REPORT

ON
ACCOUNT RECEIVABLE MANAGEMENT
TATA STEEL

Prepared by
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Date: 21-05-202

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EXECUTIVE SUMMARY

The project deals in account receivable management at Tata Steel. Receivable management
is one of the most important aspects of the organization, as it deals with the management of the
outstanding. The profit of the company mainly depends on the accounts receivables. Therefore it
needs a careful analysis and proper management.

Debtors occupy an important position in the structure of current assets of a firm. They are the
outcome of rapid growth of trade credit granted by the firms to their customers. Trade credit is
the most prominent force of modern business. It is considered as a marketing tool acting as a
bridge for the movement of goods through production and distribution stages to customers.

Till few years back, Tata Steel had a very strict policy of selling against advance payments. That
was an era of controlled economy. However, with an increasing domestic and international
competition, Tata Steel could no longer afford this policy, in order to maintain its premium
position. Further in order to capture a greater amount of market share, it was compelled to go by
the industry norms and thus it ushered into the new era of credit sales. This resulted in credit
sales going up significantly. A credit limit was sanctioned to every customer. The customers were
required to pay the outstanding amount on the due date.

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CONTENTS PAGE NO.

COMPANY PROFILE 02

TREND OF SALES 03

TREND OF DEBTORS 04

DIVISION/PROFIT CENTRE WISE DEBTORS IN TATA 05

STEEL FOR FY 07-08

TRENDS OF DEBTORS IN TATA STEEL 06

CREDIT POLICY OF TATA STEEL 07

CREDIT TERMS OF TATA STEEL 07-08

TATA STEELS CREDIT MONITORING AND CONTROL 08-10

OPERATIONAL WORKING AT TATA STEEL FOR MANAGING 11-12

DEBTORS
UNDERSTANDING THE DEBTORS PROCESS SYSTEM 13

PROJECT ACTIVITY CHART 14

CREDIT ASSESSMENT POLICY 15-16

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INTRODUCTION

Accounts receivable is an accounting transaction which deals with the billing of customer who
owes money to a person, company or organization for goods and services that has been provided
to the customers. In most business entities this is typically done by generating an invoice and
mailing or electronically delivering it to the customer, who in turn must pay it within an
established timeframe called credit or payment terms.

The term receivable management is defined as debt owed to the firm by customer arising
from the sale of goods/ services in the ordinary course of business. The receivable represents
an important component of the current assets of the firm. Receivables may be known as accounts
receivables, trade creditors or customer receivable. When a firm its products / services and does
not receive cash for it immediately, the firm has said to be granted trade credit to the customers.
Trade credit thus creates receivable / book debts, which the firm is expected to collect in near
future. Accounts receivable are thus amounts due from customers, which bear no interest in
essence, a company is providing no cost financing to the customer to encourage the purchase of
the companys product/services.

Objective of receivable management To promote sales and profit until that point is reached
where the return on investment in further funding of receivable is less than the cost of funds
raised to finance that additional credit(i.e. cost of capital)

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COMPANY PROFILE

Backed by 100 glorious years of experience in steel making, Tata Steel is the worlds 6th largest
steel company with an existing annual crude steel production capacity of 30 Million Tons Per
Annum (MTPA). Established in 1907, it is the first integrated steel plant in Asia and is now the
world`s second most geographically diversified steel producer and a Fortune 500 Company Tata
Steel has a balanced global presence in over 50 developed European and fast growing Asian
markets, with manufacturing units in 26 countries.

Tata Steel`s Jamshedpur (India) Works has a crude steel production capacity of 6.8 MTPA which
is slated to increase to 10 MTPA by 2010. The Company also has proposed three Greenfield steel
projects in the states of Jharkhand, Orissa and Chhattisgarh in India with additional capacity of
23 MTPA and a Greenfield project in Vietnam. Tata Steel, through its joint venture with Tata
BlueScope Steel Limited, has also entered the steel building and construction applications
market.

The iron ore mines and collieries in India give the Company a distinct advantage in raw material
sourcing. Tata Steel is also striving towards raw materials security through joint ventures in
Thailand, Australia, Mozambique, Ivory Coast (West Africa) and Oman. Tata Steel has signed an
agreement with Steel Authority of India Limited to establish a 50:50 joint venture company for
coal mining in India. Also, Tata Steel has bought 19.9% stake in New Millennium Capital
Corporation, Canada for iron ore mining.

Exploration of opportunities in titanium dioxide business in Tamil Nadu, Ferro-chrome plant in

South Africa and setting up of a deep-sea port in coastal Orissa are integral to the Growth and
Globalisation objective of Tata Steel.

Tata Steels vision is to be the global steel industry benchmark for Value Creation and
Corporate Citizenship.

Tata Steel India is the first integrated steel company in the world, outside Japan, to be awarded
the Deming Application Prize 2008 for excellence in Total Quality Management.

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TREND OF SALES

FY2004- FY FY FY
YEARS FY 2003-0405 2005-06 2006-07 2007-08

SALES 11920.96 15876.87 17144.22 19762.57 22191.8

Analysis
PRODUCT WISE NET
SALES ARE AS FOLLOWS The increase in the net sales of Tubes division
was due to the increase in both the volume as
FY 2006- FY well as prices. The Ferro Alloys and Minerals
07 2007-08
STEEL 14858 16541
division of the company registered a growth of
TUBES 1099 1217 24% in terms of value though there was a
FERRO ALLOYS AND
MINERALS 1454 1808 decline in terms of quantity due to the
BEARINGS 140 127 companys decision during the year to stop the
sale of ores. There was a decline in the net
sales of the Bearings division of the company
mainly due to lower off -take by the
automotive sector, which is a major customer
sector of the division.

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TREND OF DEBTORS

FY FY2004- FY FY FY
YEARS 2003-04 05 2005-06 2006-07 2007-08

DEBTORS 756.06 581.82 539.4 631.63 543.48

Analysis

There has been decrease in the trend of debtors in last five years, from Rs.756.6crores to
Rs.543.48 cores. This decrease in debtors shows a more profit to the company. The increase
in the debtors during 2006-07year might be due to the acquisition of CORUS.

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DIVISION/PROFIT CENTRE WISE DEBTORS IN TATA
STEEL FOR FY 07-08

PROFIT CENTERS For the FY 06-07 For the FY 07-08

STEEL 509.09 397.84
WIRE DIVISION 43.82 33.30
TUBES 37.01 31.13
BEARINGS 7.01 7.29
F.A.M.D 70.44 107.59
TOTAL 667.37 577.15
DEBTORS

TRENDS OF DEBTORS IN TATA STEEL

Debtors Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
FY 06-07 614 688 756 663 658 753 680 670 731 709 774 667
FY 07-08 694 687 662 683 669 767 733 636 677 691 716 577

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CREDIT POLICY OF TATA STEEL
The credit policy provides the yardstick for measurement of credit level of receivables and is the
indentified and compared monthly, as per the requirements. The policy is influenced by the nature
of market and strength of the competition. The policy clearly defines the standard for target debtor
level, which in turn is a significant influence both ion payment terms and on the whole of the credit
control operation, since it determines how much tolerance, if any, is to be shown to slow paying
customer.
TATA STEEL has a body known as credit control committee, which formulates and gives the final
approval for many credit policy matters. The credit guidelines as they have emerged today are
combined efforts of finance and marketing department.
The credit control committee is headed by Sr.V.P & E.D (F&A) and consists of all product and
sales manager from various divisions along with G.M (F&A) and other concerned executives as
its members. The committee meets at least in two months.
The annual limit of credit sale is provided by Sr.V.P (F&A) in consultation with other
management officials. The committee then discusses in detail about the breakup of the above lump
into the credit limits for different sales offices and also for various customers i.e. both regional and
party wise credit limit is set by the body.
Hence the basic purpose this committee is to set the standard and also have the overall control of
the credit situation, thereby keeping the financing of the working capital cost effective and
preventing any liquidity problems from arising.
As a general rule, credit is allowed to customer who takes large and repeated orders. One time
customers are not entertained for credit.

CREDIT TERMS OF TATA STEEL

The credit terms, i.e. the credit period and cash discount, followed by TATA STEEL are as
follows:
CREDIT PERIOD: the credit period is decided on the basis of the type of the product
and is generally of fixed nature. However, special customer may be allowed a variance in the set
credit period depending upon the volume of sales and customer relationships.

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 INTEREST CHARGED: interest free credit is allowed for 30 days in most cases. A
every 30 days extension there is a 1% rise in interest rate for secured credits. The rate of interest
for unsecured credit is1% more than the corresponding rate under secured credit . there is a penal
interest of 3% over the applicable rate of interest.

Time period Secured credit Unsecured credit

After 30 days 18.5% 19.5%

After 60 days 19.5% 20.5%

After 90 days 20.5% 21.5%

CASH DISCOUNT:
Cash discount of 2% has also been allowed for certain products in different division. The
discounts had a positive response from certain customers who had working capital problems i.e.
whose inventory turnover have also ignored the discounts and debtors turnover is low or whose
operating cycle is long

COLLECTION EFFORT:
A constant touch with the customers is the best way of reminding him about his payment
schedule in a polite but firm manner. A daily, weekly and monthly report regarding the total sale
is done to keep a track on debtors and cash position. Tata steel s collection efforts were not up to
the mark that is the reason why outstanding of greater than six months were increasing
continuously which has now improved to a great extent.

TATA STEELS CREDIT MONITORING AND CONTROL

As the most of the credit is unsecured, keeping a timely vigilance on the debtors is important
from the safety and the liquidity position of the firm. This primarily requires an efficient
collection process because slackness in the collection efforts lengthens the average collection
period, and increase the % of bad debt, for monitoring the debtors TATA STEEL is using some
steps. These steps are:
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 Preparation of a ageing schedule
Calculation of days sales o/s
Calculation of ACP
With the help of these, monthly reports are generated and are sent for review to credit control
committee chaired by V.P (F&A).
In case of secured credit where Tata Steel is also a debtor of its customers, it uses its accounts
payable as tool to realize its accounts receivables. In cases, which have the symptoms of
becoming the bad, a reconciliation statement is prepared and the mutual agreement arrived at.
However in the worst case legal action is pursued and bad debts are not written off before five
year.

FOLLOW UP

Proper follow up is done for the timely collection of debts. A daily, weekly, monthly report
regarding the sales is done to keep track on debtors and the cash position. Efficient and capable
Customers Accounts Managers are appointed for this purpose. Customers Accounts Managers is
responsible for the collection of debts and follow up of the customers. Now TATA STEEL has
adopted many ways to follow-ups:
Phone; Fax; E-mail ;Letters ; Personal visit

TATA STEEL PROVISION POLICY

DEBTORS STATUS AS ON SUMMARY AS ON

DEBTORS PROVISION

GUIDELINE %Age Amount of Provision

Provisions outstandin required
required g

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1) BIFR CASES 100%
a) Above three years 100%
I. Recoverable
II. Non Recoverable
Total
b) Below three years 100%
I. Recoverable 100%
II. Non Recoverable
Total

TOTAL

2) LEGAL CASE 100%

c) Above three years 100%
I. Recoverable
II. Non Recoverable
Total
d) Below three years
I. Recoverable 100%
II. Non Recoverable 100%
Total

TOTAL

3) GOVT./TOWN DUES
e) 6 month-1 year
I. Recoverable 0%
II. Non Recoverable 100%
Total 50%
f) 1-2 Years 100%
I. Recoverable 100%
II. Non Recoverable 100%
Total
g) Above 2 years
I. Recoverable
II. Non Recoverable
Total
TOTAL

4)SUBSIDIARY COMPANIES
h) 6 months-2 years 0%
I. Recoverable 100%
II. Non Recoverable

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 Total
i) Above 2 years 100%
I. Recoverable 100%
II. Non Recoverable
Total

TOTAL

5)OTHERS
j) 6 months-three years 0%
I. Recoverable 100%
II. Non Recoverable 100%
Total 100%
k) 3 years-5 years 100%
I. Recoverable 100%
II. Non Recoverable
Total
l) Above 5 years
I. Recoverable
II. Non Recoverable
Total
TOTAL

GRAND TOTAL

OPERATIONAL WORKING AT TATA STEEL FOR MANAGING

DEBTORS
OVERVIEW

Managing the debtors for Tata steel is an important and chief function of the sales accounts
division of finance and accounts. All the transactions of commercial nature are dealt with by this
department in a detailed outline frame of working. The debtors arise each month out of the sales
made on credit and suitable feeding of the required figures has to be made once in a month. This
function is very much a difficult task owing to the various subsidiaries and associate companies
being controlled by TISCO itself.

The activities of each of the companies are diverse in operations and require different policy
formulations and strategies for complying with the existing market requirements. But they are

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controlled in a centralized manner so that they give an actual overview of the standing of the
company. The profitability of each of the above is equally important to arrive at a consensus for
finding out the actual earnings and future prospects. As such each of the company under
subsidiary and associate is incorporated under distinct centres as Profit Centre.

To flatten the organizational structure and developed authority and responsibility for the quicker
responsiveness to changing market conditions and greater initiative in dealing with different
target markets, Tata steel has brought in the concept of profit centre. For all practical purpose,
each profit centre functions as a separate company within the hold of Tata steel. From the debtors
management point of view also each profit centre has the responsibility of appraising and dealing
with its customers. However the overall control is centralized and is in the hands of the finance
department. The main function which lies at the hands of Tata steel, Jamshedpur is to report such
standings of the actual debtors as on a particular date to the MD in the form of a monthly report.
The figures thus arrived at give an overview of which profit centres contribute the most to the
debtors standing and the specific reasons for the same.
Being a steel manufacturing concern, Tata steel is mainly concerned with the actual debtors
arising for the following profit centres:
STEEL
WIRE DIVISIONS
FERRO ALLOYS AND MINERALS DIVISION
TUBES DIVISION
BEARINGS

Each of the above profit centers have debtors of their own which are handled and managed in a
centralized manner. For an example, tubes division is one of the most important division which
has the maximum contribution to the total sales taking together all the profit centers at a point of
time. It has various parties of its own as debtors such as ESSAR STEEL LIMITED, BLUE
STAR LIMITED, TATA CHEMICALS LIMITED, MECHATRONICS and many debtors. A
database relating to the different parties is maintained in a pre specified format which helps in
understanding the actual standing of the debtor from the point of view of the actual sale being
made to the party on credit till date. This format helps in maintaining the records in a form which
helps in judging the actual ageing of the debtors and the amount being recovered from the total
debt. By ageing we mean to give an actual definition to the debtors in terms of how old has the

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debt been to him and thereby categorizing him for the purpose. A same prescribed format is used
by all the profit centers for managing their respective debtors.

EXPLANATION
Through this preparation we get to know the actual total debtors figures and the major parties
that have contributed to the increase and decrease in the debtors as when compared with the
previous financial period. It mainly emphasizes upon the total debtors figures and the overdue
debtors and their major contributors in the form of party names and figures. It also gives all list
of indications for the debtors whose standing are for periods beyond six months. This reporting is
crucial for the reason that it gives the management the indicative areas for focus, the reasons for
a rise in debtors and suitable control for future standing which is profitable to the company as a
whole.

UNDERSTANDING THE DEBTORS PROCESS SYSTEM

During this project I got an opportunity to become a part of an ongoing project understanding
the debtors process system &Recovery of Outstanding of TATA MAIN HOSPITAL
(medical services provided by TATA STEEL to its employees and to its other associates). This
project is basically to get in touch with the customers and finding out the reason for their default
of payment. Four trainees. (Nidhi Kedia, Shital Verma, Abhinav Kumar, Binita Gupta) were
selected as a part of this ongoing project at Tata steel, finance & A/c s dept, guided by Mr.
K.S.M. Mathew (Head Sales & EPA a/c)
TATA MAIN HOSPITAL (TMH) was introduced in 1908 and restructured in 1909 and as the
days passed, TMH is now a days the biggest hospital in the city with most appropriate and
valuable services to the city. This hospital has the most sophisticated equipments for the
investigation of medical purposes with well experienced Doctors, Specialists, Surgeons,
Facilities & sufficient no. of Medical and non Medical Staff.
TATA STEEL and its associates provide free services to their employees and their dependants
through TATA MAIN HOSPITAL, for these services companies are paying to hospital. In this
process TMH has accumulated a huge outstanding from its corporate customers, even after

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TATA STEELS reminder calls customers are not paying their outstandings. So TMH has
stopped its services for a day, for that company whose books of accounts showed outstandings
for a long period.
The GURU MANTRA of the project was DMAIC (Determine, Measure, Analysis,
Implementation and check/control). The whole process consisted of eight steps:

Step 1.Take out Customer wise Statement

Step 2. Collect the Outstanding list
Step 3. Reconcile and identify the bills pending
Step 4. Take Print outs of Bills - As duplicate copy
Step 5. Fix an appointment with the Customer
Step 6.Finalise Reconciliation with customer
Step 7. Collect Money
Step 8.Make documents for write off proposals if
required

PROJECT ACTIVITY CHART

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CREDIT ASSESSMENT POLICY

Credit management module (based on lotus notes)

Behind every credit decision there is an inherent potential for loss informed credit decision will
minimize the risk, enhance the profitability and lead to better structuring of credit. For credit
appraisal and risk assessment customers are broadly classified into three groups namely
ORGANISED SECTOR (public and private ltd, companies including govt. undertakings)
UNORGANISED SECTOR (traders, partnership firms, SIS units etc)
GOVERNMENT DEPARTMENT (defence , irrigation, power , railways, PWD, CPWD)

Credit risk assessment of the customer is assessed based on the

following parameters:

ABILITY TO PAY- It is easy to assess the ability of the customer to pay and is applicable
to the organized sector
Solvency
Financial viability
Technological soundness
Commercial feasibility
WILLINGNESS TO PAY- it is based on the judgement and is applicable to both organised
and unorganised sectors. This is the only criterion adopted for assessing the customers in
the unorganised sectors.
The assessment criteria are:
Quality of management
Credibility
Past performance
Health of group companies

CREDIT DECISION:
Risk classification of the entry i.e. low/medium/ high
Should we extend credit to this entity?
If yes, the recommended credit limit
The structure of the credit i.e.
Secured (%)
Unsecured (%)
Recommend credit as per % of the net worth

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 Sanctioned credit limit(specify the structure and the amount)
Individual firm / company wise credit limits(in case the entity has different firms or
companies)
Sales centre wise allocation of the sub limits

The assessment criteria are:

1. SOLVENCY
2. FINANCIAL VIABILITY
3. TECHNOLOGICAL SOUDNESS
4. COMMERCIAL FEASIBILITY

Depending upon the above basis Tata steel have developed a module for assessing the risk
associated with each and every accounts and to judiciously take a decision based on the
information available.

CONCLUSION

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A key strategy in lowering bad debt is reducing the time to recover the invoiced amounts.
Together with stock days; debtor and creditor days are a crucial link between the company's
income statement, its balance sheet and its cash-flow.
While in the income statement a company can book sales and profits to its heart's content, if it is
slower than before at collecting its bills and suppliers demand faster payment, then cash receipts
will not reflect the trend in profits. It is this divergence between profits and cash that is often the
biggest and best signal that a company might be in trouble.

RECOMMENDATION

The state government & other government departments are another problem area in town
division. The company must send frequent reminders, ex-once in 15 days that they have
to pay their dues. The company must negotiate with the government about their
repayment of dues.
The company is facing problem in collecting the medical bills from corporate customers.
The company must make the list of defaulter in medical bills, which must be kept with
the concern authority. The person in charge must see that the defaulter must not be
entertained, even though it is an emergency case, until he pays his old dues.
The selection of customer must be done carefully, by properly checking the companys
background, its repayment capacity etc. The company should rate the parties by seeing its
past performances. These ratings must be updated every year.
Channel financing is a way through which problems of dues can be controlled to a great
extent but it should be taken care that the company wont be liable for any default made
by the middle person.
Now a day, it has become a normal practice of appointing a third party for collection of
dues which should be taken into account as it removes the burden of collection for the
company. Proper agreement between the third party and the company should be
formulated in which all the terms and conditions must be mentioned. It should be without
recourse and a third party should be legally appointed, thus not hampering the goodwill
of the company and also taking care of the collection process

BIBLIOGRAPHY
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Websites
www.tatasteel.com
www.tatasteel100.com
www.economywatch.com
www.businesslink.gov.uk
www.studyfinance.com
www.financialexpress.com
www.worldsteel.org/?action=programs&id=64
www.indianindustry.com
http://steel.nic.in/
http://en.wikipedia.org/wiki/steel
www.newssteel.com

Book

Modern Working Capital Management

Frederick C. Scherr

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