Trade credit arises when a firm sells its products or services as credit and does not received 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 to attract the potential customers to buy its products at favourable terms. Trade credit creates accounts receivable or trade debtors that the firm is expected to collect in the near future. The customers from whom receivable or book debt 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 analysed. Cash sales are totally riskless, but not the credit sales as the cash payment 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 expects an equivalent value to be received later on. Third, it implies futurity. The buyer will make the cash payment for goods or services received buy him in a future period. COMPANY’S RECEIVABLES MANAGEMENT POLICY
Star Group of Companies has an organized plan to monitor its receivables and manage them on a monthly basis. As mentioned before it has divided its sales team into different groups.
Star Group of Companies prepares an MIS report on monthly basis analysing the outstanding of each group and in that each manager. They prepare a collection plan for each manager on a monthly basis. Once the month ends the manager has to fill the actual statistics of collection done by him. Now an easy comparison is possible with the planned figures and the actual collection figures.
An analysis of accounts receivables management practices of Star Group of Companies and improvement in current...