Control Of Receivables Assignment Help | Control Of Receivables Homework Help


Merely setting the standard & framing a credit policy is not sufficient ; equally important is their effective implementation to control the receivables. In this reference , the effort may be as follows:

1)    The collection procedure

The overall collection procedure of the firm should neither be not too lenient ( resulting in mounting receivables) nor too strict (resulting sometime loss of customer). A strict collection policy can affect the goodwill & damage the growth aspects of the sales. If a firm has a lenient credit policy , the customer natural tendency towards slow payment, may even slower to settle his accounts. Thus , the objective of the collection policy should be to speed up the slow paying customer & reduce the incidence of bad debts.

2)    Monitoring of receivables :

In order to the level of receivables , the firm should apply regular checks & there should be a continuous monitoring system. The finance manager should keep a watch on the credit worthiness of all the  individual customers as well as on the total credit  policy of the firm.

3)    Lines of credit :

It refers to the maximum amount a particular customer may have as due to the firm at any time. Different lines of credit may be allowed to different customer. The lines of credit must be reviewed periodically for all the customer. Sometimes , the customer may himself  request for a review of credit line in order to obtain more credit or more liberal credit terms. Such a request should be looked into properly & costs and benefits of extending credit terms should be evaluated.

4)    Accounting ratios

Accounting information may be a good help in order to control the receivables. Though several ratios may be calculated in this regard, two accounting ratios , in particular may be calculated to find out the changing pattern of receivables. These are

i)    Receivables turnover ratio

ii)   Average collection period

Both the ratios should be calculated on a continuous basis to monitor the receivables. The ratios so calculated for the firm must then be compared with the standard for that industry or with the past ratios of the same firm.