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”.
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.
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
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.
1. CAPITAL COST:-
2. ADMINISTRATIVE COST:-
3. COLLECTION COST:-
4. BAD DEBTS:-
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
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
Seasonality of business:-based on seasonality of business.
Debtors turnover ratio/Receivables turnover ratio:-
It helps to measure the liquidity of accounts receivables.
Debtors turnover ratio= Net credit sales
Average collection period (ACP) :-It measures the
duration from the time sale is made to the time to cash
is collected from the customers.
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