Receivables Management

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RECEIVABLES MANAGEMENT

The term Receivables Management(RM) may be defined as collection of steps and procedure required to properly weigh the cost & benefits attached with the credit policies. The RM consist of matching the cost of increasing sales (particularly credit sales) with the benefit arising out of increased sales with the objective of maximizing the return on investment of the firm.

Accounts receivables are simply extensions of credit to the firm’s customers, allowing them a reasonable period of time in which to pay for the goods. Most firm treat account receivables as a marketing tool to promote sales & profits .The receivables ( including the debtors & the bills) constitute a significant portion of the working capital and is an important element of it. The receivables emerge whenever goods are sold o credit & payments are deferred by customers. Receivables is a type of loan extended by a seller to the buyer to facilitate the purchase process. As against the ordinary type of loan, the trade credit in the form of receivables is not a profit making service but an inducement or facility to the buyer- customer of the firm.

The receivables represents credit allowed to the customer and there by allowing them to delay the payment . Higher credit sales at more liberal terms will no doubt increase the profit of the firm, but simultaneously increase the risk of bad debts as well as result in more and more funds blocking in the receivables. A careful analysis of various aspects of credit policy is required. This is what is known as Receivables Management (RM).

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