Page 174 - DCOM505_WORKING_CAPITAL_MANAGEMENT

Unit 10: Receivable Management

Notes
Example: Following table shows hypothetical collection matrix.

Percentage of receivables collected April May June July August
during the
Sales (` Lakh) 350 340 320 300 250
Month of Sales 10 12 14 11 08
First month following 30 38 40 30 34
Second month following 25 24 22 20 21
Third month following 20 26 22 19 18
Fourth month following 15 10 02 15 20
Fifth month following - - - 05 09

From the above table, it may be read for April sales are ` 350 lakh. The patterns of collections are
10 per cent in the same month (April), 30 per cent of sales in May, 25 per cent of sales in June, 20
per cent of sales in July and the remaining 15 per cent in the August.

Self Assessment

Fill in the blanks:
12. Administrative costs to the business are ........................... as all collections activity is
undertaken by the factoring company.
13. Collection matrix helps in studying the ........................... of collections.
14. Aging schedule is helpful for identifying ........................... debtors.
15. Receivables turnover provides relationship between ........................... and ...........................
of a firm.

10.5 Summary

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.
It is also known as Trade Debtors (TD’s), 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 sales without credit facility, 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.

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