Receivable mgmt

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Receivable mgmt

  1. 1. RECEIVABLE MANAGEMENT ANAMIKA PUNDIR LECTURER
  2. 2. OBJECTIVES OF RECEIVABLE MANAGEMENT <ul><li>To obtain optimum volume of sales. </li></ul><ul><li>To control the cost of credit & keep it at minimum. </li></ul><ul><li>To maintain optimum investment in sundry debtors. </li></ul><ul><li>To maximize the value of firm. </li></ul><ul><li>To cope up with competition. </li></ul>
  3. 3. NATURE OF MAINTAINING RECEIVABLES <ul><li>Risk involvement </li></ul><ul><li>Based on economic value </li></ul><ul><li>Implies futurity </li></ul><ul><li>Based on credit sales & collection period </li></ul><ul><li>Ranging between stringent & linent policy </li></ul><ul><li>Stringent-Selective basis credit sale </li></ul><ul><li>Linent – Very liberal credit sale </li></ul>
  4. 4. COST OF MAINTAINING RECEIVABLES <ul><li>Credit Department Cost </li></ul><ul><li>Credit Evaluation Cost </li></ul><ul><li>Opportunity Cost </li></ul><ul><li>Discounted Payment Cost </li></ul><ul><li>Selling & Production cost </li></ul><ul><li>Collection Cost </li></ul><ul><li>Bad Debts Cost </li></ul>
  5. 5. FACTORS AFFECTING SIZE OF RECEIVABLES <ul><li>Volume of credit sales </li></ul><ul><li>Credit policy of the firm </li></ul><ul><li>Trade terms </li></ul><ul><li>Seasonality of business </li></ul><ul><li>Collection policy </li></ul>
  6. 6. REASONS TO OFFER CREDIT <ul><li>Competition </li></ul><ul><li>Market share </li></ul><ul><li>Promotion </li></ul><ul><li>Customer convenience </li></ul><ul><li>Credit </li></ul>
  7. 7. BENEFITS OF RECEIVABLE MANAGEMENT <ul><li>Increase sales </li></ul><ul><li>Market share increase </li></ul><ul><li>Increase in profit </li></ul><ul><li>Enhanced customer services </li></ul><ul><li>Control bad debts </li></ul>
  8. 9. DETERMINANT OF POTENTIAL CREDIT POLICY <ul><li>Collection of Information </li></ul><ul><li>Credit Analysis </li></ul><ul><li>Credit Standard </li></ul><ul><li>Credit Period </li></ul><ul><li>Credit Terms </li></ul><ul><li>Credit Limit </li></ul><ul><li>Credit Discount </li></ul><ul><li>Discount Terms </li></ul>
  9. 10. COLLECTION OF INFORMATION <ul><li>Bank Reference </li></ul><ul><li>Credit Agency Report </li></ul><ul><li>Published Information </li></ul><ul><li>Credit scoring </li></ul><ul><li>Other Sources </li></ul>
  10. 11. CREDIT ANALYSIS <ul><li>5 C's Of CREDIT </li></ul><ul><li>Character - Customer willingness to pay </li></ul><ul><li>Capacity - Customer ability to pay </li></ul><ul><li>Capital - Customer investment in business </li></ul><ul><li>Collateral - Additional forms of security </li></ul><ul><li>Condition - Prevailing economic and other condition which affect customer </li></ul>
  11. 12. CREDIT STANDARD <ul><li>It refers to minimum criteria of :- </li></ul><ul><li>Selecting customer for credit sale </li></ul><ul><li>Extension of credit to customer </li></ul>
  12. 13. CREDIT PERIOD <ul><li>It refers to the length of time over which the customer are allowed to delay the payments. Credit period differ from one market to another. </li></ul><ul><li>LENGTHENING – Increase investment in receivables & bad debts loss </li></ul><ul><li>SHORTENING - Lower Sales ,decrease in investment & reduce bad debt loss </li></ul>
  13. 14. CREDIT TERMS <ul><li>The credit terms specify how the credit will be offered including length of credit , interest rate on credit , cost of credir & so on. </li></ul><ul><li>Eg 3/10 net 30 means 3 % cash discount if payment made with in 30 days </li></ul>
  14. 15. CREDIT LIMIT
  15. 16. CREDIT DISCOUNT <ul><li>The credit discount is offered as an inducement for the credit buyer to pay promptly. </li></ul><ul><li>Different discount rates may be offered for different period </li></ul><ul><li>eg- 3% discount if payment is made with in 10 days or 2% discount if payment is made with in 20 days </li></ul>
  16. 17. <ul><li>There is always a cost of cash discount </li></ul><ul><li>Annual Financing Cost = </li></ul><ul><li>%Discount * 365 * 100 </li></ul><ul><li>100- %Discount Credit Period – Discount Period </li></ul>

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