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Home » Finance Homework Help » Receivables Management
Receivables Management
The main objective of finance is to emphasize the need and goals of establishing a sound credit policy shows how an optimum credit policy can be established and explains the credit policy variables. It also indicates the credit procedure for and control of individual accounts and suggests methods of monitoring receivables. Receivables management discusses the nature and costs and benefits of factoring.

Receivables management’s very crucial and vital ingredient trade credit arises when a firm sells its products or services on credit and does not receive cash immediately. It is an essential marketing tool, acting as a bridge for the movement of goods through production and distribution stages to customers. A firm grants trade credit to protect its sales from the competitors and grants trade credit to protect its sales from the competitors and to attract the potential customers to buy its product at favorable terms. Trade credit creates accounts receivables or trade debtors (also referred to book debts in India) that the firm is expected to collect in the near future. The customers from whom receivable or book debts have to be collected in the future are called trade debtors or simply as debtors and represent the firms’ claim or asset. a credit sale has three characteristics: first, it involves an element of risk that should be carefully analyzed. Cash sales are totally riskless, but not the credit sales as the cash payments are yet to be received. Second, it is based on economic value. To the buyer, the economic value in goods or services passes immediately at the time of sale, while the seller expect an equivalent value to be received later on. Third, it implies futurity. The buyer will make the cash payment for goods or services received by him in a future period.

Debtors constitute a substantial portion of current assets of several firms. For example in India, trade debtors, after inventories, are the major components of current assets. They form about one-third of current assets in India. Granting credit and creating debtors amount to the blocking of the firm’s funds. The interval between the date of sale and the date of payment has to be financed out of working capital. This necessitates the firm to get funds from banks or other sources. Thus, trade debtors represent investment. As substantial amounts are tied-up in trade debtors, it needs careful analysis and proper management.

Some of its main topics are:

1. Benefits of factoring
2. Collection policy
3. Credit information
4. Credit limit
5. Credit policy
6. Credit policy goals
7. Credit policy variables
8. Factoring
9. Factoring services
10. Numerical credit scoring
11. Optimum credit policy
12. Types of factoring

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