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“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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