2. Receivables Management ?
• The company gives credit because of the following reasons :
1. Competition
2. Company’s bargaining power
3. Buyer’s requirement
4. Buyer’s status
5. Relationship with dealers
6. Marketing tool
7. Industry practice
Receivables Management helps to calculate the credit sales ,
efficiency of collection & quality of the debtors.
3. Receivables Ratios
• Debtors turnover ratio = Credit Sales/Debtors
• Collection Period = 360/Debtors Turnover
• The first allows to calculate fluctuation in credit sales
over the subsequent years w.r.t the debtors.
• The second ratio gives us the no of days in which the
credit is recovered from debtors, it also gives an
insight in the collection policy & debtors credibility of
the company.
4. Debtors Turnover Ratio
Particulars 2014 (lakh) 2013 (lakh) 2012 (lakh)
Credit Sales 357880.63 316380.56 269322.67
Debtors 5473.42 8121.14 8720.57
Ratios 63.38 38.95 30.86
•It shows that the credit sales are consistently increasing.
•The amount of debtors are also decreasing which means that
the company is getting into restrictive credit policy.
•A constant increase in this ratio is a good sign for liquidity.
5. Collection Period
Particulars 2014 2013 2012
No of days 360 360 360
Debtors Turnover
Ratio
63.38 38.95 30.86
Days 5.6 ~ 6 9.24 ~ 9 11.66 ~ 12
• It shows that the collection period is decreasing which shows the
efficiency of the collection efforts.
•The quality of debtors has also increased due to prompt payments.
•Indicating a increasing trend of restrictive collection policy.
6. Conclusion
• The data shows that the company is inclined
towards restrictive credit and collection policy.
• This will lead to increase the liquidity of the
company.
• The quality of debtors has also increased due
to the decreasing collection period.