receivable management.working capital-management

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WELCOME

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GROUP INTRODUCTION THIS IS GROUP-5 TOPIC : RECEIVABLES MANAGEMENT:

INTRODUCTION & OBJECTIVES

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GROUP MEMBERS MD.RAIHAN IMRAN RAHOM (Group Leader) MD. AUWAL HOSSIAN MD. ABDUR RAHIM MD.HASIBUL HASAN BULBUL MD. KHAIRUL ALAM MD. SHORIF HOSSAIN MD. ARIFUL ISLAM MD. MAHBUBUR RAHMAN MD. MIZANUR RAHMAN MD. AL-AMIN

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LET’S START

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CONTENTS RECEIVABLES MANAGEMENT : DEFINITION RECEIVABLES MANAGEMENT: CRUCIAL

DECISIONS RECEIVABLES MANAGEMENT: OBJECTIVES OBJECTIVES OF RECEIVABLE MANAGEMENT:

COST OBJECTIVES OF RECEIVABLE MANAGEMENT:

BENEFITS FINAL COMMENTS

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‘ANY FOOL CAN LEND MONEY,

BUT ITTAKES A LOT OF SKILLS TO GET IT

BACK’

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WHAT ARE RECEIVABLES? Receivables are sales made on

credit basis So,the term receivables is defined

as ‘debt owed to the firm by customers arising from sales of goods or services.

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RECEIVABLES MANAGEMENT Receivable management is the collection of

steps & procedure required to properly weigh the costs & benefits attached with credit policies.

Receivables management can also be called as ‘trade credit management’ as the company allows its customer an extension of credit or ‘trade credit , which enables them a reasonable period of time in which to pay for the goods or services received

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RECEIVABLES MANAGEMENT:CRUCIAL DECISIONS Receivables management involves

crucial decision in three areas : Credit policies : It is the determination of

credit standards & credit analysis Credit terms :are basic criteria/minimum

requirements for extending credit to a customer

Collection policies : involves obtaining credit information & evaluation of credit applicants.

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RECEIVABLES MANAGEMENT:CRUCIAL DECISIONS Credit Policies : Consisting of two

dimensions, 1. Credit standard : are basic criteria/minimum

requirements for extending credit to a customer

2. Credit analysis : involves obtaining credit information & evaluation of credit applicants.

Credit Terms : Comprising 1. Cash discount: is the incentive to customer

to make early payment of sum due.

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2. Cash discount period : Is the duration of the period during which discount can be availed of

3. Credit period: is the time for which trade credit is extended to customer in the case of credit sales

Collection Policies : the types & degree of effort made to collect receivables from customers

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WHAT ARE THE OBJECTIVES OF RECEIVABLE MANAGEMENT?

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RECEIVABLES MANAGEMENT:OBJECTIVES Credit sales are used as marketing

tool for a company Maximise the return on investment

in receivables Maintaining up-to-date record Accurate billing Establish the credit policies

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RECEIVABLES MANAGEMENT: COST & BENEFITS Management should weigh the benefits

as well as cost to determine the goal of receivables. The objective of receivables management is ‘to promote sales & profit until that point reached where the return on investment in further funding receivables is less than the cost of funds raised to finance that additional credit

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Specific costs & benefits are relevant to the determination of the objectives of receivables management

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DIFFERENT TYPES OF COST ASSOCIATED IN RECEIVABLES MANAGEMENT The major categories of costs associated with

the extension of credit & accounts receivables are:

Collection cost Capital cost Delinquency cost & Default cost

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COLLECTION COST (Carrying Cost) Collection cost is the

administrative cost incurred in collecting receivables from the customers to whom credit sales have been made .Here including this category of cost are (a) Additional expenses on the creation and maintenance credit department.(b)Additional expenses for collecting credit information.

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CAPITAL COST Capital cost is the cost on the use

of additional capital to support credit sales .There is a time lag between the sale of goods and payment by the customer. meanwhile the firm have to pay employees and suppliers of raw materials .The cost on the use of additional capital to support credit sales ,which alternatively could be profitably employed elsewhere.

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DELINQUENCY COST Delinquency cost is the cost arising

out of failure of customers to pay on due date

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DEFAULT COST Default cost are the over dues that

cannot be recovered. Such debts are treated as bad debts & have to be written off as they cannot be realised.

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BENEFITS OF RECEIVABLE MANAGEMENT If a firm maintains a more liberal

credit policy then it can get two direct benefits:

Increased sales Anticipated profit intend to

increase the sales

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BENEFITS OF RECEIVABLE MANAGEMENTBesides a firm can get benefits like: Capability to face competition Helps to increase customer satisfaction Takes control of sales processes It creates a good relationship between firm &

customer Receivables management save the small

business cause it can goods from large from on credit

It is less costly than working capital loan from local bank

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FINAL COMMENTS From the above discussion, it is

clear that investments in receivable involve both benefits & cost

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The extension of trade credit has a major impact on sales, costs & profitability. If the other things remain same, a relatively more liberal policy & therefore, higher investments in receivables, will produce larger sales

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So, accounts receivable management should aim at a trade-off between profit(benefit) & risk(cost).

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Though general economic conditions & industry practises have a strong impact on the level of receivables, a firm’s investments in this type of current assets is also greatly affected by it’s internal policy. A firm has a little control over environmental factors, but it can improve its profitability through a properly conceived receivable management.

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THANK YOU