Page 298 - DMGT207_MANAGEMENT_OF_FINANCES

Unit 13: Receivables Management

Self Assessment Notes

Fill in the blanks:
13. International operations typically expose a firm to ………………… risk.
14. For a major currency, the exporter can bridge against the risk by using currency, forward
or ………………… markets.
15. This risk in international credit may be further magnified because credit standards may be
different and ………………… techniques much different.



Case Study Agarwal Cast Company

n August 30, 2006, Agarwal Cast Company Inc., applied for a $200,000 loan from
the main office of the National bank of New York. The application was forwarded
Oto the bank’s commercial loan department.
Gupta, the President and Principal Stockholder of Agarwal cast, applied for the loan in
person. He told the loan officer that he had been in business since February 1976, but that
he had considerable prior experience in flooring and carpets since he had worked as an
individual contractor for the past 20 year. Most of this time, he had worked in Frankfurt
and Michigan. He finally decided to “work for himself” and he formed the company with
Berry Hook, a former co-worker. This information seemed to be consistent with the Dun
and Bradstreet report obtained by the bank.
According to Gupta, the purpose of the loan was to assist him in carrying his receivables
until they could be collected. He explained that the flooring business required him to
spend considerable cash to purchase materials but his customers would not pay until the
job was done. Since he was relatively new in the business, he did not feel that he could
compete if he had to require a sizeable deposit or payment in advance. Instead, he could
quote for higher profits, if he were willing to wait until completion of the job for payment.
To show that his operation was sound, he included a list of customers and projects with his
loan application. He also included a list of current receivables.
Gupta told the loan officer that he had monitored his firm’s financial status closely and
that he had financial reports prepared every six months. He said that the would send a
copy to the bank. In addition, he was willing to file a personal financial statement with the
bank.
Question
Prepare your recommendation on Agarwal Cast Company.

13.5 Summary

 Receivable is defined as debt owed to the firm by customers arising sale of goods or
services in the ordinary course of business.

 The three crucial decision areas in receivable management are (a) credit policies (b) credit
terms and (c) collection policies. Credit Policies involves a trade-off between profits on
additional sales that arise due to credit being extended on the one hand and cost of carrying
the receivables and bad debt losses on the other.

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