1

RECEIVABLES
MANAGEMENT
Any fool can lend money, but it takes a lot
of skill to get it back
2
What are receivables?
Receivables are sales made on credit basis.

Why do we need receivables?
Reach sales potential
Competition

Understanding Receivables
As a part of the operating cycle
Time lag b/w sales and receivables creates
need for working capital

Receivables
Inventory
Cash
Operating
Cycle
INTRODUCTION
R
E
C
E
I
V
A
B
L
E
S



M
A
N
A
G
E
M
E
N
T

3
COLLECTION COST:
Administrative costs incurred in collecting the accounts
receivable.

CAPITAL COST:
Cost incurred for arranging additional funds to support credit
sales.

DELINQUENCY COST:
Cost which arises if customers fail to meet their obligations.

DEFAULT COST:
Amounts which have to written off as bad debts.
DIFFERENT TYPES OF COSTS ASSOCIATED
R
E
C
E
I
V
A
B
L
E
S



M
A
N
A
G
E
M
E
N
T

4
Creating, presenting and collecting accounting receivables.

Establish and communicate the credit policies.

Evaluation of customers and setting credit limit.

Maintaining up-to-date records

Initiate collection procedures on overdue accounts
OBJECTIVES
R
E
C
E
I
V
A
B
L
E
S



M
A
N
A
G
E
M
E
N
T

5


Credit policies


Credit terms


Collection policies

DECISION AREAS
R
E
C
E
I
V
A
B
L
E
S



M
A
N
A
G
E
M
E
N
T

6
Credit Standard

Credit Analysis
BROAD DIMENSIONS OF CREDIT POLICY
R
E
C
E
I
V
A
B
L
E
S



M
A
N
A
G
E
M
E
N
T

7
Customer Evaluation- The 5 Cs

Character- Reputation, Track Record

Capacity- Ability to repay( earning capacity)

Capital- Financial Position of the co.

Collateral- The type of assets pledged

Conditions- Economic conditions & competitive factors that may
affect the profitability of the customer



STEPS IN CREDIT ANALYSIS
Investigating the customer
R
E
C
E
I
V
A
B
L
E
S



M
A
N
A
G
E
M
E
N
T

8

Financial statements: long term, short term solvency etc can be judged

Bank references: information about the customer from another bank

Trade references: information about customer obtained from firms based
on their experiences

Credit bureaus: to check the financial viability of the customer

Third party guarantees

Field visit: to get information of the existence and general condition of the
customers business
STEPS IN CREDIT ANALYSIS
R
E
C
E
I
V
A
B
L
E
S



M
A
N
A
G
E
M
E
N
T

9
Centralised / Decentralised collection system

Post dated cheques

Pay Orders / Bank drafts

Bills of Exchange

Lock box System

Drop box System

Factoring

Collection staff/ agents

Debt collector

Del Credere agent

Concentration banking
COLLECTION METHODS
R
E
C
E
I
V
A
B
L
E
S



M
A
N
A
G
E
M
E
N
T

10
Centralised / Decentralised collection system

Post dated cheques

Pay Orders / Bank drafts

Bills of Exchange

Lock box System

Drop box System

Factoring

Collection staff/ agents

Debt collector

Del Credere agent

Concentration banking
COLLECTION METHODS
R
E
C
E
I
V
A
B
L
E
S



M
A
N
A
G
E
M
E
N
T

Under a lock box system, customers are
advised to mail their payments to special
post office boxes called lockboxes,
which are attended to by local collection
banks, instead of sending them to
corporate headquarters.


Thus the lock box system:
(i) cuts down the mailing time, because
Cheque are received at a nearby post
office instead of at corporate
headquarters,
(ii) reduces the processing time because
the company does not have to open the
envelopes and deposit the Cheque for
collection, and


11
Centralised / Decentralised collection system

Post dated cheques

Pay Orders / Bank drafts

Bills of Exchange

Lock box System

Drop box System

Factoring

Collection staff/ agents

Debt collector

Del Credere agent

Concentration banking
COLLECTION METHODS
R
E
C
E
I
V
A
B
L
E
S



M
A
N
A
G
E
M
E
N
T

Factoring is a financial service
designed to help firms to arrange
their receivable better. Under a
typical factoring arrangement a
factor collects the accounts on due
dates, effects payments to the firm
on these dates and also assumes
the credit risks associated with the
collection of the accounts.

Sometimes the factor provides an
advance against the values of
receivable taken over by it. In such
cases factoring serves as a source
of short-term finance for the firm.



12
Centralised / Decentralised collection system

Post dated cheques

Pay Orders / Bank drafts

Bills of Exchange

Lock box System

Drop box System

Factoring

Collection staff/ agents

Debt collector

Del Credere agent

Concentration banking
COLLECTION METHODS
R
E
C
E
I
V
A
B
L
E
S



M
A
N
A
G
E
M
E
N
T

an agency, factor, or broker acting
as an intermediary between sellers
and buyers and guaranteeing
payment
13
Centralised / Decentralised collection system

Post dated cheques

Pay Orders / Bank drafts

Bills of Exchange

Lock box System

Drop box System

Factoring

Collection staff/ agents

Debt collector

Del Credere agent

Concentration banking
COLLECTION METHODS
R
E
C
E
I
V
A
B
L
E
S



M
A
N
A
G
E
M
E
N
T

A firm may open collection centres
(banks) in different parts of the
country to save the postal delays.
This is known as concentration
banking.

The firm may instruct the customers
to mail their payments to a regional
collection centre / bank rather than
to the Central Office

The Cheque received by the regional
collection centre are deposited for
collection into a local bank account

The concentration banking results in
saving of time of collection
14
Helps improve customer satisfaction:
enhance service level and increase retention with customized
information.

Takes control of sales processes:
manage your sales process more effectively by measuring trends
and analyzing performance.

Enhance your productivity:
help reduce administrative costs and enhance office productivity

Streamline revenue allocation:
managed calculations to fit your business needs

Providing access to vital information
BENEFITS
R
E
C
E
I
V
A
B
L
E
S



M
A
N
A
G
E
M
E
N
T