RECEIVABLES MANAGEMENT Homework Help

RECEIVABLES MANAGEMENT

INTRODUCTION

In the preceding Chapter, which was devoted to an in-depth examination of one of the most important components of current assets, that is, cash, it was observed that a basic strategy to reduce the operating cash requirement of a firm is to accelerate the collection of receivables so as to reduce the average collection period. The receivables represent an important ‘Component of the current assets of a firm. The purpose or the present Chapter is to analyse the important dimensions of the efficient management of receivables within the framework of a firm’s objectives of value maximization. The Section 1 of this Chapter discusses the objectives of receivables management. This is followed by an in-depth analysis of the three crucial aspects of management of receivables. The Section 2 of the Chapter examines the first aspect, that is, credit policies, which have two dimensions: (j) credit standard defined as the criteria to determine to whom credit should be extended; and (ii) credit analysis. This Section evaluates policies regarding both these The second major part of receivables management is ‘credit terms’ comprising (j) cash discount, (tj) cash discount period, and (iii) credit· period. This is extensively out in Section 3 Of the Chapter .. The next Section of the Chapter is concerned with the third major component of receivables management, collection policies, that is, the types and degree of effort made to collect receivables from customers. Finally, the last Section the main points.

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