Management of recievables

An introduction to Receivables management is the content of this presentation

1. MANAGEMENT OF RECEIVABLES Submitted by: Amanpreet kaur 184432 Amritpal kaur 184426

2. Meaning Of Receivables It refers to the sum of all monies owed to the firm by customers arising from the sale of goods or services in the ordinary course of business . It includes:- • Debtors • Accounts Receivable • Book debts/ customer receivable • Trade Receivable

3. Meaning Trade credit happens when a firm sells its products or services on credit and does not receive cash immediately. Trade credit creates account receivables and book debt. The customers from whom the firm is expected to collect in the near future are called trade debtors or receivables 1.Element of risk 2. Based on Economic value 3.It implies Futurity

4. Cost of Maintaining Receivables Cost of Financing Receivables Cost Of Collection Bad Debts

5. Receivable management Receivables constitute a significant portion of current assets of firm . In India trade debtors after inventories are the major components of current assets. They form 1/3 rd. of current assets in India. Trade Debtors represent investments. But for investment in receivables a firm has to incur certain costs i.e. : Cost of Financing, Cost of collection and element of bad risk

6. Factors Influencing The Size Of Receivables Size of credit sales Credit policies Terms of trade Expansion plans Relation with Profits Credit Collection Efforts Habits Of customers

7. (1)  Size of Credit Sales :  The volume of credit sales is the first factor which increases or decreases the size of receivables . ( 2)  Credit Policies :  A firm with conservative credit policy will have a low size of receivables while a firm with liberal credit policy will be increasing this figure . ( 3)Terms of Trade :  The size of receivables also depends upon the terms of trade. The period of credit allowed and rates of discount given are linked with receivables . ( 4)Expansion Plans :  When a concern wants to expand its activities, it will have to enter new markets. To attract customers, it will give incentives in the form of credit facilities

8. (5)   Relation with Profits :   The credit policy is followed with a view to increase sales. When sales increase beyond a certain level the additional costs incurred are less than the increase in revenues . ( 6)   Credit Collection Efforts :  The collection of credit should be streamlined. The customers should be sent periodical reminders if they fail to pay in time . (7)   Habits of Customers :  The paying habits of customers also have bearing on the size of receivables. The customers may be in the habit of delaying payments even though they are financially sound.

9. Forecasting The Receivables Credit period allowed Effect of cost of goods sold Forecasting expenses Forecasting Average collection period and Discount Average size of Receivables

10. formula Average collection period = Trade debtors * no of working days net sales Average size of receivables = estimated annual sales * average collection period

11. Dimensions of Receivables Management Receivables management involves the careful consideration of the following aspects: 1.Forming of credit policy. 2.Executing the credit policy. 3.Formulating and executing collection policy.

12. 1.Forming of credit policy Quality of Trade account Length of Credit Period Cash Discount Discount Period 2.Executing the credit policy. Collecting credit information Credit analysis Credit decisions Financing investment in Receivables and Factoring.

13. 3. Financing Investments in Receivables and Factoring :  Accounts receivables block a part of working capital. Efforts should be made that funds are not tied up in receivables for longer periods. The finance manager should make efforts to get receivables financed so that working capital needs are met in time. The quality of receivables will determine the amount of loan.

14. Definition of factoring Factoring is a financial service in which the business entity sells its bill receivables to a third party at a discount in order to raise funds Factoring involves the selling of all the accounts receivable to an outside agency. such an angry is called a factor

15. Functions of factor Bill discounting facilities Financing Credit protection Collection of money Maintenance of sales

16. Benefits of Factoring It ensures a definite pattern of cash inflows from the credit sales It serves as a source of short term finance It ensures better management of receivables as factors firm is a specialized agency for the same It relieves the selling firms from the burden of credit management The selling firm also benefited by advisory services rendered by a factor

17. Types Of Factoring 1.Recourse and non recourse factoring 2.Advance and maturity factoring 3.Concertional and full factoring 4.Domestic and Export Factoring