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Accounts Receivable Management

An account receivable is money owed to a company by customers who purchased products or services on credit. Accounts receivable are recorded as current assets on a company's balance sheet after customers are invoiced. Hiring accounts receivable management specialists can help companies collect debts more efficiently by reducing collection delays, expenses, and bad debts while improving cash flow. The specialists can also provide advice on optimizing a company's credit policy to affect the volume of credit sales and collection periods in order to manage the investment in accounts receivables. The goals of a credit policy include balancing customer satisfaction against financial risks from slow-paying or uncreditworthy customers.

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Vaishali Gupta
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0% found this document useful (0 votes)
139 views2 pages

Accounts Receivable Management

An account receivable is money owed to a company by customers who purchased products or services on credit. Accounts receivable are recorded as current assets on a company's balance sheet after customers are invoiced. Hiring accounts receivable management specialists can help companies collect debts more efficiently by reducing collection delays, expenses, and bad debts while improving cash flow. The specialists can also provide advice on optimizing a company's credit policy to affect the volume of credit sales and collection periods in order to manage the investment in accounts receivables. The goals of a credit policy include balancing customer satisfaction against financial risks from slow-paying or uncreditworthy customers.

Uploaded by

Vaishali Gupta
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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ACCOUNTS RECEIVABLE MANAGEMENT:

An account receivable is the money owed to a company by a consumer for


products and services purchased on credit. This is usually treated as a current asset of
accounts receivable after the customer is sent an invoice. Accounts receivable are
known by various names, such as accounts receivable aging, accounts payable, days
receivable, accounts receivable turnover and invoice factoring.
According to the experts, accounts receivable or invoice factoring is one of a
series of accounting transactions. These accounting transactions deal with the billing
of customers who owe money to a person, company or organization for goods and
services purchased. If you are seriously considering using accounts receivable as a
method of obtaining a more liquid asset, then it is wise to hire accounts receivable
management specialists.
Accounts receivable management specialists can help you in a variety ways:
􀀀 It can cut and maintain your average collection delay or DSO
􀀀 It can lessen your direct and indirect expenses
􀀀 It can considerably reduce your bad debt
􀀀 It can tell you various ways to take advantage of your cashflow
􀀀 It can help you capitalize on your internal resources
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􀀀 It can maximize your interventions on sales, service and market
share.
Hiring the best accounts receivable management will clear up the common
misconception that the selling of accounts receivable is a loan. Accounts receivable
are the amounts that customers owe a business; this is clearly shown on a company's
balance sheet.
Some also call accounts receivable trade receivables and try to classify them
as current assets. Accounts receivable management's main goal is to take care of all
these debts and to record sales of accounts; one must debit a receivable and credit a
revenue account. Accounts receivable management also looks into issues such as
recognizing accounts receivable, valuing accounts receivable, and disposing of
accounts receivable.
Trade credit creates amount receivables or trade debtors also referred to as
book debts in India that the firm is expected to collected in near future. The
customers from whom receivables or book debts have to be collected in the future
are called trade debtors.
A credit sale has 3 characteristics:
􀀀 Involves an element of risk that should be carefully analyzed.
􀀀 Based on economic value.
􀀀 Implies futurity.
Credit policy: Nature and Goals:
A firm investment in accounts receivables depends on:
􀀀 The volume of credit sales
􀀀 The collection period.
There is only one way in which the financial management can affect the volume
of credit sales and collection period, consequently invest in accounts receivables that
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is through the change in credit policy is sure to refer to the combination of decision
variables.
Credit standards:
Credit standards which have criteria to decide the types of customers which
have criteria to decide the types of customers to whom goods could be sold on
credit. If a firm has more slow playing customers it's invest in account receivables
will increase. The firm will also be exposed to higher risk of default.
Credit terms:
Credit terms specify duration of credit payment by customers. Investment in
account receivables will be high if customers are allowed extended time period for
making payments.
Collection efforts:
Collection efforts determine the actual collection period. The lower the
collection period is, the lower the investment in account receivables & vice versa.
Goals of credit policy:
A firm may follow a lenient or a stringer credit policy. The firm following a
lenient credit policy tends to sell on credit to customers on very liberal terms and
standards credit is granted for longer periods over to those customers who credit
worthiness is not fully known or whose financial position is doubtful.

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