You can´t expect that a

company or a person with a history of bouncing checks or paying their bills late

will change their ways when dealing with you. If you must do business with the

chronically late, lay down your credit rules early and firmly and start the

relationship off slowly. Keep the amount of product or services you offer a

company with an iffy credit record to a minimum until they´ve proven themselves

worthy. And no matter how much you need the business, never start doing

business with another person or company until you have a signed contract

clearly stating and agreeing to payment terms.

2. Once you begin doing business with someone, make sure you stamp

your invoices with the date that payment is due to you. Don´t rely on the

customer to look at the invoice date and add 30 days -- or whatever your

payment terms are -- to determine the pay date.

3. Offer discounts for early payment and add interest to late payments. A

typical discount is two percent to three percent off the total if the bill is paid within

10 days of the invoice date. The maximum amount of interest that can be

charged varies by state.

4. Phone customers and start trying to collect the day after a payment is

due. Never wait -- let them know that you keep close track of your accounts

receivable.

5. Until a customer pays their bills, don´t do any more business with them.

Do not bend on this rule -- you´ll only cause yourself more problems and scuttle

any chance of collecting what you´re owed. If you really want to keep doing

business with a customer who owes you, insist that any new products or services

they receive from you are c.o.d. -- cash on delivery.

http://www.allbusiness.com/accounting-reporting/accounts-receivable/2976225-

1.html

2.Optimize Your Accounts Receivable

By Michael F. Hornung

An investment in accounts receivable is a necessity for most companies to do

business. However, too much receivables or too little can be unhealthy. An

abnormally low level can be the result of over ambitious collection efforts or a

credit policy that is too tight. These conditions can result in lost sales. An

excessive receivables level can be the result of a credit policy that is too loose or

inadequate collection efforts.  These situations can result in increased bad debt

and higher costs. You want to be at your optimum receivables level.

The key measurements used to determine a company’s receivable position are

the ‘Receivable Turnover Rate’ and ‘Days Receivable’. These ratios help you

monitor your credit policies and collection performance. There are two ways of

calculating these ratios. The method you will utilize will depend on what you are

going to use it for.

  Receivables Turnover Rate:

External Receivables Turnover Rate = Total Sales / Accounts Receivable

For external comparisons you will divide your ‘Total Sales’ by your ‘Receivables’.

Compare your value to industry standards for your business such as those

contained in: the “Annual Statement Studies” by the Risk Management

Association; “Industry Norms and Key Business Ratios” by Dun & Bradstreet; or

those published by your trade association. You can determine where you stand

relative to your industry and see if you need to take any actions.

Internal Receivables Turnover Rate = Credit Sales / Accounts Receivable

For internal evaluations, divide your ‘Credit Sales’ by your ‘Receivables’. This is

your true turnover rate. Compare this to your historical past or to a budget. This

internal ratio is also used in deriving other measurements to assess a company’s

financial and operational performance.

Days Receivable (Collection Period):

Days Receivable (Collection Period) = 365 / AR Turnover Rate

The internal value is the average time it takes you to collect your money. Any

collection period more than 1/3 over normal selling terms is considered slow.

Actions you can take to improve your position:

Compare your values watching for discrepancies or undesirable trends.

Increase your collection effort. If you offer terms of net 30, call your customers

when their accounts reach 32 -35 days. Do not wait until the end of the month or

45 days.

Tighten or loosen your credit policy if needed.

Change the credit terms you offer your customers. If you offer terms of net 45,

reduce it to net 30. You might offer a discount of 1% if paid within 10 days else

net due in 30 days. This is equivalent to 18 % annual interest and most

businesses will take those terms.

Shorten your invoice process.  Bill your customers as soon as possible. Do not

wait until the end of the month. Invoice them at the time of shipment. This could

reduce your day’s receivable by as much as 15 days. Email or fax your invoices

saving another day or two. Most new accounting software systems contain this

feature. Post the payments you receive and make deposits more frequently.

Place an emphasis on reducing billing errors.  Most customers delay payments

when an invoice has errors and do not recognize the invoice until it is corrected. I

have seen one case where the customer did not notify the vendor of the error

until the vendor called for collection.

Finally, train your credit and collections personnel.

How to use these ratios to improve your performance:

You can determine how much Accounts Receivable you should have.

Recommended Receivables Level = Total Sales / External Published Turnover

Rate

You can also determine the level of receivables required to support a specific

sales volume.

Receivables Investment = (Desired Level of Sales * % credit sales)

                                       Internal Turnover Rate

You can use this formula to determine the additional amount of monies you will

need to invest in receivables when contemplating an increase in sales. This

information is very helpful when trying to establish next year’s budget and cash

flow.

http://www.hornungllc.com/optimizear.htm

Billing and Collections

With businesses looking for improved bottom line performance, better account

receivables management, collections is a key focus area along with timely and

accurate billing for organizations across industries. An effective collections

strategy:

 Increases receivables recovery rates

 Reduces bad debts

 Rationalizes costs through streamlined collections processes

First source is a leading global provider of collections and recovery solutions.

First source’s Collections practice was formerly Account Solutions Group (ASG).

First source has over a decade of experience, a team of over 1400 collection

agents across two continents and a broad range of proven services. First source

solutions are designed to maximize collections and minimize write-offs.

First source offers customized end to end collections management solutions

First source Collections Approach

First source has leveraged best in class training and technology while adhering

to regulatory requirements. This helps to deliver results that exceed our clients

expectations. We offer solutions that reduce costs, increase profitability and

dramatically increase the receivables recovered. First source accounts

receivables collections practice provides:

 Strict adherence to legal and regulatory issues involving third party

collections  and debt recovery

 Increased response rate from delinquent customers

 Increased inflow of payments helped by a multi-channeled collections 

strategy

 Mitigating write-offs by efficient accounts receivables management

 A broad range of payment recovery, first party and third party collections

solutions

 A strong focus on delivery with a highly qualified operations team

Collections Approach

First source has demonstrated expertise in anchoring billing and collection

processes for Fortune 100 clients. 

Our Collections practice features:

Focus on performance and compliance to deliver exceptional results that

positively impact client bottom lines

Expertise across diverse businesses, customers and products including

Banking and Financial Services, Telecommunications and Media and

Healthcare

Over 1400 collection agents, well versed with regulatory requirements,

trained to handle calls for early and late stage collections

Collection agents supported by a qualified operations leadership and

process excellence teams

First source’s strategies to drive collections results include:

Initial data scrub and scoring

Multi-channeled telephony

Customizable collections letters

Skip tracing

Post-Charge Off Collections

Our strategy ensures First source contacts and collects from the highest

percentage of customers, translating to the greatest return and highest value for

our clients.

Pre-Charge Off Collections

First source’s pre-charge off programs assist our clients in minimizing write-offs.

Our programs can be implemented in a first party or third party model and help

our clients proactively manage their delinquent portfolios.

Early Stage Delinquency Calls

Although most organizations realize the importance of contacting customers

early in the delinquency cycle, not all have the resources necessary to sustain

consistent and cost-effective collection treatment. First source provides a

customized customer service approach to contacting customers and mitigating

the threat of a write-off.

Our pre-charge off and post-charge off programs deliver benefits to clients

including:

Increased response rates from delinquent customers

Increased payments as a result of our multi-channeled collection strategy

Demonstrated ability to set-up extended payment plans, therefore

mitigating write-offs

Maximizing economic performance through reduced costs and write-offs

1.2.1 INDUSTRY PROFILE

The Bicycle Industry or Cycling Industry can broadly be defined as the

industry concerned with bicycles and cycling. It includes at least bicycle

manufacturers, part or component manufacturers, and accessory manufacturers.

It can also include distributors, retailers, bicycle organizations, bicycle event

promoters, and bicycle related service providers.

In the USA, it generated $6 billion of revenue in 2005.

 The most likely originator of the bicycle in German Baron Karl Von Drais, who

rode his tenants. He patented his draisine, a number of which still exist, including

one of the paleis let too museum in Apeldoorn, the Netherlands. These were

pushbikes, powered by the action of the rider’s feet pushing against the ground.

 

Scottish blacksmith Kirkpatrick Mac Million shakes creative credit with von drais

for adding a treadle drive mechanism, in 1840, that enabled the rider to lift his

feet off the ground while driving the rear wheel. However, some reports describe

Macmillan’s vehicle as more of a “quadricycle”.

 

In the 1850s and 1860s, Frenchman Ernest Michaux and his pupil Pierre

lallement took bicycle design in a different direction, placing pedals on an

enlarged front wheel. There creation, which came to be called the “Boneshaker”,

featured a heavy steel fame on which they mounted wooden wheels with iron

tires. Lallement emigrated to America, where he recorded a patent on his bicycle

in 1866 in new haven, Connecticut.

Multiple innovators contributed to the history of the bicycle by developing

precursor human-powered vehicles. The documented ancestors of today's

modern bicycle were known as push bikes (still called push bikes outside of

North America), draisines, or hobby horses. Being the first human means of

transport to make use of the two-wheeler principle, the draisine (or mistmashine,

"running machine"), invented by the German Baron Karl von Drais, is regarded

as the archetype of the bicycle. It was introduced by Drais to the public in

Mannheim in summer 1817 and in Paris in 1818.[3] Its rider sat astride a wooden

frame supported by two in-line wheels and pushed the

vehicle along with his/her feet while steering the front wheel.

A penny-farthing or ordinary bicycle photographed in the

Škoda Auto museum in the Czech Republic

In the early 1860s, Frenchmen Pierre Michaux and Pierre Lallement took bicycle

design in a new direction by adding a mechanical crank drive with pedals on an

enlarged front wheel. Another French inventor by the name of Douglas Grasso

had a failed prototype of Pierre Lallement's bicycle several years earlier. Several

why-not-the-rear-wheel inventions followed, the best known being the rod-driven

velocipede by Scotsman Thomas McCall in 1869. The French creation, made of

iron and wood, developed into the "penny-farthing" (more formally an "ordinary

bicycle", a retronym, since there were then no other kind).[4] It featured a tubular

steel frame on which were mounted wire spoked wheels with solid rubber tires.

These bicycles were difficult to ride due to their very high seat and poor weight

distribution.

Bicycle in Plymouth, England at the start of the 20th century

The dwarf ordinary addressed some of these faults by

reducing the front wheel diameter and setting the seat

further back. This necessitated the addition of gearing,

effected in a variety of ways, to attain sufficient speed. Having to both pedal and

steer via the front wheel remained a problem. J. K. Starley, J. H. Lawson, and

Shergold solved this problem by introducing the chain drive (originated by Henry

Lawson's unsuccessful "bicyclette"),[5] connecting the frame-mounted pedals to

the rear wheel. These models were known as dwarf safeties, or safety bicycles,

for their lower seat height and better weight distribution. Starley's 1885 Rover is

usually described as the first recognizably modern bicycle. Soon, the seat tube

was added, creating the double-triangle diamond frame of the modern bike.

In daily life

A commuting bike in AmsterdamAround the turn of the 20th

century, bicycles reduced crowding in inner-city tenements by

allowing workers to commute from more spacious dwellings in

the suburbs. They also reduced dependence on horses.

Bicycles allowed people to travel for leisure into the country, since bicycles were

three times as energy efficient as walking and three to four times as fast.

A bike-sharing station in Barcelona

Recently, several European cities have implemented successful schemes known

as community bicycle programs or bike-sharing. These initiatives complement a

city's public transport system and offer an alternative to motorized traffic to help

reduce congestion and pollution. Users take a bicycle at a parking station, use it

for a limited amount of time, and then return it to the same or different station.

Examples include Bicing in Barcelona, Vélo'v in Lyon and Vélib' in Paris.

A man uses a bicycle to cargo goods in Ouagadougou,

Burkina Faso.In cities where the bicycle is not an integral part

of the planned transportation system, commuters often use

bicycles as elements of a mixed-mode commute, where the bike is used to travel

to and from train stations or other forms of rapid transit. Folding bicycles are

useful in these scenarios, as they are less cumbersome when carried aboard.

The 20th Century

Cycling steadily became more important in Europe over the first half of the

twentieth century, but it dropped off dramatically in the United States between

1900 and 1910. Automobiles became the preferred means of transportation.

Over the 1920s, bicycles gradually became considered children's toys, and by

1940 most bicycles in the United States were made for children. In Europe

cycling remained an adult activity, and bicycle racing, commuting, and

"cyclotouring" were all popular activities. In addition, specialist bicycles for

children appeared before 1916.[30]

Bicycles continued to evolve to suit the varied needs of riders. The derailleur

developed in France between 1900 and 1910 among cyclotourists, and was

improved over time. Interestingly, only in the 1930s did European racing

organizations allow racers to use derailleurs; until then they were forced to use a

two-speed bicycle. The rear wheel had a cog on either side of the hub. To

change gears, the rider had to stop, remove the wheel, flip it around, and

remount the wheel. When racers were allowed to use derailleurs, racing times

immediately dropped. See bicycle gearing.

At mid-century there were two predominant bicycle styles for recreational cyclists

in North America. Heavyweight cruiser bicycles, preferred by the typical (hobby)

cyclist, featuring balloon tires, pedal-driven "coaster" brakes and only one gear,

were popular for their durability, comfort, streamline appearance, and a

significant array of accessories (lights, bells, springer forks, speedometers, etc.).

Lighter cycles, with hand brakes, thinner tires, and a three-speed hub gearing

system, often imported from England, first became popular in the United States

in the late 1950s. These comfortable, practical bicycles usually offered generator-

powered headlamps, safety reflectors, kickstands, and frame-mounted tire

pumps. In the United Kingdom, like the rest of Europe, cycling was seen as less

of a hobby, and lightweight but durable bikes had been preferred for decades.

In the early 1980s, Swedish company Itera invented a new type of bicycle, made

entirely of plastic. It was a commercial failure.

Recumbent BicycleMain article: Recumbent bicycle

2008 Nazca Fuego short wheelbase recumbent with 20" front wheel and 26" rear

wheel.

In 1934, the development of the bicycle was truncated by the UCI's banning of

the recumbent bicycle from all forms of racing. This stemmed from discomfort at

Francis Faure, a mere category 2 racer, humiliating many class 1 racers while

riding Mochet's Velocar. The clear superiority of this frame geometry for level

races made upright bicycle manufacturers (the sponsors of the UCI)

uncomfortable, who lobbied for a ban. This motion was passed after a long and

heated meeting, and by only a handful of votes in a near split decision. This

resulted in the stagnation of the upright racing bike's frame geometry which has

remained essentially unchanged for 70 years. This stagnation finally started to

reverse with the formation of the International Human Powered Vehicle

Association which holds races for "banned" classes of bicycle. One such vehicle

currently holds the human powered speed record of 82mph on level ground.

Mountain bikes

Main article: History of the mountain bike

In 1981, the first mass-produced mountain bikes appeared, intended for use off-

pavement over a variety of surfaces. The mountain bike was an immediate

success, and mountain bikes flew off retailers' shelves during the 1980s, their

popularity spurred by the novelty of all-terrain cycling and the increasing desire of

urban dwellers to escape their surroundings via mountain biking and other

extreme sports. These cycles featured sturdier frames, wider tires with large

knobs for increased traction, a more upright seating position (to allow better

visibility and shifting of body weight), and increasingly, various front and rear

suspension designs. By 2000, mountain bike sales had far outstripped that of

racing, sport/racer, and touring bicycles.[citation needed]

The 2005 Giant Innova is an example of a typical 700C hybrid bicycle. It has 27

speeds, front fork and seat suspension, an adjustable stem and disc brakes for

wet-weather riding.

Hybrid bikes

In recent years, bicycle designs have trended towards increased specialization,

as sales of bicycles to casual cyclists and commuters have grown. For the latter

group, the industry responded with the hybrid bicycle, otherwise known as the

city bike, cross bike, or commuter. These designs often combine elements of

road racing and mountain bikes, using mid-level components. The term is used

flexibly, with bikes ranging from fast and light racing-type bicycles with flat bars

and other minimal concessions to casual use, to wider-tired bikes designed for

primarily for comfort, load-carrying, and increased versatility over a range of

different road surfaces.

While historically most bike frames have been steel, recent designs, particularly

of high-end racing bikes, have made extensive use of carbon and aluminum

frames.

Recent years have also seen a resurgence of interest in balloon tire cruiser

bicycles for their low-tech comfort, reliability, and style.

In addition to influences derived from the evolution of American bicycling trends,

European, Asian, and African cyclists have also continued to use traditional

roadster bicycles, as their rugged design, enclosed chainguards, and dependable

hub gearing make them ideal for commuting and utility cycling duty.

1.2.2 COMPANY PROFILE

MURUGAPPA GROUP

 The Murugappa Group, headquartered in Chennai, India, is a Rs 9,582 crore

(USD 2.4 billion) conglomerate with interests in engineering, abrasives, finance,

general insurance, fertilisers, farm inputs, sugar, bio-products, nutraceuticals,

cycles and plantations. It has 29 limited companies under its umbrella, with

manufacturing facilities spread across 13 states in India. Together, they have

over 30,000 employees. The Group, which has forged strong joint venture

alliances with leading international companies like DBS Bank, Mitsui Sumitomo,

Cargill, China Engineering & Expoloration Bureau and Groupe Chimique

Tunisien, has consolidated its status as one of the fastest growing diversified

business houses in India.

The business has its origins in 1900, when Dewan Bahadur A M Murugappa

Chettiar established a money-lending and banking business in Burma (now

Myanmar), which then spread to Malaysia, Sri Lanka, Indonesia and Vietnam. In

these 100-plus years, it has withstood enormous vicissitudes, including

strategically moving its assets back to India and restarting from scratch in the

'30s, before the Japanese invasion of Burma in World War II.

Starting with a sandpaper plant, the Group forayed into making steel safes, and

then into manufacturing. It set up an insurance company, and bought a rubber

plantation; making a small but significant beginning. The rest is history.

Today, it is one of the country's biggest industrial houses. Group turnover

crossed the USD 1 billion mark in 2003-04, with an impressive growth of 25 per

cent over Rs 4,206 crore in 2002-03, and a 40 per cent jump in profit before tax

over the previous year. Consolidated Group turnover for 2004-05 crossed USD

1.44 billion, a growth of 20 per cent over the previous year. In 2005-06, combined

turnover increased by 17 per cent to USD 1630 million (Rs 7,340 crore) and net

profit (PBT) by 45 per cent to USD 177 million (Rs 800 crore). The Group ended

the year 2006-07 with a turnover of Rs 8,446 crore, and profit before tax of Rs

649 crore. The year 2007-08 saw a turn over of Rs USD 2.4 billion(Rs 9,852

crore) and has the Group well on its way to achieving its vision of becoming a

USD 4 billion conglomerate by 2010.

The group companies are:

Tube Investment of India Ltd,

Cholamandalam Investment & Finance Co Ltd,

Carborundum Universal Ltd,

Coromandel Fertilisers Ltd,

EID Parry (India) Ltd,

Parry agro Industries Ltd and Parry Confectionery Ltd.

Values and beliefs:

The Five Lights

The values, principles and beliefs that have always guided us and continue to

show the way forward.

Integrity,

Passion,

Quality,

Respect,

Responsibility.

The Murugappa group turnover grows by over 15 per cent; EBIDTA grows

by over 17 per cent

The Murugappa group ended the year 2007-08 with a group turnover of Rs. 9582

crores and EBIDTA of Rs. 1075 crores. Over the previous year, Sales grew by

15.5 per cent and the EBIDTA grew by 17.4 per cent. The Group maintained its

pace of investment with a capital expenditure to the tune of about Rs. 580 crores

during 2007-08. The investment phase will continue in the year 2008-09 also to

support this growth momentum.

Summary of Gross Sales and Profitability (EBIDTA) is presented below:

Rs. Crores

Group CompaniesGross Sales

Growth over Last

YearEBIDTA

Growth over Last

Year

Carborundum Universal Ltd (CUMI)

986 43% 16223%

Chola DBS Finance Ltd. (CDFL) 946 116% 9784%

Coromandel Fertilisers Ltd. (CFL) 3800 -3% 45636%

EID Parry 681 14% 19-79%

Parryware ROCA Pvt. Ltd (PRPL) 372 24% 415%

Tube Investment of India Ltd (TII) 1933 9% 146-22%

Others 864 44% 15491%

Total9582 15.5% 1075 17.4%

Board of Directors:

M A. Alagappan Executive ChairmanA. Vellayan Vice Chairman

M M. MurugappanDirector – Technology of the Murugappa corporate board

N. SrinivasanDirector – Finance of the

Murugappa corporate board

Sridhar GaneshDirector – Human Resource of

the Murugappa corporate board

Tube Investment of India Limited

Tube Investments of India Ltd is part of the USD 2 billion Murugappa Group.

Over the past five decades, the company has honed its competencies in the field

of metallurgy, engineering, design and development. It has four divisions , they

are:

TI Cycles,

Tube Products of India (TPI),

TIDC India and

TI Metal Forming.

Tube Products of India (TPI)

TPI is India's undisputed market leader in cold drawn welded (CDW) steel tubes.

Set up in 1955, the company produces precision steel tubes, CR strips and high

strength tubular components that cater to the demanding needs of the

automobile, general engineering, boiler, white goods and fine blanking industries.

A TS16949 and ISO 14001 certified company, TPI is the preferred supplier of

precision welded tubes to major automotive companies in India and abroad.

The International Business Division (IBD) was formed to focus on international

markets, gearing TPI to compete with global tube manufacturers. The most

recent addition to TPI is the Tubular Components Division (TCD), which

manufactures tubular auto components, providing the advantage of weight

reduction, higher component efficiency and cost reduction.

TIDC India

TIDC is one of India's leading manufacturers of power transmission chains for the

industrial, automotive and agricultural segments. The company was established

in 1960 and today is the undisputed market leader in both the industrial and

automotive chains.

The company made a foray into fine blanking in line with its vision of becoming a

prominent global player in power transmission components, and is now a major

supplier of FB components to the automotive industry. Currently, about 45 per

cent of the company's turnover is from exports and this is an indication of its

growing global presence.

TIDC exports chains under the brand name 'Rombo'. Its chains have gained

recognition in Europe, the US, Japan, South America and Asian markets for high

quality and reliability. Over 50 per cent of the chains exported are for special

applications. In the domestic market the 'Diamond' brand chains cater to a range

of two wheelers and industrial OEMs. TIDC also services the after-market with

kits and chains through a well-established distribution network and warehouses.

A new plant has been set up in Uttarkhand to cater to the North Indian market.

TI Metal Forming

Pioneers in cold roll forming, TIMF manufactures precision value-added sheet

metal components like car door frames, sashes, divisional channels, stainless

steel rails, chassis long members, deep drawn parts, hydroformed parts, CRF

sections for the Indian Railways, etc.

Established in 1965 as a division of Tube Investments, TIMF's key target

customers are auto OEMs, Indian railway wagon builders, tier 1 auto

components manufacturers, etc.

TI Cycles of India

TI Cycles of India, one of the leading bicycle manufacturers in India, started in

1949, has been at the forefront of innovations and is a pioneer in the market of

cycles. TI cycles are the makers of country’s most famous brands like Hercules,

BSA cycles. The company’s vision is to be a worldwide leader in cycling and

cycling solutions by “instilling the pride of ownership in the customers”. 

Currently it is the third largest cycle manufacturer in India and number one

manufacturer in special segments like Mountain bikes, Sports Lite Roadsters,

Racing bikes etc. It has manufacturing capacity of around three million bicycles

per year.

The company is a market leader in the value-added special segment, with a 50

percent market share. At present, TI has thirteen BSA GO stores across India.

TI Cycles India Ltd (TCIL) will soon launch a new bicycle, targeted at the urban

adults, in the 24-30 age group.

The new launch would be in the BSA range and would hit the market by next

month. The bicycle would be priced at around Rs 2,700 and would be available in

the ladies and men’s range.

Brands: 

-

The flag ship brand of TI cycles portfolio, this brand of ours is still as young as

ever. Hercules stands for a unique pride of possession - anchored in the time-

tested values of heroism and integrity, to which the brand’s customers subscribe

in their own lives. 

-

Another Flagship Brand of TI cycles, BSA stands for Birmingham Small Arms. It

signifies the joy of cycling; fun and comfort go hand in hand with BSA. BSA today

is an intrinsic part of the Indian family with cycles for everyone - kids, teens and

adults.

Certificates

ISO 9001:2000

ISO14001-2004 

OHSAS18001-2007

Manufacturing Locations

Chennai

Nashik

Noida

TI Cycles is an exporter to many regions across the global - Europe, South East Asia

and Africa; being some of them. They Export to

France

Netherlands

The UK

Germany

Kenya

Tanzania

Uganda

UAE

Mozambique

Srilanka

Bangladesh

 FINANCE DEPARMENT- STRUCTURE

DGM-FINANCE

Manager(Mgt alc)

Manager

DeputyManagerCosting

DeputyManagerMIS

ExecutivesPayables

ExclusivesReceivables

Plant/RegionalAcco unity

1.2.3 PRODUCT PROFILE

TI cycles is one of the largest integrated cycle manufacture in Asia, Manufactures

high quality bicycles for both domestic and international market. TICI

manufactures and markets the HERCULES and BSA brands.

 

Infants

Baby Stroller

Tricycle

Baby Walker

Kids

Champ shox 20

Champ Girlz 20''

Champ Dew 10"

Champ Star 12'

Champ Magic 16"

Champ Toonz 18'

Rocket 20''

Champ Frendz 20"

Boys

Arrow 24'

Apex 24''

Blazer IC 26''

AXN DX Jr

Ryders ACT 104

Thriller Plus

Foldman

Thriller

Girls

Ladybird Splash

Ladybird Ex

Ladybird Shine

Diana

Captain Shakti

Popular

Adults

Ryders ACT 105

Ryders ACT 106

Ryders ACT 107

Ryders ACT 108

New Hercules

BSA Deluxe

BSA Supreme

Supreme Ladies

Accessories

Red pump

Orange pump

Yellow pump

Silver pump

Helmets

Cable lock

Bells

Safety Pads

Grips

Fitness

Leg Magic- HB 7018B

Stepper- HB 6388

Treadmill 8625 C

 Dolphin- V4

CHAPTER - 2

DATA ANALYSIS AND INTERPRETATION

2.1 CORRELATION ANALYSIS

2.1.1 TABLE SHOWING CORRELATION BETWEEN SALES & DEBTORS

(RS. in Crores)

YEAR SALES(X) DEBTORS(Y)

2003-2004 1257 264

2004-2005 1563 296

2005-2006 1584 210

2006-2007 1759 281

2007-2008 1925 300

X Y X2 Y2 XY

1257 264 1580049 69696 331848

1563 296 2442969 87616 462648

1584 210 2509056 44100 332640

1759 281 3094081 78961 494279

1925 300 3705625 90000 577500

8088 1351 13331780 370373 2198915

∑XY = 2198915,

∑X = 8088,

∑Y = 1351,

∑X2= 13331780,

∑Y2= 370373,

∑XY - ∑X * ∑Y

Nr =

√∑X² - (∑X) ² √ ∑Y² - (∑Y) ²

N N

2198915 - (8088*1351)

5

r =

√13331780-(8088)2 √370373-(1351)2

5 5

2198915 – 2185377.6 13537.4 r= = √248631.2 * √5332.8 498.6 * 73.02

13537.4 r = 36407.7

r = 0.37.

INFERENCE:

The above calculation reveals that sales and debtors are positively related. It

indicate that when the sales increase, the debtor also increase and vice-versa.

2.2 AGING SCHEDULE

2.2.1 TABLE SHOWING THE OUTSTANDING AMOUNT FOR THE YEAR 2007-2008

OUTSTANDING PERIOD

(in days)

OUTSTANDING

AMOUNT

PERCENTAGE OF

OUTSTANDING AMOUNT

0-30 1230.00 88.17

31-60 151.67 10.87

61-90 9.42 0.68

91-120 1.16 0.08

121-150 0.62 0.04

151-180 0.39 0.03

ABOVE 181 1.73 0.13

TOTAL 1394.99 100

Outstanding amount

Percentage of outstanding amount = X100

Total outstanding amount

2.2.1 CHART SHOWING THE OUTSTANDING AMOUNT FOR THE

YEAR 2007-2008

INFERENCE:

The above statement shows the ageing statement of the year 2007 – 2008. The

outstanding amount is 88.17% in 0 – 30 days & it has been decreased to 10.87%

in 31-60 days, which implies that customers need minimum 60 days of credit

period to repay their debts.

2.3 COLLECTION PERIOD AND CREDIT POLICIES

DEBTORS TURNOVER RATIO

2.3.1 TABLE SHOWING DEBTORS TURNOVER RATIO (RS. in Crores)

YEAR CREDIT SALES DEBTORS

DEBTORS TURNOVER

RATIO( in times)

2003-2004 1257 264 4.76

2004-2005 1563 296 5.28

2005-2006 1584 210 7.54

2006-2007 1759 281 6.25

2007-2008 1925 300 6.41

2.3.1 CHART SHOWING DEBTORS TURNOVER RATIO

INFERENCE:

The above table shows that the Debtor’s Turnover Ratio has been increased.

Since, sales values has been increased as well as the debtor’s values were also

been increased. In the year 2003 – 2004 debtors’ turnover ratio is 4.76 & it has

been increased to 6.41 in the year 2007 – 2008. Generally higher the value of

debtor’s turnover the more efficient is the management of debtors.

AVERAGE COLLECTION PERIOD

2.3.2 TABLE SHOWING AVERAGE COLLECTION PERIOD (RS. in Crores)

YEAR DEBTORS CREDIT SALES

AVERAGE

COLLECTION PERIOD

( in days)

2003-2004 264 1257 76.6

2004-2005 296 1563 69.1

2005-2006 210 1584 48.3

2006-2007 281 1759 58.3

2007-2008 300 1925 56.8

2.3.2 CHART SHOWING AVERAGE COLLECTION PERIOD

INFERENCE:

The above table and chart shows that the debt collection period has reduced in

the consecutive years, as the credit collection is done faster. Also it is noted that

the debt collection period is get minimized after 2004 continuously, thus the

company is reviewing its credit policy every year to collect the debts with in

stipulated time period.

2.3.3 CREDIT POLICY

Credit policies and procedures that focus upon development of an optimal level

of sales:

a. New customer policy and procedures:

1. A credit application with each request

2. Procedures that outline expected turnaround time for making a credit decision

on new accounts

3. Procedures that outline the specific mode for communicating the request for

credit and the credit decision

4. Responsibility for establishing and keeping current credit department files

(includes nature of contents to be included in file)

5. A policy for authorizing and communicating credit limits

b. Policies and procedures that relate to terms of sale:

1. Terms established by industry; clear communication internally and to

customers

2. A discount chargeback policy; procedures for follow-up consistently applied

and monitored

3. A late payment service charge policy; procedures for follow-up consistently

applied and monitored

4. A policy for requests for extended term arrangements; necessary approvals

clearly specified

5. A blanket approval policy (Small orders below specified amounts are either

cash or automatically approved)

C. Policy and procedures that govern credit investigations:

1. A sign-off policy for responsibility of the control of the account developed by

the size of the account

2. Use of credit-reporting agencies clarified by the requirements for types of

reports to be utilized

3. A policy and procedure that outlines obtaining bank references detailing the

type of information needed

4. A policy and procedure that outlines obtaining trade references with details of

information needed

5. Financial statement requests from customers and procedures for the analysis

of statements with key focal points.

STEPS IN CREDIT POLICY:

1. Before providing credit to a new client, consider sourcing credit reports or

checks to investigation their credit rating. This is prudent if they are

applying for a large amount of credit and should help to prevent any

problems later on.

2. The Credit application document should include a request for information

such as middle name, date of birth, home address, telephone no and

mobile and also a secondary contact with their telephone and address.

3. Seriously consider implementing a directors or personal guarantee

document for the client to sign at the outset. This can act as a filter to

deter bad payers and can greatly improve the chances of recovering the

debt if further action is necessary.

4. Clearly explaining the terms of trade at the start of the relationship.

Display it on all invoices and avoid changing the rules- never give debtors

an excuse not to pay.

5. The monthly client statements to show: current| overdue| pay now|. If

offered traditional: current| 30 dys|60 dys|90 days| then this system tells

clients that payment in three months time is acceptable.

6. Monitoring the receivables on a regular basis, Rank debtors according to

value and risk.

7. Reviewing any reports that indicate a change in buying habits or client

spend. A change in volume could be an indication that other suppliers are

revoking credit.

8. Asking the sales team to report directly on any information they may pick

up in the field about a client.

9. Deducting bad debts from the figures of your sales reps. Structure it such

that not pay commission or bonuses when the client doesn’t pay . This will

improve the quality of new clients.

10.Be sure to keep the system simple and paperwork orderly. Retain signs

delivery dockets to avoid potential misunderstandings or disputes.

11. If an account goes beyond the trade terms, telephone the client and ask

for payment. At this stage reminder should be polite and inoffensive.

12. If a client requests extended credit this should be interpreted as a red flag.

Probe thoroughly and make a decision based on their particular situation

and the cash flow requirements.

13. If the account remains unpaid, stop supply to that client immediately.

Implement this procedure as standard.

14.Advise the client through telephone. Try to uncover the nature of

the problem or dispute and work towards an arrangement that suits

both parties.

Collection Process:

The department is responsible for performing collection activity. Form letters

and/or statements may be supplemented with telephone collection calls. Sales

personnel will be advised of particular problems. In some cases, credit personnel

will visit customers. If appropriate payment arrangements cannot be made, the

credit department may with hold further sales.

The Credit Department determines if an account is not collectable by the above

means. Uncollectable accounts usually include bankruptcies (Bankruptcy is a

legally declared inability or impairment of ability of an individual or organization to

pay its creditors. Creditors may file a bankruptcy petition against a debtor ),

assignments to creditors, and customers that do not respond to our normal

collection activities. In such cases, the accounts will be referred to collection

agencies.

An alternative company might rely solely on telephone contacts.

All customers will be called when their payment date is over. At least three calls

will be initiated. If no payments are received, the sales representative will be

asked to contact the customer. If there is still no response, the Controller of our

firm will decide if an account should be sent to their collection agencies.

Or a different approach may leave collection responsibility with the sales force:

The Credit Department monitors all collection for the company. The department

provides Sales representatives with a weekly list of customers who dint pay the

amount. The Sales Representative makes customer contacts and advises of

results. If delinquency still exists after an additional days, orders are with held.

The Credit Department will then supplement these calls with final collection

letters or statements. If payments are still not received after an additional days,

the Credit Department will determine if referral to an agency is warranted.

Credit Period:

The Customers are given 30 days of credit time, if they exceed 30 days, then

further sales will he help up till they repay their due amount.

Credit Discount period:

No.of.Days Percentage of Discount

1-7 1.5%

8-15 1%

16-25 0.5%

Collection of amount is done through:

Real Time Gross Settlement (RTGS)

This system is a funds transfer mechanism where transfer of money takes place

from one bank to another on a “real time” and on “gross” basis. This is the fastest

possible money transfer system through the banking channel.

RTGS transaction:

The RTGS system is primarily for large value transactions.

The minimum amount to be remitted through RTGS is Rs.1 lakh

TERMS AND CONDITIONS DURING SALES:

1. All goods are supplied as per companies’ standard or mutually agreed

specification.

2. Goods once sold will not be taken back

3. 18% interest will be charged if payment is not made with in the due date.

4. Only the company’s official receipts will be accepted as proof of payment.

5. All remittances by cheque/ pay order/ drafts etc. should be drawn in the

name of the company only.

2.4 OPERATING CYCLE

Operating cycle = Inventory holding period + Collection period

Where,

Inventory holding period = 365 days/ Inventory turnover ratio

Where,

Inventory turnover ratio = Cost of goods sold / Average Inventory

INVENTORY TURNOVER RATIO:

YEAR COST OF GOODS

SOLD

AVERAGE

INVENTORY

INVENTORY

TURNOVER RATIO

2003-2004 719 101 7.11

2004-2005 853 128 6.66

2005-2006 873 158 5.52

2006-2007 937 186 5.04

2007-2008 1084 216 5.01

INVENTORY HOLDING PERIOD:

YEAR 365 DAYS INVENTORY TURNOVER INVENTORY

RATIO HOLDING PERIOD

2003-2004 365 7.11 51

2004-2005 365 6.66 54

2005-2006 365 5.52 66

2006-2007 365 5.04 72

2007-2008 365 5.01 73

YEAR INVENTORY HOLDING PERIOD

COLLECTION PERIOD

OPERATING CYCLE

2003-2004 51 76 127

2004-2005 54 68 122

2005-2006 66 48 114

2006-2007 72 57 129

2007-2008 73 56 129

2.4.1 CHART SHOWING OPERATING CYCLE

INFERENCE:

The above table shows that the operating cycle has been increased from 127

days in the year 2003 – 2004 to 129 days in the year 2007 – 2008. Even though

the collection period is less but the inventory holding period is high. So the time

gap has been increased.

2.5 BAD DEBT TO DEBTORS RATIO

2.5.1 TABLE SHOWING BAD DEBT TO DEBTORS RATIO (RS. in Crores)

YEAR BAD DEBTS DEBTORS BAD DEBT TO DEBTORS

RATIO (%)

2003-2004 1.72 264 0.65

2004-2005 2.62 296 0.88

2005-2006 1.16 210 0.55

2006-2007 0.21 281 0.07

2007-2008 1.11 300 0.37

Bad debts

Bad debts to Debtors ratio = ----------------------- X 100

Debtors

2.5.1 CHART SHOWING BAD DEBT TO DEBTORS RATIO

INFERENCE:

The above table shows that percentage of bad debts to sales of TI CYCLES OF

INDIA for the year 2003 – 2004 as 0.65% has been reduced to 0.37% in the year

2007 – 2008.This indicates that the company has good collection of their debts

from the customers.

CHAPTER-3

3.1 FINDINGS

The sales and debtors are positively related. It indicate that when the

sales increase, the debtor also increase and vice-versa.

The above statement shows the ageing statement of the year 2007 –

2008. The outstanding amount has been decreased from 88.17% in 0 – 30

days & it has been decreased to 10.87% in 31-60 days, which implies that

customers need minimum 60 days of credit period to repay their debts.

The Debtor’s Turnover Ratio seems to be increased. Since, sales values

has been increased as well as the debtor’s values were also been

increased. In the year 2003 – 2004 debtors’ turnover ratio is 4.76 & it has

been increased to 6.41 in the year 2007 – 2008. Generally higher the

value of debtor’s turnover the more efficient is the management of

debtors.

The debt collection period has reduced in the consecutive years, as the

credit collection is done faster. Also it is noted that the debt collection

period is get minimized after 2004 continuously, thus the company is

reviewing its credit policy every year to collect the debts with in stipulated

time period.

The operating cycle has been increased from 127 days in the year 2003 –

2004 to 129 days in the year 2007 – 2008. Even though the collection

period is less but the inventory holding period is high. So the time gap has

been increased.

The percentage of bad debts to sales of TI CYCLES OF INDIA for the

year 2003 – 2004 as 0.65% has been reduced to 0.37% in the year 2007

– 2008. This indicates that the company has good collection of their debts

from the customers.

3.2 SUGGESSTIONS

The study on Receivables Management in TI CYCLES OF INDIA implies that the

company can be more flexible in their credit policies.

The company can focus on the already existing customers. In order to increase

sales, look to current customers. Understand customer profitability and the future

potential. Get referrals from satisfied customers.

The Outstanding amount of the company can be reduced by providing more

credit period for the customers.

If the Average collection period of the company is reduced then the collection can

be done early and the company no needs to look for other alternative for their

further investments.

The operating cycle of the company should be reduced because the long

operating cycle tends to harm profitability by increasing borrowing requirements

and interest expense.

The bad debts of the company can be reduced by improving their collection

process.

The company should setup some collection centers in order to accelerate cash

flows. By increasing the effectiveness of collection agencies the company can

collect their debts easily from their customers.

3.3 CONCLUSION

The purpose of the study was to identify the impact of receivables management

of the TI Cycles of India.

The company is very sound in managing its receivables and is capable of

meeting the future needs and demands of the customer’s requirements.

The Company has maintained their accounts receivables properly, which not only

improves the cash in flow but also improves the sales volume also in turn

improve the profitability of the company.

Credit is all about company’s future business; company should concentrate on

Receivable Management. If the suggestions are considered the company have

better receivables management in the organization.

The implementation of proper Receivable Management will improve the Working

Capital management and overall efficiency of the operation of the company.

REFERENCES

Books:

T.S. Reddy and A. Murthy – Financial Accounting, Margham Publications,

fourth edition.

M Y Khan, P K Jain – “Financial Management”, Tata Mc Graw Hill

publishing company limited.

I M Pandey, “Financial Management”, Tata Mc. Graw Hill publishing

company limited.

Web site:

www.ticyclesIndia.com

www.tiindia.com/fin_annual.html

http://www.allbusiness.com/accounting-reporting/accounts-receivable/2976225-

1.html

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