receivables and payables management

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MANAGEMENT OF

RECEIVABLES &PAYABLES


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Management of accounts receivables

Receivables represent amount owned to the firm as a result of sale of goods

or services in the ordinary course of business.

These are claims of firm against its customers and form part of its current

asset.

Receivables are also known as accounts Receivables, trade Receivables,customer Receivables, or book debts.

the Receivables are carried for the customers.

The purpose of maintaining or investing in Receivables is to meet

competition, and to increase the sales and profit.

In simple term sale of goods and service in credit and make a promissorynote to receive payment later


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Cost of maintaining receivables

1. Cost of financing receivables

2. Cost of collection

3. Bad debts


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Factors influencing the size of Receivables

Size of credit sale

Credit policies

Terms of trade

Expansion plans

Relation with profits

Credit collection efforts

Habits of customers


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Forecasting the Receivables

Credit period allowed

Effect of cost of goods sold

Forecasting expenses

Forecasting average collection period and discounts

Average size of receivables


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Receivables management

Receivables management is the process of making

decision relating to trade debtors.

The objective is to promote sales and profit until thatpoint is reached where the return on investment in

further funding of receivables is less than the cost of

fund raised to finance the additional credit.


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Dimensions of receivable's management

1. Forming of credit policy

2. Executing the credit policy

3. Formulating and executing collection policy


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(1)Forming of credit policy

a) Quality of trade accounts or credit standerd

b) Length of credit period

c) Cash discount

d) Discount period


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(2)Executing credit policy

a) Collecting credit information

b) Credit analysis

c) Credit decision

d) Financing investments in Receivables and Factoring


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(3) Formulating and executing collection policy

The collection policy should also devise the steps to be

followed in collecting over due amounts. The objective is

to collect the dues and not to annoy the customers. The

steps are ;

a) Sending a reminder for payments

b) Personal request through communication mediums

c) Personal visit to the customer

d) Taking help of collecting agencies and lastlye) Taking legal action


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Factoring and Receivables management

A factor is a financial institution which offers servicerelating to management and financing of debts arising out

of credit sale.

Factoring may be broadly be defined as relationship,created by an agreement, between the seller of

goods/service and a financial institution called factor.

It enables the later purchases the receivables of theformer and also controls and administers the receivables

of the former.


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Functions of a factor

Factors render a number of services to the selling firm. some of

the functions are;

Bill discounting facilities

Administration of credit sales

Maintenance of sales ledger Collection of accounts receivables

Credit control

Protection from bad debts

Provision of finance

Rendering advisory services


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Types of factoring

1) Resource and non-resource factoring

2) Advance and maturity factoring

3) Conventional or full factoring

4) Domestic and export factoring


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Management of accounts payables

Management of accounts payable is as much important asManagement of accounts receivables.

There is a basic difference between these two.

The objective of accounts receivable is to maximize the

acceleration of the collection process, the objective of

accounts parable is to slow down the payment process as

much possible.


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The delay in payment of accounts payable mayresult in saving of some interest cost.

The finance manager has to ensure that thepayments to the creditors are made at the

stipulated time period after obtaining the best

credit terms possible.


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receivables and payables management

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