Receivables Management: Meaning, Importance and Costs Involved Management YouTube Lecture Handouts

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Receivables Management: Meaning, Importance and Costs Involved Management

Meaning

  • Receivables: They include the sales which is made on credit. For example, I give certain quantity of goods to a customer. Customer promising to pay the amount within a stipulated time along with interest.
  • Receivable Management: The process of planning, organizing, Directing, controlling the debtors is called receivables management.

Importance

Analyses Customer Credit Ratings

  • Receivable management evaluates or analyses its customers borrowing capacity and repaying ability
  • It approves any credit facility to its customers after analyzing their information both qualitatively and quantitatively. Proper investigation of client details helps in reducing the credit risk of the company

Optimize Sales

  • Efficient receivable management assist business in raising their sales figure.
  • Business is able to attract more and more customers by providing them credit facilities. They are able to properly decide and monitor credit facilities with the help of a proper receivable management system.

Objectives

Monitor and Improve Cash Flow

  • Receivable management monitors and control all cash movements of organizations. It maintains a systematic record of all sales transactions.
  • It aims that a sufficient amount of cash needed for day-to-day activities is maintained at business. Credit facilities are extended by doing proper analysis and planning to ensure optimum cash flow in a business organization.

Improve Customer Satisfaction

  • Customer satisfaction and retention are key goals of every business. By lending credit, it supports financially weaken customers who can՚t purchase business products fully on a cash basis.
  • This strengthens the relationship between customer and organization. Customers are happy with the services of their business partners. Receivable management help in organizing better credit facilities for their customers.

Costs Involved

  • Collection Cost: It is basically the administrative cost that is incurred in receiving the payments from the debtors.
  • Capital cost: It is the cost which is incurred on supporting the credit sales. For example: I made a credit sale but between the sale and payment, I have to incur payments like wages of workers, electricity and all
  • Delinquency cost: When the debtor fails to pay on time, there are certain costs which a firm has to bear. For example, If the due date was 10 Feb but the firm did not receive the payment till 20 Feb. So here the company will have to take loan to carry the future operations.
  • Default cost: It is most problematic as here the debtors fail to make the payment and it becomes a bad debt.

MCQs

Under which cost the debtors fails to make the payment for the goods and services and therefore it turns into bad debt?

1. Capital cost

2. Default cost

3. Delinquency

4. None

Receivables is the other name for?

1. Creditors

2. Suppliers

3. Debtors

4. All of the above

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