Page 165 - DCOM505_WORKING_CAPITAL_MANAGEMENT

Working Capital Management Neha Khosla , Lovely Professional University

Notes Unit 10: Receivable Management

CONTENTS
Objectives
Introduction

10.1 Objectives of Trade Credit
10.2 Credit Policies
10.2.1 Types of Credit Policy

10.2.2 Credit Policy Variables
10.3 Dimensions of Receivable Management
10.4 Collections from Receivables
10.5 Summary
10.6 Keywords

10.7 Review Questions
10.8 Further Readings

Objectives

After studying this unit, you will be able to:

Know the objectives of trade credit
Discuss the credit policies
Identify the dimensions of receivable management
Describe the collections from receivables

Introduction

Account Receivables occupy an important position in the structure of current assets of a firm.
They are the outcome of rapid growth of credit sales granted by the firms to their customers.
Credit sales are reflected in the value of Sundry Debtors [SD’s in India]. It is also known as Trade
Debtors (TDs), Accounts Receivable (BR’s) on the asset side of balance sheet. Trade credit is most
prominent force of modern business. It is considered as a marketing tool acting as a bridge
between production and Sales to customers. Firm grants credit to protect its sales from the
competitors and attract the potential customers. It is not possible to increase the sales without
credit facility and increase in sales also increases profits. But investment on accounts receivables
involves certain costs and risks. Therefore, a great deal of attention is normally paid to the
effective and efficient management of accounts receivable.

Did u know? What is the meaning of accounts receivables?
The term receivable is defined as “debt owed to the firm by customers arising from sale of goods
or services in the ordinary course of business”. When the firm sells it products services on credit,
and it does not receive cash for it immediately, but would be collected in near future. Till
collection they form as current assets.

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