Page 286 - DMGT207_MANAGEMENT_OF_FINANCES

Rupesh Roshan Singh, Lovely Professional University Unit 13: Receivables Management

Unit 13: Receivables Management Notes

CONTENTS
Objectives
Introduction

13.1 Costs and Benefits of Receivables
13.1.1 Costs
13.1.2 Benefits

13.1.3 Cost/Benefit Analysis
13.2 Three Crucial Decision Areas in Receivables Management
13.2.1 Credit Policies
13.2.2 Credit Analysis
13.2.3 Credit Terms

13.3 Factoring and Credit Control
13.4 Managing International Credit
13.5 Summary

13.6 Keywords
13.7 Review Questions
13.8 Further Readings

Objectives

After studying this unit, you will be able to:

 Identify the cost benefit analysis of receivables;
 Describe the crucial decision areas in receivable management;
 Explain the factoring and credit control;

 Discuss the management of international credit.
Introduction

The term ‘receivable’ is defined as “debt owed to the firm by customers arising sale of goods or
services in the ordinary course of business”. When a firm makes an ordinary sale of goods or
renders services and does not receive payment it means that the firm has granted trade credit
and the amount appears as receivables in the books of the seller, which will be collected in
future. Thus, accounts receivable represent an extension of credit to customers, allowing them a
reasonable period of time to pay for the goods or services which they have received.

13.1 Costs and Benefits of Receivables

In modern competitive economic systems, sale of goods in credit is an essential part. In fact,
credit sales and the receivables are treated as marketing tools to aid the sale of goods.

LOVELY PROFESSIONAL UNIVERSITY 281