Presentators

Sabrina Tamang
Saman Rijal
Samir Bariya
Samrat Thapa
Sandip Poudel
 Significance of Receivable Management

 Optimum investment in receivables

 Analyze credit worthiness of customers
 Increase in Sales
 Increase in profits
 Maximize the value of firm
Primarily affected by:
 The volume of credit sales
 The average length of time between sales and collection
 ( i.e. Days Outstanding or receivable conversion period )
(DSO or RCP)

 Accumulation of receivables = Credit sales per day *

Average length of collection period.
 Obtain Credit Information
 Analysis and evaluation of credit proposals
 Setting up credit standards
 Set up credit terms
 Credit granting decision
 Controlling account receivable
 Providing credit information to the top level management
Credit policy
Credit standards

Credit terms

Collection policy
 Character
 Capacity
 Capital
 Collateral
 Condition
 Creditperiod
 Cash discount
 Cash discount period
 Correspondence
 Telephone calls
 Personal Visits
 Legal action etc.
Two widely used important tools :
1. Days Sales Outstanding
2. Aging schedule
DSO = Average receivable * Days in a year
Net credit Sales
= Days in a year
Receivable turnover
= Receivables
Average daily credit sales
Also,
DSO = % of discounted customer * discount period + % of non-discounted customers paid in time *
credit period + % of non-discounted customer paid in late time * total period with late
time
 Age of Kantipur television Image television
 Example Account
(Days) Value of account % of total value Value of account % of total value

0-10 Rs 1,400,000 70% Rs 900,000 45%

11-30 600,000 30 500,000 25

31-45 0 0 300,000 15

46-60 0 0 200,000 10

Over 60 0 0 100,000 5

Total Rs 2,000,000 100% Rs 2,000,000 100%

receivables
 Cost of investment in receivable (COCR)

= Investment in receivables * Opportunity cost

= [Daily credit sales * Variable cost ratio] [Opportunity cost]
= Annual credit sales * DSO * VCR * k
Days in a year
 Bad Debt Losses
Bad debt losses = Annual credit sale * Bad debt rate

 Cost of Cash Discount

Discount cost = Annual credit sales * ( 1 – Bad debt rate ) * % of
discounted customer * cash discount rate
 Collection Costs
 Calculation of investment in receivables:
Investment in receivables = Production unit * Cost per unit
Days in a year
 Calculation of cost of carrying receivables:
Cost of carrying variables = Investment in receivables * Opportunity cost

 Calculation of bad debt losses:

Bad debt losses = Annual credit sales * Bad debt rate