ACCOUNTS RECEIVABLES

Accounts receivables is defined

as debt owed to the firm by customers
arising from sale of goods or services in the
ordinary course of business.

MANAGEMENT OF
ACCOUNTS RECEIVABLES

MEANING:

Accounts receivable management means

making decisions relating to the investment in
these current assets, the objective being
maximization of return on investment in
receivables. It is purely based on sound credit
policies and practices.

OBJECTIVES
Maximizing

the value of the firm:- The basic

objectives is that to maximize the value of the firm by

achieving a trade off between risk and return.
Efficient management of receivables expands sales by
retaining old customers and attracting new customers.
Optimum

investment in sundry debtors:-

Providing liberal credit increases sales consequently

profit will increased. So they mainly concentrate on
increasing investment in receivables or debtors.

COSTS OF RECEIVABLE MANAGEMENT

1.
2.
3.
4.

CAPITAL COST:ADMINISTRATIVE COST:COLLECTION COST:BAD DEBTS:-

BENEFITS OF RECIEVABLES
MANAGEMENT

INCREASED SALES:-providing goods or services on

credit expands sales, by retaining old customers and
attracting new customers.

MARKET SHARE INCREASED:-when the firm is

able to retain old customers and attracting new
customers automatically market share will increased.

INCREASE IN PROFIT:-increased sales, leads to an

increased profit.

Factors influencing the size of investments

in receivables
Volume

of credit sales:-increase in credit sales increases the

level of receivables.
Credit

policy of the firm:-two types of credit policies, lenient

and stringent.
Trade

terms:-credit terms are credit period and cash discount.

Seasonality
Collection

of business:-based on seasonality of business.

policy:-

Techniques for monitoring accounts

receivables
Debtors turnover ratio/Receivables turnover ratio:It helps to measure the liquidity of accounts receivables.
Debtors turnover ratio= Net credit sales
Avg.Accounts receivables

 Average

collection period (ACP) :-It measures the

duration from the time sale is made to the time to cash
is collected from the customers.

ACP= 365
Debtors or receivables turnover
Aging

schedule:-it is a statement that shows age wise

grouping of debtors. It is helpful for identifying slow
paying debtors , with which firm may have to
encounter stringent collection policy.

Collection matrix:- It shows the percentage of

receivables collected during the month of sales and
subsequent months. It helps in studying the efficiency
of collections whether they are improving or
deteriorating.