Management of Receivable: Receivables

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Management of Receivable

Receivables:
There are various definition of receivables. Some of these are as follows: 1st Definition: "Receivables mean money that you currently expect to receive from notes or account." 2nd Definition: "In other we can say that extension of credit by one firm to another firm is known as receivable." 3rd Definition: "All the debts owed to a company by its customer." 4th Definition: "A current asset that represent amount due to the company from the sale of oods and services on credit."

Forms of Receivables:
There are two forms of receivable: !: Account Receivable 1: Account Receivable: Account receivable arises when credit sa"e is made on open basis. There is no formal acknowled ment of debt i.e. firm doesn#t ask the customer to si n any promissory notes. There is only verbal committment b$w buyer and seller and there is no le al evidence of validity of debt. Seller keep a simple record of these obli ations in form of purchase order% copy of invoice and shipment documents. Disadvantages of account receivables: !: &o security behind the transaction

': Seller has no ri ht to recover their debts in case of non payments (:)sually no intersest is char ed in open account
Notes Receivable: This is mor desirable form of receivable than account receviable. Notes Receivable represents claims for which formal instruments of credit are issued as evidence of debt, such as a promissory note. The credit instrument normally requires the debtor to pay interest and extends for time periods of 30 days or longer. Notes receivable are considered current assets if they are to be paid within year, and non!current if they are expected to be paid after one year. Forms of Account Receivable: Trade Receviable: The amount which seller has to recover from a customer for sale of goods and services on credit. Customer Receivable "xtension of loan of seller to customer and it is #ept in other account. Objectives Of receivable: $b%ectives of receivable are & 1: Maximixation of Return: The basic ob%ective of managing investment in receivable is to maximi'e the return and investment in policies which stresis short term, credir term, standard and highly aggressive policies for collection clearly minimi'e bad debt losses and tied up of funds in receivable. 2: To obtain optimum volume of sales: The purpose of receivable is to maximi'e sales but effective mgt help to does help to expand sales and prove effective tool of mar#eting. (t helps to retain old customer and win new customer. : Retention of sale it is not only to expand sales volume but also the rentention of sales. (t mean credit sale also help to retain old customer as well as new customer.

!: To control cost of credit: )ranting of credit and its mgt involve cost. These cost icludes the credit administration expense, bad debts losses and opportunity cost of fund. T*e aim of credit mgt should be to regular regular and control these cost.

"eterminants of #evel of investment in receivable:


The level of investment in rec& is determined by the following factors& 1: Credit $ales: (t is main of determinant of +& ,redit term 3& ,redit -tandard .&,redit analysis /& 0aying 0ractise of customer 1& c$llection 0olicy 2& $perating efficiency of firm

"valuating mgmnt of rec&


Rec& turn over 3verage collection period receivable pattern approac 3ging schedule 0ercentage of re%ected orders Collection olic% Tecgniques of collection policy letter telephone call 0ersonal visit

,ollection agencies 4egal 3ction Controlin& ac'usition of Receivable :

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