1.1. INTRODUCTION TO THE STUDY A sale of credit is an evitable necessity in the business world of today. No business can exist without selling the units in credit. The basic difference between the credit sales and cash sales is the time gap in the receipt of cash. Management of trade credit is commonly known as Management of Receivables. Receivables are one of the three primary components of working capital, the other being inventory and cash, the other being inventory and cash. Receivables occupy second important place after inventories and thereby constitute a substantial portion of current assets in several firms. The capital invested in receivables is almost of the same amount as that invested in cash and inventories. Receivables thus, form about one third of current assets in India. Trade credit is an important market tool. As, it acts like a bridge for mobilization of goods from production to distribution stages in the field of marketing. Receivables provide protection to sales from competitions. It acts no less than a magnet in attracting potential customers to buy the product at terms and conditions favorable to them as well as to the firm. Receivables management demands due consideration not financial executive not only because cost and risk are associated with this investment but also for the reason that each rupee can contribute to firm 's net worth.
The book debts or receivable arising out of credit has three dimensions:-
It involves an element of risk, which should be carefully assessed. Unlike cash sales credit sales are not risk less as the cash payment remains undeceived.
It is based on economics value. The economic value in goods and services passes to the buyer immediately when the sale is made in return for an equivalent economic value expected by the seller from him to be received later on.
It implies futurity, as the payment for the goods
References: http://www.currentratioformula.com/ http://accountingexplained.com/financial/ratios/receivables-turnover http://www.eidparry.com/investors/annual-reports.aspx http://www.eidparry.com/ http://www.scribd.com/doc/28065175/Receivables-Management http://www.investopedia.com/terms/c/credit-control.asp