The document discusses receivable management and outlines several objectives and factors related to managing accounts receivable. The key objectives of receivable management are to obtain optimal sales volume, control credit costs, maintain an optimal investment in accounts receivable, and maximize firm value. The nature of maintaining receivables involves risk, economic value, futurity, and credit sales/collection periods. Costs of maintaining receivables include credit department costs, credit evaluation costs, opportunity costs, discounted payment costs, selling/production costs, and bad debts costs. Factors affecting receivable size are credit sales volume, credit policy, trade terms, and seasonality of business.

1. RECEIVABLE MANAGEMENT ANAMIKA PUNDIR LECTURER

2. OBJECTIVES OF RECEIVABLE MANAGEMENT To obtain optimum volume of sales. To control the cost of credit & keep it at minimum. To maintain optimum investment in sundry debtors. To maximize the value of firm. To cope up with competition.

3. NATURE OF MAINTAINING RECEIVABLES Risk involvement Based on economic value Implies futurity Based on credit sales & collection period Ranging between stringent & linent policy Stringent-Selective basis credit sale Linent – Very liberal credit sale

4. COST OF MAINTAINING RECEIVABLES Credit Department Cost Credit Evaluation Cost Opportunity Cost Discounted Payment Cost Selling & Production cost Collection Cost Bad Debts Cost

5. FACTORS AFFECTING SIZE OF RECEIVABLES Volume of credit sales Credit policy of the firm Trade terms Seasonality of business Collection policy

6. REASONS TO OFFER CREDIT Competition Market share Promotion Customer convenience Credit

7. BENEFITS OF RECEIVABLE MANAGEMENT Increase sales Market share increase Increase in profit Enhanced customer services Control bad debts

9. DETERMINANT OF POTENTIAL CREDIT POLICY Collection of Information Credit Analysis Credit Standard Credit Period Credit Terms Credit Limit Credit Discount Discount Terms

10. COLLECTION OF INFORMATION Bank Reference Credit Agency Report Published Information Credit scoring Other Sources

11. CREDIT ANALYSIS 5 C's Of CREDIT Character - Customer willingness to pay Capacity - Customer ability to pay Capital - Customer investment in business Collateral - Additional forms of security Condition - Prevailing economic and other condition which affect customer

12. CREDIT STANDARD It refers to minimum criteria of :- Selecting customer for credit sale Extension of credit to customer

13. CREDIT PERIOD 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. LENGTHENING – Increase investment in receivables & bad debts loss SHORTENING - Lower Sales ,decrease in investment & reduce bad debt loss

14. CREDIT TERMS The credit terms specify how the credit will be offered including length of credit , interest rate on credit , cost of credir & so on. Eg 3/10 net 30 means 3 % cash discount if payment made with in 30 days

15. CREDIT LIMIT

16. CREDIT DISCOUNT The credit discount is offered as an inducement for the credit buyer to pay promptly. Different discount rates may be offered for different period eg- 3% discount if payment is made with in 10 days or 2% discount if payment is made with in 20 days

17. There is always a cost of cash discount Annual Financing Cost = %Discount * 365 * 100 100- %Discount Credit Period – Discount Period