ACCOUNTS RECEIVABLES

Accounts receivables is defined as “debt owed to the firm by customers arising from sale of goods or services in the ordinary course of business”.

MANAGEMENT OF ACCOUNTS RECEIVABLES

Accounts receivable management means

making decisions relating to the investment

in these current assets, the objective being

maximization of return on investment in

receivables. It is purely based on sound

credit policies and practices.

MEANING:

Maximizing the value of the firm:- The basic objectives is that to maximize the value of the firm by achieving a trade off between risk and return. Efficient management of receivables expands sales by retaining old customers and attracting new customers.

Optimum investment in sundry debtors:- Providing liberal credit increases sales consequently profit will increased. So they mainly concentrate on increasing investment in receivables or debtors.

OBJECTIVES

1. CAPITAL COST:-2. ADMINISTRATIVE COST:-3. COLLECTION COST:-4. BAD DEBTS:-

COSTS OF RECEIVABLE MANAGEMENT

INCREASED SALES:-providing goods or services on credit expands sales, by retaining old customers and attracting new customers.

MARKET SHARE INCREASED:-when the firm is able to retain old customers and attracting new customers automatically market share will increased.

INCREASE IN PROFIT:-increased sales, leads to an increased profit.

BENEFITS OF RECIEVABLES MANAGEMENT

Volume of credit sales:-increase in credit sales increases the level of receivables.

Credit policy of the firm:-two types of credit policies, lenient and stringent.

Trade terms:-credit terms are credit period and cash discount.

Seasonality of business:-based on seasonality of business.

Collection policy:-

Factors influencing the size of investments in receivables

Debtors turnover ratio/Receivables turnover ratio:-It helps to measure the liquidity of accounts receivables.

Debtors turnover ratio= Net credit sales Avg.Accounts

receivables

Techniques for monitoring accounts receivables

Average collection period (ACP) :-It measures the duration from the time sale is made to the time to cash is collected from the customers.

ACP= 365

Debtors or receivables turnover

Aging schedule:-it is a statement that shows age wise grouping of debtors. It is helpful for identifying slow paying debtors , with which firm may have to encounter stringent collection policy.

Collection matrix:- It shows the percentage of receivables collected during the month of sales and subsequent months. It helps in studying the efficiency of collections whether they are improving or deteriorating.