This document discusses the management of receivables. It defines receivables as money owed to a firm from customers for goods and services sold on credit. It discusses the costs associated with maintaining receivables, such as financing costs, collection costs, and bad debts. It also outlines factors that influence the size of receivables, like credit policies, terms of trade, and customer payment habits. The document then covers forecasting receivables and the key dimensions of managing receivables, including credit policies, executing collections, and financing receivables through factoring. Factoring is defined as the selling of accounts receivable to a third party for cash, providing financing and credit protection benefits.

1. MANAGEMENT OF RECEIVABLES
Submitted by: Amanpreet kaur 184432
Amritpal kaur 184426

2. Meaning Of Receivables
• It refers to the sum of all monies
owed to the firm by customers
arising from the sale of goods or
services in the ordinary course of
business.
It includes:-
• Debtors
• Accounts Receivable
• Book debts/ customer receivable
• Trade Receivable

3. Meaning
Trade credit happens when a firm
sells its products or services on
credit and does not receive cash
immediately. Trade credit creates
account receivables and book
debt. The customers from whom
the firm is expected to collect in
the near future are called trade
debtors or receivables
1.Element of risk
2. Based on Economic value
3.It implies Futurity

4. Cost of Maintaining Receivables
1. Cost of Financing Receivables
2. Cost Of Collection
3. Bad Debts

5. Receivable management
• Receivables constitute a
significant portion of current
assets of firm. In India trade
debtors after inventories are the
major components of current
assets. They form 1/3 rd. of
current assets in India.
• Trade Debtors represent
investments. But for investment
in receivables a firm has to
incur certain costs i.e. : Cost of
Financing, Cost of collection and
element of bad risk

6. Factors Influencing The Size Of
Receivables
1. Size of credit sales
2. Credit policies
3. Terms of trade
4. Expansion plans
5. Relation with Profits
6. Credit Collection Efforts
7. Habits Of customers

7. (1) Size of Credit Sales: The volume of credit sales is
the first factor which increases or decreases the size
of receivables.
(2) Credit Policies: A firm with conservative credit
policy will have a low size of receivables while a
firm with liberal credit policy will be increasing this
figure.
(3)Terms of Trade: The size of receivables also
depends upon the terms of trade. The period of
credit allowed and rates of discount given are linked
with receivables.
(4)Expansion Plans: When a concern wants to
expand its activities, it will have to enter new
markets. To attract customers, it will give incentives
in the form of credit facilities

8. (5) Relation with Profits: The credit
policy is followed with a view to
increase sales. When sales increase
beyond a certain level the additional
costs incurred are less than the
increase in revenues .
(6) Credit Collection Efforts: The
collection of credit should be
streamlined. The customers should be
sent periodical reminders if they fail to
pay in time.
(7) Habits of Customers: The paying
habits of customers also have bearing
on the size of receivables. The
customers may be in the habit of
delaying payments even though they
are financially sound.

9. Forecasting The Receivables
Credit period allowed
Effect of cost of goods sold
Forecasting expenses
Forecasting Average collection period and
Discount
Average size of Receivables

10. formula
Average collection period = Trade debtors * no of working days
net sales
Average size of receivables = estimated annual sales *
average collection period

11. Dimensions of Receivables
Management
• Receivables management involves the careful
consideration of the following aspects:
1.Forming of credit policy.
2.Executing the credit policy.
3.Formulating and executing collection policy.

12. 1.Forming of credit policy
(a) Quality of Trade account
(b)Length of Credit Period
(c) Cash Discount
(d)Discount Period
2.Executing the credit policy.
(a) Collecting credit information
(b)Credit analysis
(c) Credit decisions
(d)Financing investment in Receivables and
Factoring.

13. 3. Financing Investments in Receivables and
Factoring: Accounts receivables block a part of
working capital. Efforts should be made that
funds are not tied up in receivables for longer
periods. The finance manager should make
efforts to get receivables financed so that
working capital needs are met in time. The
quality of receivables will determine the amount
of loan.

14. Definition of factoring
Factoring is a financial service in
which the business entity sells its bill
receivables to a third party at a
discount in order to raise funds
Factoring involves the selling of all
the accounts receivable to an
outside agency. such an angry is
called a factor

15. Functions of factor
1. Bill discounting facilities
2. Financing
3. Credit protection
4. Collection of money
5. Maintenance of sales

17. Benefits of Factoring
(a) It ensures a definite pattern of cash inflows from
the credit sales
(b) It serves as a source of short term finance
(c) It ensures better management of receivables as
factors firm is a specialized agency for the same
(d) It relieves the selling firms from the burden of
credit management
(e) The selling firm also benefited by advisory
services rendered by a factor

18. Types Of Factoring
1.Recourse and non recourse
factoring
2.Advance and maturity factoring
3.Concertional and full factoring
4.Domestic and Export Factoring