Receivables Management

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1. EXECUTIVE SUMMARY :-

The project deals in “Account Receivable Management with reference to the study of Colorlines Clothing India Pvt. Ltd”. Receivable management is one of the most important aspects of the organization, as it deals with the management of the outstanding. The profit of the company mainly depends on the accounts receivables. Therefore it needs a careful analysis and proper management.

Debtors occupy an important position in the structure of current assets of a firm. They are the outcome of rapid growth of trade credit granted by the firms to their customers. Trade credit is the most prominent force of modern business. It is considered as a marketing tool acting as a bridge for the movement of goods through production and distribution stages to customers.

Till few years back, Colorlines Clothing India Pvt. Ltd. had a very strict policy of selling against advance payments. That was an era of controlled economy. However, with an increasing domestic and international competition, company could no longer afford this policy, in order to maintain its premium position. Further in order to capture a greater amount of market share, it was compelled to go by the industry norms and thus it ushered into the new era of credit sales. This resulted in credit sales going up significantly. A credit limit was sanctioned to every customer. The customers were required to pay the outstanding amount on the due date

This report discusses the importance of managing accounts receivable and provides proven principles for achieving benefits such as increased cash flow, higher margins, and a reduction in bad debt loss. The focus is primarily on commercial (business to business) receivables management. protection against credit risks.

2. INTRODUCTION:-

Meaning of Account receivables
Accounts receivable is an accounting transaction which deals with the billing of customer who owes money to a person, company or organization for goods and services that has been provided to the customers. In most business entities this is typically done by generating an invoice and mailing or electronically delivering it to the customer, who in turn must pay it within an established timeframe called credit or payment terms.

Definition of Account receivables
The term receivable management is defined as “debt owed to the firm by customer arising from the sale of goods/ services in the ordinary course of business.” The receivable represents an important component of the current assets of the firm. Receivables may be known as accounts receivables, trade creditors or customer receivable. When a firm its products / services and does not receive cash for it immediately, the firm has said to be granted trade credit to the customers. Trade credit thus creates receivable / book debts, which the firm is expected to collect in near future. Accounts receivable are thus amounts due from customers, which bear no interest in essence, a company is providing no cost financing to the customer to encourage the purchase of the company’s product/services.

Objective of receivable management

“To promote sales and profit until that point is reached where the return on investment in further funding of receivable is less than the cost of funds raised to finance that additional credit(i.e. cost of capital)”

IMPORTANCE OF RECEIVABLES MANAGEMENT :-

It can be argued that revenue generation is the most critical function of a company. Dot-com companies that created exciting new products but failed to generate significant revenue burned through their cash and ceased operating. Every company expends substantial resources to generate increasing levels of revenue.

However, that revenue must be converted into cash. Cash is the lifeblood of any company. Every Rupee of a company’s revenue becomes a receivable that must be managed and collected. Therefore the staff and...
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