Page 170 - DMGT409Basic Financial Management

Unit 9: Basics of Receivables

Receivables Management: It involves decision areas: credit standards, credit period, cash Notes
discounts and collection procedures.
Stringent Credit Policy: Seller sells goods on credit on a highly selective basis.

9.9 Self Assessment

Fill in the blanks:
1. In India accounts receivables are known as ............................ .

2. Debt owed to the firm by customers arising from sale of goods or services in the ordinary
course of business is known as ............................ .
3. ............................ involvement is one of the characteristic features of receivables.

4. ............................ is a formal document issued by a bank on behalf of its customers, stating the
conditions under which the bank will honor the commitments of the customer (Buyer).
5. Credit terms have three components ........................., .......................... and .......................... .
6. ............................ represents a percentage of reduction in sales or purchase price allowed for
early payment of invoices.
7. Cash discount reduces the investment in receivables because it encourages ........................ .
8. ............................ is a statement that shows age wise grouping of debtors.

9. ............................ is a method (statement) showing percentage of receivables collected
during the month of sales and subsequent months.
10. ............................ = 365 ÷ Debtors or Receivables turnover.
State whether the following statements are true or false:

11. Receivables constitute to a significant potential current assets.
12. Credit period is one of the terms of credit.
13. Letter of credit is one of the modes of payment.
14. Optimum credit policy occurs where there is a trade of between liquidity and
profi tability.
15. Bad debt loss is are the losses of receivables management.
16. Credit standards, Credit period, Cash discount and Collection are the variables of credit
policy.
17. Monitoring the state of receivables does not include receivables collection procedure.

9.10 Review Questions

1. What is receivables management? Discuss in detail the objective benefits and cost of
receivables management.
2. Briefly discuss the factors that influence the size of investment in receivables.

3. What is credit policy? Discuss the types of credit policy’s with their advantages and
disadvantages.
4. What is the role of credit policy variables in the credit policy of a fi rm? Discuss.

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