A STUDY ON RECEIVABLE MANAGEMENT IN TI CYCLES OF INDIA, AMBATTUR BY R.PREMA (Reg.No.

11807631059) OF DEPARTMENT OF MANAGEMENT STUDIES VEL TECH MULTI TECH DR.RANGARAJAN DR.SAKUNTHALA ENGINEERING COLLEGE Accredited by NBA (ISO 9001: 2000 Certified Institution) Approved by AICTE New Delhi & Affiliated to Anna University Avadi, Chennai 600 062 A PROJECT REPORT Submitted to the FACULTY OF MANAGEMENT STUDIES In partial fulfillment of the requirement for the award of the degree OF MASTER OF BUSINESS ADMINISTRATION IN FINANCE

ANNA UNIVERSITY CHENNAI-25 MAY-2009

VEL MULTI TECH SRI RANGARAJAN SAKUNTHALA ENGINEERING COLLEGE Accreditated by NBA (ISO 9001:2000 Certified institution) Affiliated to Anna University BONAFIED CERTIFICATE Certificate that this project entitles A STUDY ON RECEIVABLE MANAGEMENT IN TI CYCLES OF INDIA, AMBATTUR, is a bonafied work done by, Ms. R.PREMA (Reg no.11807631059) Who carried out of the research under my supervision certified further that to the` best of my knowledge, the work reported wherein does not form a part of any other project report on the basis of which degree of award was confirmed on earlier occasion or any other category.

Principal

Hod/Dean

Assessed by

Internal Examiner

External Examiner

(i)

ACKNOWLEDGEMENT

I express my gratitude to our chairman Mr.RANGARAJAN, M.E. (Elec)., M.E. (Mech), M.S.(Auto)., and to Dr.Siddhappa Naidu, Ph.D Principal of Vel Tech Multi Tech DR. Rangarajan DR. Sakunthala Engineering College. I would like to extend my Sincere thanks to our head of the department Dr.V.Bala Subramanian, M.com, M.phil, Ph.D, and to my internal guide Mrs.Niraimathi, MBA. I wish to express my gratitude and thanks to Mr. GOUDHAMAN, HR Manager for giving me this wonderful opportunity to do my project work at TI CYCLES OF INDIA, AMBATTUR, during my course of studying as student of MBA. I express my sincere thanks to the TI CYCLES OF INDIA, AMBATTUR, especially to Mr. Rajaseker, Finance Manager for the co-operation and information he gave. Finally I thank my parents and friends whose suggestions & support made my work easier.

(R.PREMA)

(iii)

ABSTRACT

The project strives to The study on Receivable Management prevailing at TI CYCLES OF INDIA and to provide considerable recommendations for better Debtors management of the company. The management function consists of granting credit, billing accounts, effecting collection, analyzing outstanding accounts (aging), and providing for bad debts. In this project report the deep study of receivables is done which is the main constitute of working capital Various tools has been used like Debtor Turnover ratio, Average collection period, Bad debts to debtors ratio ,Operating cycle and correlation analysis. In the FOR sales, goods are transported from factory to godown and from godown to the ultimate customers. In the EX work customer goods are directly transported from factory to consumers. In the FOR sales the collection period is calculated between the days from godown to consumers. The main aim of this study is to find the reason for their outstanding dues and the Effectiveness of receivable management in TI CYCLES OF INDIA.

(iv)

LIST OF CONTENTS

Chapter no 1

Title Introduction 1.1 Out line of Project 1.1.1 Need for the study 1.1.2 Scope of the study 1.1.3 Objectives of the study 1.1.4 Research Methodology 1.1.5 Limitations of study 1.1.6 Chapterization 1.2 Review of Literature 1.2.1 Industry Profile 1.2.2 Company Profile 1.2.3 Product Profile Data Analysis and Interpretation 2.1 Correlation analysis 2.2 Aging Schedule 2.3 Collection period and Credit policies 2.4 Operating Cycle 2.5 Percentage of bad debts to Debtors Summary and Conclusion 3.1 Findings 3.2 Suggestions 3.3 Conclusion Annexure Reference LIST OF TABLES

Page no

1 3 4 5 6 7 14 15 28 36 45

46 48 49 57 59

4 5

60 61 62 A1 A2

S.NO 2.1.1 2.2.1

TITLE Correlation analysis Aging Schedule

PAGE NO 46 48

2.3.1 2.3.2 2.4.1 2.5.1

Debtors turnover ratio Average Collection period Operating Cycle Percentage of Bad debts to Debtors

49 50 57 59

LIST OF CHARTS S.NO 2.2.1 2.3.1 2.3.2 2.4.1 2.5.1 TITLE Aging Schedule Debtors turnover ratio Average Collection period Operating Cycle Percentage of Bad debts to Debtors CHAPTER-1 INTRODUCTION 1.1 OUTLINE OF THE PROJECT The project entitled A study on Receivable Management in TI Cycles of India, Ambattur. PAGE NO 48 49 50 57 59

The term receivable is defined as debts owned by the firm by customers arising from sales of goods or services in the ordinary course of business. It is an accounts receivables represent the existsion of open-account credit by firm to other firms or to individuals. Van Horne.

Accounts receivables are the open account credit sales. That is, no formal acknowledgements of debt liability are taken from the buyers. The Receivables management is also called as trade credit management. Management of accounts receivables is nothing but the process of making decisions relating to the investment of funds in this asset which will result in maximizing of the overall return of the investment of the firm. It is to promote sales and profit until that point is reached where the return of the investment in further funding of receivables is less then the cost of funds raised to finance that attitudinal cost. Cost and Benefits: Cost: (i) (ii) Collection cost: These costs are administrative costs. These are incurred in collecting the receivables from sundry debtors. Capital cost: Increase in accounts receivables leads to an increased investment in assets. Increased investment is to be financed by some other sources involving a cost. The firm should arrange for additional funds to meet its obligations until the customers pay the amount. (iii) Delinquency cost: Some of the customers may fail to pay in time. This cost arises due to steps taken to collect the over dues such as, reminders and other collection efforts, legal charges. (iv) Default cost: The bad debts associated with credit sales and accounts receivable is termed as Default cost. Benefits:

Growth in sales: It is a power full marketing tool to increase sales. If the credit is not extended to them, then they will seek credit from other concerns. Thus in order to keep the customers with us and to increase the sales, it is essential to have book debts. Increase in profits: Increase in sales leads to increase in profit. By giving trade credits, the firm has additional sales resulting in additional profit. Capability to face competition: If there is a tough competition in the market, it is essential that trade credit is to be extended. If the credit terms are attractive, a firm can protect its customers from competitors. Collections With businesses looking for improved bottom line performance, better account receivables management, collections is a key focus area along with timely and accurate billing for organizations across industries. An effective collections strategy:

Increases receivables recovery rates Reduces bad debts Rationalizes costs through streamlined collections processes

1.1.1 NEED OF THE STUDY This study helps to find the effectiveness of receivable management and the outstanding amount in TI Cycles of India, Ambattur.

Basically the company deals in the sales activities by providing on the credit basis and hundis discount to the already existing customers. The objective of providing these facilities is to increase sales and to attract the new customers towards their product. This study helps to find the relationship between sales and debtors by preparing correlation analysis. The company main intension is to increase sales and profit and their by reducing its outstanding dues. Overall it helps to find the effectiveness of receivable management in TI Cycles of India, Ambattur.

1.1.2 SCOPE OF THE STUDY

The study aims at analyze the Receivable Management in TI Cycles of India, Ambattur.

 The study finds out the operational efficiency of organization and suggests proper utilization and allocation of each resource to improve the efficiency of the organization. The study helps in identifying the credit policy and collection period of the company. It suggests keeping the level of investment in accounts receivables to the minimum. The study helps in maximizing the value of the firm and controls the cost of trade credit.

1.1.3 OBJECTIVE OF THE STUDY PRIMARY OBJECTIVES

To study the impact of Receivable management on the profitability in TI Cycles of India, Ambattur.

SECONDARY OBJECTIVES To identify the relationship between sales and debtors. To identify the current outstanding amount of the company. To identify the credit period and collection policies to debtors. To identify the time gap between the sales and actual realization in cash. To identify the bad debts of the company.

1.1.4 RESEARCH METHODOLOGY The project study mainly focuses on the critical assessment of the Receivable Management in TI Cycles of India, Ambattur. Definition of research:

Research comprises defining and refining problems, formulating hypothesis (or) suggested solutions, collecting, organizing and evaluating data making deductions and reaching conclusion and at last carefully testing the conclusions to determine whether they fit the formulating hypothesis. Definition of Research design: A research design is the arrangement of conditions for collections and analysis of data in a manner that aims to combine relevance to the research purpose with economy in procedure The research is descriptive in design. Research It is a search for analysis it is done in a scientific and systematic manner is called research. We can now define business research as an organized, systematic, data based, critical objective, scientific inquiry or investigation into a specific problem, undertaken with the purpose of finding answers or finding answer or solution to it. In essence, research provides the needed information that guides managers to make informed decisions to successfully deal with problems. The information provided could be the result of a careful of a careful analysis of data gathered firsthand or of data that are already available can be quantitative or qualitative. Clifford woody

Research Methodology It is a way to solve the research problem systematically the techniques of analyzing the data, why the research has been adapted, how research problem has been adapted are been answered.

Research Design Research design is purely and simply the frame work or plan for a study that guides the collection and analysis of data. The function of researcher is to ensure that requires the data collected an accurate and economically. Analytical research technique was adopted in the project. Generally analytical studies are designed to analysis some thing and it collects data for a definite purpose. Data Collection Several ethical issues should be addressed while collecting data. As previously noted, these pertain to those who sponsor the research, those who collect the data. And those who offer them. The sponsors should ask for the study to be done to better the purpose of the organization, and not for any other self-serving reason. They should respect the confidentiality of the data obtained be the researcher, and not ask for the individual or group responses to be disclosed to them, or ask to see the questionnaires. They should have an open mind in accepting the results and recommendations in the report presented by the researchers.

Method of Collection The data for the analysis are collected and gathered from the printed reports of TI Cycles of India like annual report, Official files and records. Primary Data

As part of strengthening the study personal contacts are made the officials and staff members of the finance department in the form of discussion and collection of reports. Secondary Data Secondary data refer to information gathered be someone other than the researcher conduction the current study. Such data can be internal or external to organization and accessed through the internet or perusal of recorded or published information. The data are collected from the annual report, mainly balance sheet, income and expenditure and other brochures of the company. Tools and techniques used Correlation Analysis Aging Schedule Debtors Turnover ratio Average Collection period Operating Cycle

Correlation analysis: Correlation is the study of the degree of relationship between two variables. In statistical analysis the study of two variables where in the change in the value of one variable produces a change in the value of the other variable.

XY - X * Y N r= X - (X) N Y - (Y) N

Positive correlation: Two variables are said to be positively correlated if for an increase in the value of one variable there is also an increase in the value of the other variable or for a decrease in the value of one variable there is also an decrease in the value of the other variable; that is the two variables change in the same direction. Negative correlation: Two variables are said to be negatively correlated if for an increase in the value of one variable there is a decrease in the value of the other variable; that is, the two variables change in opposite direction.

Ageing statement It is also commonly used techniques particularly among the small and medium sized enterprises. Under this method outstanding receivables are grouped against designated time intervals to find out how much of the receivables are away from the current.

This schedule is often required by bankers making loan against receivables or the factors deciding the acceptability of receivables and also the commission. When sales of a firm is on the rise the current and recent categories will have more receivables holding which may not speak anything about the efficiency of the collection department, through it may make then more complacent. On the other end, when sales are falling, receivables holding in current and recent categories will also be falling which once again may not speak anything about the laxity of the collection department. In both the cases the collection department might be doing its job extremely well by holding on to or improving upon the established payment pattern which may not be so reflected under the ageing statement. Debtors turnover ratio: Debtors turnover ratio is also called as receivable turnover ratio. A business concern generally adopts different methods of sales. One of them is selling on credit. When the company extends credits it its customers, book debts are created in the companys accounts. Book debts are expected to be converted into cash over a short period and, therefore are included in current assets.

The liquidity position of the company depends on the quality of debtors to a great extend. Financial analysis apply debtors turnover to judge the liquidity of debtors. The customers who purchase on credit are called trade debtors. Debtors and bills receivable are called accounts receivable.

Debtors turnover ratio

Credit Sales Debtors

Debtors turnover ratio indicates the number of times debtors turnover each year. Generally, higher the value of debtors turnover, the more efficient is the arrangement of credit.

Debt collection period: The average collection period measures the quality of debtors because; it measures the speed of their collection. Shorter the average collection period, their better quality if debtors as a shorter collection period implies the prompt payment by debtors.An excessively long collection period implies a very liberal and inefficient credit and collection performance. This certainly delays the collection of cash and impairs of the companys liquidity. Thus the collection period ratio indicates in two aspects: 1. In determining the collection of debtors 2. In ascertaining the companys comparative strength and advantage relative to its credit policy a performance vis--vis the competitors credit policies and performance.

Debt collection period: Debtors Credit sales

365 days

The objective of this ratio is to measure the liquidity of receivable or obtaining the average period over which receivables are uncollected.

Operating cycle The average length of time between when a company purchases items for inventory and when it receives payment for sale of the items. A long operating cycle tends to harm profitability by increasing borrowing requirements and interest expense. Operating cycle = Inventory holding period + Collection period Operating cycle of a manufacturing business

CASH

RAW MATERIALS

ACCOUNTS RECEIVABLES

WORK-INPROGRESS

FINISHED GOODS

1.1.5 LIMITATIONS OF THE

STUDY

The study is based on information from the TI Cycles of India, Ambattur.

The project study is mainly based on information gathered from secondary data mainly balance sheet and profit & loss a/c. The duration of the project was short to collect all the information required. Company has some financial information secrecy regarding its policies, which was not disclosed at the time of the project. The study is done only with the last 5 years details.

1.1.6 CHAPTERIATION The project entitled A study on Receivable Management in TI Cycles of India, Ambattur included three chapters.

 The first chapter is about Introduction which includes outline of the project, need for the study, scope of the study, objectives of the study, limitations of the study, research methodologies, company profile, industry profile, product profile. The second chapter is about Data analysis and interpretations which includes working capital, funds flow statement and Ratio analysis. The third chapter is about Summary and Conclusions which includes finding suggestions and conclusions.

1.2 REVIEW OF LITERATURE

An account receivable is the money owed to a company by a consumer for products and services purchased on credit. This is usually treated as a current asset of accounts receivable after the customer is sent an invoice. Accounts receivable are known by various names, such as accounts receivable aging, accounts payable, days receivable, accounts receivable turnover and invoice factoring. According to the experts, accounts receivable or invoice factoring is one of a series of accounting transactions. These accounting transactions deal with the billing of customers who owe money to a person, company or organization for goods and services purchased. If you are seriously considering using accounts receivable as a method of obtaining a more liquid asset, then it is wise to hire accounts receivable management specialists. Accounts receivable management specialists can help you in a variety ways:

It can cut and maintain your average collection delay or DSO It can lessen your direct and indirect expenses It can considerably reduce your bad debt It can tell you various ways to take advantage of your cash-flow It can help you capitalize on your internal resources It can maximize your interventions on sales, service and market share.

Hiring the best accounts receivable management will clear up the common misconception that the selling of accounts receivable is a loan. Accounts receivable are the amounts that customers owe a business; this is clearly shown on a company's balance sheet. Some also call accounts receivable trade receivables and try to classify them as current assets. Accounts receivable managements main goal is to take care of all these debts and to record sales of accounts; one must debit a receivable and credit a revenue account. Accounts receivable management also looks into

issues such as recognizing accounts receivable, valuing accounts receivable, and disposing of accounts receivable.

1. Credit and Collections: When Your Customer Stops Paying By Sam Thacker Extending credit is a necessary part of many businesses, and the process often includes collections. When your business extends credit to other businesses directly, you become their creditor. Being a creditor is easy, as long as your customers are paying what they owe you on time. When they stop paying as agreed, the hard work begins. When someone owes you money, try not to take it personally. Writing off a small amount of bad debt every year is inevitable, and understanding this from the start will make the rest of the process easier. Think of it as similar to having a small amount of inventory that wont sell and must be written off. Before you grant credit, ask your customer to fill out a credit application and credit agreement. Standard forms are available on AllBusiness.com. If you eventually have to take legal action to pursue collections, a signed application and credit agreement will make the process more effective. If you have customers who are not paying past bills but offer to buy your goods or services COD, consider taking them up on it. After all, you are in business to generate profitable sales. Take comfort in knowing you are continuing to earn profits from the customer. Weigh the overall amount of bad debt your company has in its accounts receivable with the total A/R. If the percentage is small, you might simply factor this loss into your cost of doing business. There is a saying among bankers that if you have no losses in your loan portfolio, perhaps you arent making enough

loans. This doesnt mean you should loosen your credit standards to the point of having significant losses, but consider that you may be losing profitable business by not granting enough credit. Many businesses operate year after year with less than 3 percent bad-debt write-off. Smart business owners understand they must consider this when setting prices for products or services. If a significant number of your customers are not paying, consider using a collection agency that will report to Dun & Bradstreet or other business credit reporting agencies. Coface is a global credit insurer that writes credit insurance policies for small, medium, and large companies. It also has its own collections group. Depending on your industry, Coface can be very effective in collections because it will flag your deadbeat account and not allow it to be an eligible credit insurance debtor. Once customers pay, Coface upgrades their payment records, which benefits the nonpaying customers as well as your business. If your company has a small problem and your overall nonpaying accounts are minimal, ask your attorney to write demand letters to deadbeat accounts, demanding they fulfill their contractual payment obligations. (This is where your credit agreement comes in handy.) Litigation is seldom cost-effective for companies trying to collect, but some use small claims court and represent themselves. Even if you are successful in getting a court judgment, you still have to take the judgment and find enough of your customers business assets to make the entire process worthwhile. In the final analysis, business owners must consider the real costs of chasing a deadbeat customer as well as the lost productivity from allocating resources to collecting potentially uncollectable money. Making cool-headed business decisions is the best way to approach this difficult task. .

Choosing the Best Way to Get Out of Debt

By Sam Thacker Credit is necessary to have and important to protect. If you are in debt, consider all your options before deciding whether to use a debt consolidation loan, a credit counseling service, or other method to help reduce it. If you are ever up at 3 a.m. watching television, youve probably seen ads for debt consolidation loans. These advertisements target consumers who have allowed debt from multiple credit cards and other unsecured loans to reach levels where they cannot meet minimum monthly payments. But for most consumers, debt consolidation loans dont make sense. Debt consolidation loans promise one affordable lower monthly payment instead of many. In many cases, the interest rates on these loans are higher than those on a persons existing loans. Worse, typical consumer debt consolidation loans allow interest rates to skyrocket if even one payment is missed. With some debt consolidation loans, application and other fees can drive up the cost. Dont confuse debt consolidation loans with reputable consumer services that help reduce your overall debt by negotiating with your creditors and combining your monthly payments to affordable levels, while still making significant reductions in debt principal each month. The National Foundation for Credit Counseling has a locator that can help you find an accredited agency near you. Debt restructuring loans for business owners often make sense when owners have relied on personal credit to finance their business. Startups and other undercapitalized businesses often bootstrap their business financing with personal credit cards because of the difficulty in obtaining business credit directly. Business owners who borrow money via personal credit card should account for the personal debt they incur for business purposes on the companys books. It should be shown as a liability on the companys balance sheet until repaid. Customarily it is shown on the balance sheet as a loan from a

shareholder, even though the shareholder used a personal credit card to incur the business debt. At some point in a businesss life cycle, it will probably be able to obtain credit. Even nontraditional forms of financing, such as borrowing against a companys accounts receivable using factoring, might make sense. Another option if a business has equipment or real estate assets with available equity is to refinance those business assets and use some of the loan proceeds to repay the businessowner part of the personal debt that was incurred for business purposes. Paying off the owners personal credit card loans will put him or her in a much better position to obtain future personal and business credit and will reduce some of the owners personal financial risk. The balance of the cash obtained in the loan would serve as permanent working capital, thus making it unlikely that the business owner would need to use personal credit cards to continue to finance the business. Sam Thacker is a partner in Austin, Texas-based Business Finance Solutions. The Best Ways to Prevent Overdue Accounts The best way to prevent overdue accounts is to avoid doing business with customers who have bad credit histories. "If it were only that simple," you say. If you limited yourself to doing business with companies with a spotless credit record, your pool of potential customers would be quite small. And unfortunately, as a growing business, you often have no choice but to do business with anyone who wants to do business with you. Even then, you dont always have complete control of the terms of your sales agreements. The reality is that your biggest and best clients want to be billed quarterly and then have 60 days to pay you. And you certainly dont want to cut off those clients.

While you dont want to destroy any potential or established business relationships by laying down harsh payment terms, you must take some control of your account receivables to avoid wreaking havoc with your cash flow. Youre not a bank, after all. These five steps can help your cash flow without endangering it. 1. Watch for new customers with a bad credit history. You cant expect that a company or a person with a history of bouncing checks or paying their bills late will change their ways when dealing with you. If you must do business with the chronically late, lay down your credit rules early and firmly and start the relationship off slowly. Keep the amount of product or services you offer a company with an iffy credit record to a minimum until theyve proven themselves worthy. And no matter how much you need the business, never start doing business with another person or company until you have a signed contract clearly stating and agreeing to payment terms. 2. Once you begin doing business with someone, make sure you stamp your invoices with the date that payment is due to you. Dont rely on the customer to look at the invoice date and add 30 days -- or whatever your payment terms are -- to determine the pay date. 3. Offer discounts for early payment and add interest to late payments. A typical discount is two percent to three percent off the total if the bill is paid within 10 days of the invoice date. The maximum amount of interest that can be charged varies by state. 4. Phone customers and start trying to collect the day after a payment is due. Never wait -- let them know that you keep close track of your accounts receivable. 5. Until a customer pays their bills, dont do any more business with them. Do not bend on this rule -- youll only cause yourself more problems and scuttle

any chance of collecting what youre owed. If you really want to keep doing business with a customer who owes you, insist that any new products or services they receive from you are c.o.d. -- cash on delivery. http://www.allbusiness.com/accounting-reporting/accounts-receivable/29762251.html 2.Optimize Your Accounts Receivable By Michael F. Hornung An investment in accounts receivable is a necessity for most companies to do business. However, too much receivables or too little can be unhealthy. An abnormally low level can be the result of over ambitious collection efforts or a credit policy that is too tight. These conditions can result in lost sales. An excessive receivables level can be the result of a credit policy that is too loose or inadequate collection efforts. These situations can result in increased bad debt and higher costs. You want to be at your optimum receivables level. The key measurements used to determine a companys receivable position are the Receivable Turnover Rate and Days Receivable. These ratios help you monitor your credit policies and collection performance. There are two ways of calculating these ratios. The method you will utilize will depend on what you are going to use it for. Receivables Turnover Rate: External Receivables Turnover Rate = Total Sales / Accounts Receivable For external comparisons you will divide your Total Sales by your Receivables. Compare your value to industry standards for your business such as those contained in: the Annual Statement Studies by the Risk Management Association; Industry Norms and Key Business Ratios by Dun & Bradstreet; or

those published by your trade association. You can determine where you stand relative to your industry and see if you need to take any actions. Internal Receivables Turnover Rate = Credit Sales / Accounts Receivable For internal evaluations, divide your Credit Sales by your Receivables. This is your true turnover rate. Compare this to your historical past or to a budget. This internal ratio is also used in deriving other measurements to assess a companys financial and operational performance. Days Receivable (Collection Period): Days Receivable (Collection Period) = 365 / AR Turnover Rate The internal value is the average time it takes you to collect your money. Any collection period more than 1/3 over normal selling terms is considered slow. Actions you can take to improve your position: Compare your values watching for discrepancies or undesirable trends. Increase your collection effort. If you offer terms of net 30, call your customers when their accounts reach 32 -35 days. Do not wait until the end of the month or 45 days. Tighten or loosen your credit policy if needed. Change the credit terms you offer your customers. If you offer terms of net 45, reduce it to net 30. You might offer a discount of 1% if paid within 10 days else net due in 30 days. This is equivalent to 18 % annual interest and most businesses will take those terms. Shorten your invoice process. Bill your customers as soon as possible. Do not wait until the end of the month. Invoice them at the time of shipment. This could reduce your days receivable by as much as 15 days. Email or fax your invoices

saving another day or two. Most new accounting software systems contain this feature. Post the payments you receive and make deposits more frequently. Place an emphasis on reducing billing errors. Most customers delay payments when an invoice has errors and do not recognize the invoice until it is corrected. I have seen one case where the customer did not notify the vendor of the error until the vendor called for collection. Finally, train your credit and collections personnel. How to use these ratios to improve your performance: You can determine how much Accounts Receivable you should have. Recommended Receivables Level = Total Sales / External Published Turnover Rate You can also determine the level of receivables required to support a specific sales volume. Receivables Investment = (Desired Level of Sales * % credit sales) Internal Turnover Rate You can use this formula to determine the additional amount of monies you will need to invest in receivables when contemplating an increase in sales. This information is very helpful when trying to establish next years budget and cash flow. http://www.hornungllc.com/optimizear.htm

Billing and Collections

With businesses looking for improved bottom line performance, better account receivables management, collections is a key focus area along with timely and accurate billing for organizations across industries. An effective collections strategy:

Increases receivables recovery rates Reduces bad debts Rationalizes costs through streamlined collections processes

First source is a leading global provider of collections and recovery solutions. First sources Collections practice was formerly Account Solutions Group (ASG). First source has over a decade of experience, a team of over 1400 collection agents across two continents and a broad range of proven services. First source solutions are designed to maximize collections and minimize write-offs. First source offers customized end to end collections management solutions

First source Collections Approach First source has leveraged best in class training and technology while adhering to regulatory requirements. This helps to deliver results that exceed our clients expectations. We offer solutions that reduce costs, increase profitability and dramatically increase the receivables recovered. First source accounts receivables collections practice provides:

Strict adherence to legal and regulatory issues involving third party collections and debt recovery Increased response rate from delinquent customers Increased inflow of payments helped by a multi-channeled collections strategy Mitigating write-offs by efficient accounts receivables management A broad range of payment recovery, first party and third party collections solutions A strong focus on delivery with a highly qualified operations team

Collections Approach First source has demonstrated expertise in anchoring billing and collection processes for Fortune 100 clients.

Our Collections practice features:

Focus on performance and compliance to deliver exceptional results that positively impact client bottom lines Expertise across diverse businesses, customers and products including Banking and Financial Services, Telecommunications and Media and Healthcare

Over 1400 collection agents, well versed with regulatory requirements, trained to handle calls for early and late stage collections Collection agents supported by a qualified operations leadership and process excellence teams

First sources strategies to drive collections results include:

Initial data scrub and scoring Multi-channeled telephony Customizable collections letters Skip tracing

Post-Charge Off Collections Our strategy ensures First source contacts and collects from the highest percentage of customers, translating to the greatest return and highest value for our clients. Pre-Charge Off Collections First sources pre-charge off programs assist our clients in minimizing write-offs. Our programs can be implemented in a first party or third party model and help our clients proactively manage their delinquent portfolios.

Early Stage Delinquency Calls Although most organizations realize the importance of contacting customers early in the delinquency cycle, not all have the resources necessary to sustain consistent and cost-effective collection treatment. First source provides a customized customer service approach to contacting customers and mitigating the threat of a write-off.

Our pre-charge off and post-charge off programs deliver benefits to clients including:

Increased response rates from delinquent customers Increased payments as a result of our multi-channeled collection strategy Demonstrated ability to set-up extended payment plans, therefore mitigating write-offs Maximizing economic performance through reduced costs and write-offs

1.2.1 INDUSTRY PROFILE

The Bicycle Industry or Cycling Industry can broadly be defined as the industry concerned with bicycles and cycling. It includes at least bicycle manufacturers, part or component manufacturers, and accessory manufacturers. It can also include distributors, retailers, bicycle organizations, bicycle event promoters, and bicycle related service providers. In the USA, it generated $6 billion of revenue in 2005. The most likely originator of the bicycle in German Baron Karl Von Drais, who rode his tenants. He patented his draisine, a number of which still exist, including one of the paleis let too museum in Apeldoorn, the Netherlands. These were pushbikes, powered by the action of the riders feet pushing against the ground. Scottish blacksmith Kirkpatrick Mac Million shakes creative credit with von drais for adding a treadle drive mechanism, in 1840, that enabled the rider to lift his feet off the ground while driving the rear wheel. However, some reports describe Macmillans vehicle as more of a quadricycle. In the 1850s and 1860s, Frenchman Ernest Michaux and his pupil Pierre lallement took bicycle design in a different direction, placing pedals on an enlarged front wheel. There creation, which came to be called the Boneshaker, featured a heavy steel fame on which they mounted wooden wheels with iron tires. Lallement emigrated to America, where he recorded a patent on his bicycle in 1866 in new haven, Connecticut.

Multiple innovators contributed to the history of the bicycle by developing precursor human-powered vehicles. The documented ancestors of today's modern bicycle were known as push bikes (still called push bikes outside of North America), draisines, or hobby horses. Being the first human means of transport to make use of the two-wheeler principle, the draisine (or mistmashine, "running machine"), invented by the German Baron Karl von Drais, is regarded

as the archetype of the bicycle. It was introduced by Drais to the public in Mannheim in summer 1817 and in Paris in 1818.[3] Its rider sat astride a wooden frame supported by two in-line wheels and pushed the vehicle along with his/her feet while steering the front wheel.

A penny-farthing or ordinary bicycle photographed in the koda Auto museum in the Czech Republic In the early 1860s, Frenchmen Pierre Michaux and Pierre Lallement took bicycle design in a new direction by adding a mechanical crank drive with pedals on an enlarged front wheel. Another French inventor by the name of Douglas Grasso had a failed prototype of Pierre Lallement's bicycle several years earlier. Several why-not-the-rear-wheel inventions followed, the best known being the rod-driven velocipede by Scotsman Thomas McCall in 1869. The French creation, made of iron and wood, developed into the "penny-farthing" (more formally an "ordinary bicycle", a retronym, since there were then no other kind).[4] It featured a tubular steel frame on which were mounted wire spoked wheels with solid rubber tires. These bicycles were difficult to ride due to their very high seat and poor weight distribution.

Bicycle in Plymouth, England at the start of the 20th century The dwarf ordinary addressed some of these faults by reducing the front wheel diameter and setting the seat further back. This necessitated the addition of gearing, effected in a variety of ways, to attain sufficient speed. Having to both pedal and steer via the front wheel remained a problem. J. K. Starley, J. H. Lawson, and Shergold solved this problem by introducing the chain drive (originated by Henry Lawson's unsuccessful "bicyclette"),[5] connecting the frame-mounted pedals to the rear wheel. These models were known as dwarf safeties, or safety bicycles,

for their lower seat height and better weight distribution. Starley's 1885 Rover is usually described as the first recognizably modern bicycle. Soon, the seat tube was added, creating the double-triangle diamond frame of the modern bike. In daily life A commuting bike in AmsterdamAround the turn of the 20th century, bicycles reduced crowding in inner-city tenements by allowing workers to commute from more spacious dwellings in the suburbs. They also reduced dependence on horses. Bicycles allowed people to travel for leisure into the country, since bicycles were three times as energy efficient as walking and three to four times as fast. A bike-sharing station in Barcelona Recently, several European cities have implemented successful schemes known as community bicycle programs or bike-sharing. These initiatives complement a city's public transport system and offer an alternative to motorized traffic to help reduce congestion and pollution. Users take a bicycle at a parking station, use it for a limited amount of time, and then return it to the same or different station. Examples include Bicing in Barcelona, Vlo'v in Lyon and Vlib' in Paris.

A man uses a bicycle to cargo goods in Ouagadougou, Burkina Faso.In cities where the bicycle is not an integral part of the planned transportation system, commuters often use bicycles as elements of a mixed-mode commute, where the bike is used to travel to and from train stations or other forms of rapid transit. Folding bicycles are useful in these scenarios, as they are less cumbersome when carried aboard.

The 20th Century Cycling steadily became more important in Europe over the first half of the twentieth century, but it dropped off dramatically in the United States between 1900 and 1910. Automobiles became the preferred means of transportation. Over the 1920s, bicycles gradually became considered children's toys, and by 1940 most bicycles in the United States were made for children. In Europe cycling remained an adult activity, and bicycle racing, commuting, and "cyclotouring" were all popular activities. In addition, specialist bicycles for children appeared before 1916.[30] Bicycles continued to evolve to suit the varied needs of riders. The derailleur developed in France between 1900 and 1910 among cyclotourists, and was improved over time. Interestingly, only in the 1930s did European racing organizations allow racers to use derailleurs; until then they were forced to use a two-speed bicycle. The rear wheel had a cog on either side of the hub. To change gears, the rider had to stop, remove the wheel, flip it around, and remount the wheel. When racers were allowed to use derailleurs, racing times immediately dropped. See bicycle gearing. At mid-century there were two predominant bicycle styles for recreational cyclists in North America. Heavyweight cruiser bicycles, preferred by the typical (hobby) cyclist, featuring balloon tires, pedal-driven "coaster" brakes and only one gear, were popular for their durability, comfort, streamline appearance, and a significant array of accessories (lights, bells, springer forks, speedometers, etc.). Lighter cycles, with hand brakes, thinner tires, and a three-speed hub gearing system, often imported from England, first became popular in the United States in the late 1950s. These comfortable, practical bicycles usually offered generatorpowered headlamps, safety reflectors, kickstands, and frame-mounted tire pumps. In the United Kingdom, like the rest of Europe, cycling was seen as less of a hobby, and lightweight but durable bikes had been preferred for decades.

In the early 1980s, Swedish company Itera invented a new type of bicycle, made entirely of plastic. It was a commercial failure.

Recumbent Bicycle
Main article: Recumbent bicycle

2008 Nazca Fuego short wheelbase recumbent with 20" front wheel and 26" rear wheel. In 1934, the development of the bicycle was truncated by the UCI's banning of the recumbent bicycle from all forms of racing. This stemmed from discomfort at Francis Faure, a mere category 2 racer, humiliating many class 1 racers while riding Mochet's Velocar. The clear superiority of this frame geometry for level races made upright bicycle manufacturers (the sponsors of the UCI) uncomfortable, who lobbied for a ban. This motion was passed after a long and heated meeting, and by only a handful of votes in a near split decision. This resulted in the stagnation of the upright racing bike's frame geometry which has remained essentially unchanged for 70 years. This stagnation finally started to reverse with the formation of the International Human Powered Vehicle Association which holds races for "banned" classes of bicycle. One such vehicle currently holds the human powered speed record of 82mph on level ground.

Mountain bikes Main article: History of the mountain bike In 1981, the first mass-produced mountain bikes appeared, intended for use offpavement over a variety of surfaces. The mountain bike was an immediate success, and mountain bikes flew off retailers' shelves during the 1980s, their popularity spurred by the novelty of all-terrain cycling and the increasing desire of urban dwellers to escape their surroundings via mountain biking and other extreme sports. These cycles featured sturdier frames, wider tires with large knobs for increased traction, a more upright seating position (to allow better visibility and shifting of body weight), and increasingly, various front and rear suspension designs. By 2000, mountain bike sales had far outstripped that of racing, sport/racer, and touring bicycles.[citation needed]

The 2005 Giant Innova is an example of a typical 700C hybrid bicycle. It has 27 speeds, front fork and seat suspension, an adjustable stem and disc brakes for wet-weather riding.

Hybrid bikes In recent years, bicycle designs have trended towards increased specialization, as sales of bicycles to casual cyclists and commuters have grown. For the latter group, the industry responded with the hybrid bicycle, otherwise known as the city bike, cross bike, or commuter. These designs often combine elements of road racing and mountain bikes, using mid-level components. The term is used flexibly, with bikes ranging from fast and light racing-type bicycles with flat bars and other minimal concessions to casual use, to wider-tired bikes designed for primarily for comfort, load-carrying, and increased versatility over a range of different road surfaces. While historically most bike frames have been steel, recent designs, particularly of high-end racing bikes, have made extensive use of carbon and aluminum frames. Recent years have also seen a resurgence of interest in balloon tire cruiser bicycles for their low-tech comfort, reliability, and style. In addition to influences derived from the evolution of American bicycling trends, European, Asian, and African cyclists have also continued to use traditional roadster bicycles, as their rugged design, enclosed chainguards, and dependable hub gearing make them ideal for commuting and utility cycling duty.

1.2.2 COMPANY PROFILE MURUGAPPA GROUP The Murugappa Group, headquartered in Chennai, India, is a Rs 9,582 crore (USD 2.4 billion) conglomerate with interests in engineering, abrasives, finance, general insurance, fertilisers, farm inputs, sugar, bio-products, nutraceuticals, cycles and plantations. It has 29 limited companies under its umbrella, with manufacturing facilities spread across 13 states in India. Together, they have over 30,000 employees. The Group, which has forged strong joint venture alliances with leading international companies like DBS Bank, Mitsui Sumitomo, Cargill, China Engineering & Expoloration Bureau and Groupe Chimique Tunisien, has consolidated its status as one of the fastest growing diversified business houses in India. The business has its origins in 1900, when Dewan Bahadur A M Murugappa Chettiar established a money-lending and banking business in Burma (now Myanmar), which then spread to Malaysia, Sri Lanka, Indonesia and Vietnam. In these 100-plus years, it has withstood enormous vicissitudes, including strategically moving its assets back to India and restarting from scratch in the '30s, before the Japanese invasion of Burma in World War II. Starting with a sandpaper plant, the Group forayed into making steel safes, and then into manufacturing. It set up an insurance company, and bought a rubber plantation; making a small but significant beginning. The rest is history. Today, it is one of the country's biggest industrial houses. Group turnover crossed the USD 1 billion mark in 2003-04, with an impressive growth of 25 per cent over Rs 4,206 crore in 2002-03, and a 40 per cent jump in profit before tax over the previous year. Consolidated Group turnover for 2004-05 crossed USD 1.44 billion, a growth of 20 per cent over the previous year. In 2005-06, combined turnover increased by 17 per cent to USD 1630 million (Rs 7,340 crore) and net profit (PBT) by 45 per cent to USD 177 million (Rs 800 crore). The Group ended

the year 2006-07 with a turnover of Rs 8,446 crore, and profit before tax of Rs 649 crore. The year 2007-08 saw a turn over of Rs USD 2.4 billion(Rs 9,852 crore) and has the Group well on its way to achieving its vision of becoming a USD 4 billion conglomerate by 2010. The group companies are: Tube Investment of India Ltd, Cholamandalam Investment & Finance Co Ltd, Carborundum Universal Ltd, Coromandel Fertilisers Ltd, EID Parry (India) Ltd, Parry agro Industries Ltd and Parry Confectionery Ltd. Values and beliefs: The Five Lights The values, principles and beliefs that have always guided us and continue to show the way forward. Integrity, Passion, Quality, Respect, Responsibility.

The Murugappa group turnover grows by over 15 per cent; EBIDTA grows by over 17 per cent The Murugappa group ended the year 2007-08 with a group turnover of Rs. 9582 crores and EBIDTA of Rs. 1075 crores. Over the previous year, Sales grew by 15.5 per cent and the EBIDTA grew by 17.4 per cent. The Group maintained its pace of investment with a capital expenditure to the tune of about Rs. 580 crores

during 2007-08. The investment phase will continue in the year 2008-09 also to support this growth momentum. Summary of Gross Sales and Profitability (EBIDTA) is presented below: Rs. Crores Group Companies Carborundum Universal Ltd (CUMI) Chola DBS Finance Ltd. (CDFL) Coromandel Fertilisers Ltd. (CFL) EID Parry Parryware ROCA Pvt. Ltd (PRPL) Tube Investment of India Ltd (TII) Others Total Growth Gross over Last Sales Year 986 946 3800 681 372 1933 864 9582 43% 116% -3% 14% 24% 9% 44% 15.5% Growth EBIDTA over Last Year 162 97 456 19 41 146 154 1075 23% 84% 36% -79% 5% -22% 91% 17.4%

Board of Directors: M A. Alagappan A. Vellayan M M. Murugappan N. Srinivasan Sridhar Ganesh Executive Chairman Vice Chairman Director Technology of the Murugappa corporate board Director Finance of the Murugappa corporate board Director Human Resource of the Murugappa corporate board

Tube Investment of India Limited Tube Investments of India Ltd is part of the USD 2 billion Murugappa Group. Over the past five decades, the company has honed its competencies in the field

of metallurgy, engineering, design and development. It has four divisions , they are: TI Cycles, Tube Products of India (TPI), TIDC India and TI Metal Forming. Tube Products of India (TPI) TPI is India's undisputed market leader in cold drawn welded (CDW) steel tubes. Set up in 1955, the company produces precision steel tubes, CR strips and high strength tubular components that cater to the demanding needs of the automobile, general engineering, boiler, white goods and fine blanking industries. A TS16949 and ISO 14001 certified company, TPI is the preferred supplier of precision welded tubes to major automotive companies in India and abroad. The International Business Division (IBD) was formed to focus on international markets, gearing TPI to compete with global tube manufacturers. The most recent addition to TPI is the Tubular Components Division (TCD), which manufactures tubular auto components, providing the advantage of weight reduction, higher component efficiency and cost reduction. TIDC India TIDC is one of India's leading manufacturers of power transmission chains for the industrial, automotive and agricultural segments. The company was established in 1960 and today is the undisputed market leader in both the industrial and automotive chains. The company made a foray into fine blanking in line with its vision of becoming a prominent global player in power transmission components, and is now a major supplier of FB components to the automotive industry. Currently, about 45 per

cent of the company's turnover is from exports and this is an indication of its growing global presence. TIDC exports chains under the brand name 'Rombo'. Its chains have gained recognition in Europe, the US, Japan, South America and Asian markets for high quality and reliability. Over 50 per cent of the chains exported are for special applications. In the domestic market the 'Diamond' brand chains cater to a range of two wheelers and industrial OEMs. TIDC also services the after-market with kits and chains through a well-established distribution network and warehouses. A new plant has been set up in Uttarkhand to cater to the North Indian market. TI Metal Forming Pioneers in cold roll forming, TIMF manufactures precision value-added sheet metal components like car door frames, sashes, divisional channels, stainless steel rails, chassis long members, deep drawn parts, hydroformed parts, CRF sections for the Indian Railways, etc. Established in 1965 as a division of Tube Investments, TIMF's key target customers are auto OEMs, Indian railway wagon builders, tier 1 auto components manufacturers, etc. TI Cycles of India

TI Cycles of India, one of the leading bicycle manufacturers in India, started in 1949, has been at the forefront of innovations and is a pioneer in the market of cycles. TI cycles are the makers of countrys most famous brands like Hercules, BSA cycles. The companys vision is to be a worldwide leader in cycling and cycling solutions by instilling the pride of ownership in the customers. Currently it is the third largest cycle manufacturer in India and number one manufacturer in special segments like Mountain bikes, Sports Lite Roadsters,

Racing bikes etc. It has manufacturing capacity of around three million bicycles per year. The company is a market leader in the value-added special segment, with a 50 percent market share. At present, TI has thirteen BSA GO stores across India. TI Cycles India Ltd (TCIL) will soon launch a new bicycle, targeted at the urban adults, in the 24-30 age group. The new launch would be in the BSA range and would hit the market by next month. The bicycle would be priced at around Rs 2,700 and would be available in the ladies and mens range.

Brands: The flag ship brand of TI cycles portfolio, this brand of ours is still as young as ever. Hercules stands for a unique pride of possession - anchored in the timetested values of heroism and integrity, to which the brands customers subscribe in their own lives. Another Flagship Brand of TI cycles, BSA stands for Birmingham Small Arms. It signifies the joy of cycling; fun and comfort go hand in hand with BSA. BSA today is an intrinsic part of the Indian family with cycles for everyone - kids, teens and adults.

Certificates

ISO 9001:2000 ISO14001-2004 OHSAS18001-2007

Manufacturing Locations

Chennai Nashik Noida

TI Cycles is an exporter to many regions across the global - Europe, South East Asia and Africa; being some of them. They Export to France Netherlands The UK Germany Kenya Tanzania Uganda UAE Mozambique Srilanka Bangladesh

FINANCE DEPARMENT- STRUCTURE

DGM-FINANCE

Manager (Mgt alc)

Manager

Deputy Manager Costing

Deputy Manager MIS

Executives Payables

Exclusives Receivables

Plant/Regional Acco unity

1.2.3 PRODUCT PROFILE TI cycles is one of the largest integrated cycle manufacture in Asia, Manufactures high quality bicycles for both domestic and international market. TICI manufactures and markets the HERCULES and BSA brands.

Infants Baby Stroller Tricycle Baby Walker Kids Champ shox 20 Champ Girlz 20'' Champ Dew 10" Champ Star 12' Champ Magic 16" Champ Toonz 18' Rocket 20'' Champ Frendz 20" Boys Arrow 24' Apex 24'' Blazer IC 26'' AXN DX Jr

Ryders ACT 104 Thriller Plus Foldman Thriller

Girls Ladybird Splash Ladybird Ex Ladybird Shine Diana Captain Shakti Popular Adults Ryders ACT 105 Ryders ACT 106 Ryders ACT 107 Ryders ACT 108 New Hercules BSA Deluxe BSA Supreme Supreme Ladies

Accessories Red pump Orange pump Yellow pump Silver pump Helmets Cable lock Bells Safety Pads Grips Fitness Leg Magic- HB 7018B Stepper- HB 6388 Treadmill 8625 C Dolphin- V4

CHAPTER - 2 DATA ANALYSIS AND INTERPRETATION 2.1 CORRELATION ANALYSIS 2.1.1 TABLE SHOWING CORRELATION BETWEEN SALES & DEBTORS (RS. in Crores) YEAR 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 SALES(X) 1257 1563 1584 1759 1925 DEBTORS(Y) 264 296 210 281 300

X 1257 1563 1584 1759 1925 8088

Y 264 296 210 281 300 1351

X2 1580049 2442969 2509056 3094081 3705625 13331780

Y2 69696 87616 44100 78961 90000 370373

XY 331848 462648 332640 494279 577500 2198915

XY = 2198915, X = 8088, Y = 1351, X2= 13331780, Y2= 370373,

XY - X * Y N r= X - (X) N Y - (Y) N

2198915 - (8088*1351) 5 r= 13331780-(8088)2 5 2198915 2185377.6 r= 248631.2 * 5332.8 13537.4 r= 36407.7 r= 0.37. = 498.6 * 73.02 13537.4 370373-(1351)2 5

INFERENCE: The above calculation reveals that sales and debtors are positively related. It indicate that when the sales increase, the debtor also increase and vice-versa.

2.2 AGING SCHEDULE 2.2.1 TABLE SHOWING THE OUTSTANDING AMOUNT FOR THE YEAR 2007-2008

OUTSTANDING PERIOD (in days) 0-30 31-60 61-90 91-120 121-150 151-180 ABOVE 181 TOTAL

OUTSTANDING

PERCENTAGE OF

AMOUNT OUTSTANDING AMOUNT 1230.00 88.17 151.67 10.87 9.42 0.68 1.16 0.08 0.62 0.04 0.39 0.03 1.73 0.13 1394.99 100 Outstanding amount X100 Total outstanding amount

Percentage of outstanding amount =

2.2.1 CHART SHOWING THE OUTSTANDING AMOUNT FOR THE YEAR 2007-2008

INFERENCE: The above statement shows the ageing statement of the year 2007 2008. The outstanding amount is 88.17% in 0 30 days & it has been decreased to 10.87% in 31-60 days, which implies that customers need minimum 60 days of credit period to repay their debts. 2.3 COLLECTION PERIOD AND CREDIT POLICIES DEBTORS TURNOVER RATIO 2.3.1 TABLE SHOWING DEBTORS TURNOVER RATIO (RS. in Crores)

DEBTORS TURNOVER YEAR 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 CREDIT SALES 1257 1563 1584 1759 1925 DEBTORS 264 296 210 281 300 RATIO( in times) 4.76 5.28 7.54 6.25 6.41

2.3.1 CHART SHOWING DEBTORS TURNOVER RATIO

INFERENCE: The above table shows that the Debtors Turnover Ratio has been increased. Since, sales values has been increased as well as the debtors values were also been increased. In the year 2003 2004 debtors turnover ratio is 4.76 & it has been increased to 6.41 in the year 2007 2008. Generally higher the value of debtors turnover the more efficient is the management of debtors. AVERAGE COLLECTION PERIOD 2.3.2 TABLE SHOWING AVERAGE COLLECTION PERIOD (RS. in Crores)

AVERAGE YEAR 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 DEBTORS 264 296 210 281 300 CREDIT SALES 1257 1563 1584 1759 1925 COLLECTION PERIOD ( in days) 76.6 69.1 48.3 58.3 56.8

2.3.2 CHART SHOWING AVERAGE COLLECTION PERIOD

INFERENCE: The above table and chart shows that the debt collection period has reduced in the consecutive years, as the credit collection is done faster. Also it is noted that the debt collection period is get minimized after 2004 continuously, thus the company is reviewing its credit policy every year to collect the debts with in stipulated time period. 2.3.3 CREDIT POLICY Credit policies and procedures that focus upon development of an optimal level of sales:

a. New customer policy and procedures:

1. A credit application with each request 2. Procedures that outline expected turnaround time for making a credit decision on new accounts 3. Procedures that outline the specific mode for communicating the request for credit and the credit decision 4. Responsibility for establishing and keeping current credit department files (includes nature of contents to be included in file) 5. A policy for authorizing and communicating credit limits

b. Policies and procedures that relate to terms of sale:

1. Terms established by industry; clear communication internally and to customers 2. A discount chargeback policy; procedures for follow-up consistently applied and monitored 3. A late payment service charge policy; procedures for follow-up consistently applied and monitored 4. A policy for requests for extended term arrangements; necessary approvals clearly specified 5. A blanket approval policy (Small orders below specified amounts are either cash or automatically approved)

C. Policy and procedures that govern credit investigations:

1. A sign-off policy for responsibility of the control of the account developed by the size of the account 2. Use of credit-reporting agencies clarified by the requirements for types of reports to be utilized 3. A policy and procedure that outlines obtaining bank references detailing the type of information needed 4. A policy and procedure that outlines obtaining trade references with details of information needed 5. Financial statement requests from customers and procedures for the analysis of statements with key focal points.

STEPS IN CREDIT POLICY: 1. Before providing credit to a new client, consider sourcing credit reports or checks to investigation their credit rating. This is prudent if they are applying for a large amount of credit and should help to prevent any problems later on. 2. The Credit application document should include a request for information such as middle name, date of birth, home address, telephone no and mobile and also a secondary contact with their telephone and address. 3. Seriously consider implementing a directors or personal guarantee document for the client to sign at the outset. This can act as a filter to deter bad payers and can greatly improve the chances of recovering the debt if further action is necessary. 4. Clearly explaining the terms of trade at the start of the relationship. Display it on all invoices and avoid changing the rules- never give debtors an excuse not to pay.

5. The monthly client statements to show: current| overdue| pay now|. If offered traditional: current| 30 dys|60 dys|90 days| then this system tells clients that payment in three months time is acceptable. 6. Monitoring the receivables on a regular basis, Rank debtors according to value and risk. 7. Reviewing any reports that indicate a change in buying habits or client spend. A change in volume could be an indication that other suppliers are revoking credit. 8. Asking the sales team to report directly on any information they may pick up in the field about a client. 9. Deducting bad debts from the figures of your sales reps. Structure it such that not pay commission or bonuses when the client doesnt pay . This will improve the quality of new clients. 10. Be sure to keep the system simple and paperwork orderly. Retain signs delivery dockets to avoid potential misunderstandings or disputes. 11. If an account goes beyond the trade terms, telephone the client and ask for payment. At this stage reminder should be polite and inoffensive. 12. If a client requests extended credit this should be interpreted as a red flag. Probe thoroughly and make a decision based on their particular situation and the cash flow requirements. 13. If the account remains unpaid, stop supply to that client immediately. Implement this procedure as standard. 14. Advise the client through telephone. Try to uncover the nature of the problem or dispute and work towards an arrangement that suits both parties.

Collection Process:

The department is responsible for performing collection activity. Form letters and/or statements may be supplemented with telephone collection calls. Sales personnel will be advised of particular problems. In some cases, credit personnel will visit customers. If appropriate payment arrangements cannot be made, the credit department may with hold further sales. The Credit Department determines if an account is not collectable by the above means. Uncollectable accounts usually include bankruptcies (Bankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay its creditors. Creditors may file a bankruptcy petition against a debtor ), assignments to creditors, and customers that do not respond to our normal collection activities. In such cases, the accounts will be referred to collection agencies. An alternative company might rely solely on telephone contacts. All customers will be called when their payment date is over. At least three calls will be initiated. If no payments are received, the sales representative will be asked to contact the customer. If there is still no response, the Controller of our firm will decide if an account should be sent to their collection agencies. Or a different approach may leave collection responsibility with the sales force: The Credit Department monitors all collection for the company. The department provides Sales representatives with a weekly list of customers who dint pay the amount. The Sales Representative makes customer contacts and advises of results. If delinquency still exists after an additional days, orders are with held.

The Credit Department will then supplement these calls with final collection letters or statements. If payments are still not received after an additional days, the Credit Department will determine if referral to an agency is warranted.

Credit Period: The Customers are given 30 days of credit time, if they exceed 30 days, then further sales will he help up till they repay their due amount.

Credit Discount period:

No.of.Days 1-7 8-15 16-25

Percentage of Discount 1.5% 1% 0.5%

Collection of amount is done through: Real Time Gross Settlement (RTGS)

This system is a funds transfer mechanism where transfer of money takes place from one bank to another on a real time and on gross basis. This is the fastest possible money transfer system through the banking channel.

RTGS transaction: The RTGS system is primarily for large value transactions. The minimum amount to be remitted through RTGS is Rs.1 lakh

TERMS AND CONDITIONS DURING SALES:

1. All goods are supplied as per companies standard or mutually agreed specification. 2. Goods once sold will not be taken back 3. 18% interest will be charged if payment is not made with in the due date. 4. Only the companys official receipts will be accepted as proof of payment. 5. All remittances by cheque/ pay order/ drafts etc. should be drawn in the name of the company only.

2.4 OPERATING CYCLE Operating cycle = Inventory holding period + Collection period

Where, Inventory holding period = 365 days/ Inventory turnover ratio Where, Inventory turnover ratio = Cost of goods sold / Average Inventory INVENTORY TURNOVER RATIO: YEAR 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 COST OF GOODS SOLD 719 853 873 937 1084 AVERAGE INVENTORY 101 128 158 186 216 INVENTORY TURNOVER RATIO 7.11 6.66 5.52 5.04 5.01

INVENTORY HOLDING PERIOD:

YEAR 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008

365 DAYS 365 365 365 365 365

INVENTORY TURNOVER RATIO 7.11 6.66 5.52 5.04 5.01

INVENTORY HOLDING PERIOD 51 54 66 72 73

2.4.1 TABLE SHOWING OPERATING CYCLE: YEAR 2003-2004 2004-2005 2005-2006 INVENTORY HOLDING PERIOD 51 54 66 COLLECTION PERIOD 76 68 48 OPERATING CYCLE 127 122 114

2006-2007 2007-2008

72 73

57 56

129 129

2.4.1 CHART SHOWING OPERATING CYCLE

INFERENCE: The above table shows that the operating cycle has been increased from 127 days in the year 2003 2004 to 129 days in the year 2007 2008. Even though the collection period is less but the inventory holding period is high. So the time gap has been increased. 2.5 BAD DEBT TO DEBTORS RATIO 2.5.1 TABLE SHOWING BAD DEBT TO DEBTORS RATIO (RS. in Crores) YEAR 2003-2004 2004-2005 2005-2006 BAD DEBTS 1.72 2.62 1.16 DEBTORS 264 296 210 BAD DEBT TO DEBTORS RATIO (%) 0.65 0.88 0.55

2006-2007 2007-2008

0.21 1.11 Bad debts

281 300

0.07 0.37

Bad debts to Debtors ratio = ----------------------- X 100 Debtors 2.5.1 CHART SHOWING BAD DEBT TO DEBTORS RATIO

INFERENCE: The above table shows that percentage of bad debts to sales of TI CYCLES OF INDIA for the year 2003 2004 as 0.65% has been reduced to 0.37% in the year 2007 2008.This indicates that the company has good collection of their debts from the customers. CHAPTER-3 3.1 FINDINGS The sales and debtors are positively related. It indicate that when the sales increase, the debtor also increase and vice-versa. The above statement shows the ageing statement of the year 2007 2008. The outstanding amount has been decreased from 88.17% in 0 30

days & it has been decreased to 10.87% in 31-60 days, which implies that customers need minimum 60 days of credit period to repay their debts. The Debtors Turnover Ratio seems to be increased. Since, sales values has been increased as well as the debtors values were also been increased. In the year 2003 2004 debtors turnover ratio is 4.76 & it has been increased to 6.41 in the year 2007 2008. Generally higher the value of debtors turnover the more efficient is the management of debtors. The debt collection period has reduced in the consecutive years, as the credit collection is done faster. Also it is noted that the debt collection period is get minimized after 2004 continuously, thus the company is reviewing its credit policy every year to collect the debts with in stipulated time period. The operating cycle has been increased from 127 days in the year 2003 2004 to 129 days in the year 2007 2008. Even though the collection period is less but the inventory holding period is high. So the time gap has been increased. The percentage of bad debts to sales of TI CYCLES OF INDIA for the year 2003 2004 as 0.65% has been reduced to 0.37% in the year 2007 2008. This indicates that the company has good collection of their debts from the customers.

3.2 SUGGESSTIONS The study on Receivables Management in TI CYCLES OF INDIA implies that the company can be more flexible in their credit policies. The company can focus on the already existing customers. In order to increase sales, look to current customers. Understand customer profitability and the future potential. Get referrals from satisfied customers.

The Outstanding amount of the company can be reduced by providing more credit period for the customers. If the Average collection period of the company is reduced then the collection can be done early and the company no needs to look for other alternative for their further investments. The operating cycle of the company should be reduced because the long operating cycle tends to harm profitability by increasing borrowing requirements and interest expense. The bad debts of the company can be reduced by improving their collection process. The company should setup some collection centers in order to accelerate cash flows. By increasing the effectiveness of collection agencies the company can collect their debts easily from their customers.

3.3 CONCLUSION

The purpose of the study was to identify the impact of receivables management of the TI Cycles of India. The company is very sound in managing its receivables and is capable of meeting the future needs and demands of the customers requirements.

The Company has maintained their accounts receivables properly, which not only improves the cash in flow but also improves the sales volume also in turn improve the profitability of the company.

Credit is all about companys future business; company should concentrate on Receivable Management. If the suggestions are considered the company have better receivables management in the organization. The implementation of proper Receivable Management will improve the Working Capital management and overall efficiency of the operation of the company.

REFERENCES

Books: T.S. Reddy and A. Murthy Financial Accounting, Margham Publications, fourth edition. M Y Khan, P K Jain Financial Management, Tata Mc Graw Hill publishing company limited.

I M Pandey, Financial Management, Tata Mc. Graw Hill publishing company limited.

Web site: www.ticyclesIndia.com www.tiindia.com/fin_annual.html http://www.allbusiness.com/accounting-reporting/accounts-receivable/29762251.html

A2