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CHAPTER – 1
INTRODUCTION

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RECEIVABLES MANAGEMENT

1.1 INTRODUCTION:

The receivables represent an important component of the current assets of a firm. The

purpose of the receivables management is to analyze the important dimensions of the efficient

management of receivables within the framework of a firm’s objectives of value dimensions of the

efficient management of receivables. This is followed by an in-depth analysis of the three crucial

aspects of management of receivables.

Meaning of Receivables Management:

Receivables management is the process of making decisions relating to investment in trade debtors.

We have already stated that certain investment in receivables is necessary to increase the sales and

the profits of a firm. But at the same time investment in this asset involves cost considerations also.

Further, there is always a risk of bad debts too.

The second section of the chapter examines the first aspect that is credit policies, which

have two dimensions:

(i) Credit standard: defined as the criteria to determine to whom credit should be extended;

(ii) Credit analysis: This section evaluates policies regarding both these aspects. The second

major part of receivables management is Credit terms comprising

(i) Cash discount.

(ii) Cash discount period.

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(iii) Credit period.

Next section is concerned with the third major component of receivables from

customers. The factoring services as a receivables collection/management strategy are illustrated in

the next section.

OBJECTIVIES:

The term receivable is defined as ‘debt owed to the firm by customers arising from sale

of goods or services in the ordinary course of business’. When a firm makes an ordinary sale of

goods or services and does not receive payment, the firm grants trade credit and creates accounts

receivable, which could be collected in the future. Receivables management, is also called trade

credit management.

Thus, accounts receivable represent an extension of credit to customers, allowing them

a reasonable period of time in which to pay for the goods received.

The sale of goods on credit is an essential part of the modern competitive economic

systems. In fact, credit sales and, therefore, receivables are treated as a marketing tool to aid the sale

of goods.

The credit sales are generally made on open account in the sense that there are no

formal acknowledgements of debt obligations through a financial instrument. As a marketing tool,

they are intended to promote sales and thereby profits.

However, extension of credit involves risk and cost. Management should weigh the

benefits as well as cost to determine the goal of receivables management.

The objective of receivables management is to promote sales and profits until that point

is reached where the return on investment in further funding receivables is less than the cost of

funds raised to finance that additional credit i.e. cost of capital’

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one of the largest producers of power and a public sector unit under state government. Now a days the situation is that. which are relevant to the determination of the objectives of receivables management. brief knowledge about Generation Tariff and a case study on APGENCO tariff. Cost of Collection of Receivables. Ageing Schedule 4. Credit Policies 3. Different Costs 2. The specific costs and benefits.2 NEED FOR THE STUDY: The project study is undertaken to analyze and understand how Andhra Pradesh Power Generation Corporation is managing its Receivables and Tariff process in power sector. This study covers methodology of Management of the Receivables. at each and every point the usage of electric power is essential. There are different methodologies for studying the Receivables Management: 1. Introduction of the Study Electric power is playing vital role in human life.` . Floats etc. 1. 4 . managing different Floats. which gives me an exposure to practical implication of theory knowledge.

To study the techniques of Receivables Management for decision – making. 4. 5 . To know the effects of Power Generation techniques on profitable.` 1. To measure the expenses incurred against the receivables. To study the relevance of Receivables Management in evaluating the Sundry Debtors. To make suggestions if any for improving the financial positions of understanding the company. 2. 3. 5.3 OBJECTIVES FOR THE STUDY 1.

Secondary Sources These secondary data is existing data which is collected data by others viz.` 1. through personal interview with the concerned officers and other publications of AP GENCO.4 METHODOLOGY FOR THE STUDY: To achieve a fore said objective the following methodology has been adopted. 6 .. The information for this report has been collected through the Primary and secondary sources. Primary Sources: Through the interaction with the executives and employees of the company. annual reports of the AP GENCO Ltd. source are financial journals. APGENCO website.

7 .` 1. 3. The busy schedule of the officials in the AP GENCO Ltd is another limiting factor.5 SCOPE FOR THE STUDY: 1. 4. 2. Lack of awareness of power generation sector of AP GENCO Ltd. Non – availability confidential financial data. Lack of time is another limiting factor the schedule period 8 weeks are not sufficient to make the study independently regarding Power Generation in AP GENCO Ltd. Due to eh busy schedule of officials restricted me to collect the complete information about organization.

` CHAPTER – 2 COMPANY PROFILE 8 .

S officer and has very rich and long experience in the power sector. Director (Commercial).` INTRODUCTION: Government of Andhra Pradesh (GOAP) embarked upon Reforms in Andhra Pradesh Power sector and as a sequel erstwhile Andhra Pradesh state Electricity Board (APSEB) was unbundled and restructured into Andhra Pradesh power Generation Corporation Ltd. CONSTITUTION: Andhra Pradesh Power generation Corporation Ltd. was incorporated as a company under the provisions of Companies Act. However. construct and operate Electric Generating Stations. with GOAP notifying the Andhra Pradesh Electricity Reforms Act. Director (Hydel). By segregating the distribution activity from APTRANSCO four distribution companies were formed which started functioning from 01-04-2000. (APGENCO) to look after the business of Generation and Transmission and Distribution respectively with effect from 01-02-1999. ORGANIZATION: The Board consisting have a whole time Chairman and Managing Director.A. establish. Director (Thermal). The directors are well experienced in the business of Electricity as former executives of erstwhile APSEB. Director (Projects) and Director (Finance) is managing the business of the Company. on 29-12-1998 and obtained certificate of Commencement of Business on 05-01-1999. 1998. CAPITAL STRUCTURE: 9 . The C & MD is a senior I. The main objective that is to be pursued in accordance with the Memorandum of Association is to acquire. Director (Technical). APGENCO commenced its business operations effective from 01-02-1999.

14192. To be the best power utility in the country and one of the best in the world.14 crores out of which the total Fixed Assets were Rs. Out of this 2442 Engineering executives and 7411 Operation &Maintenance employees are the main contributors for the outstanding performance of the Plants. The entire issued and subscribed capital of Rs.52 crores HUMAN RESOURCES: As at 1. 2.2008 APGENCO was having a dedicated Human Resource base of 2664 Executives and 9288 Workmen.2500 crores divided into 25 crores Equity shares of Rs. efficiently and echo friendly.10353.619 of the Companies Act.2107 crores is owned by Government of Andhra Pradesh and by virtue of this APGENCO is a Government Undertaking u/s. To generate adequate and reliable power most economically. In fact this technical expertise and the dynamic leadership at Board level are the strengths of APGENCO APGENCO VISION: 1. To spearhead accelerated power development by planning and implementing new power projects.100 each.` The authorized share capital of the Company is Rs. 1999 APGENCO was vested with assets aggregating Rs. 10 . APGENCO MISION: 1.4. In terms of the Andhra Pradesh Electricity Reforms (Transfer Scheme) Rules.

Honesty.` 3.02. Respect for the individual and Personal growth 3. CORPORATE PROFILE: Andhra Pradesh Power Generation Corporation Limited is one of the pivotal organizations of Andhra Pradesh. 11 .50 MW Thermal. Apart from operation & Maintenance of the power plants it has undertaken the execution of the ongoing & new power projects scheduled under capacity addition programme and is taking up renovation & modernization works of the old power stations. People as the source of strength 6. APGENCO is third largest power generating utilitiy in the Country next to NTPC and Maharashtra. To implement ‘Renovation and Modernization’ of all existing units and enhance their performance APGENCO VALUES: 1. Transmission and Distribution of Power.12.1.2011 is 8924. The installed capacity of APGENCO as on 31.contributes about half the total Energy Requirement of Andhra Pradesh. 2 MW Wind power stations and .1999. Integrity and Ethical business 5.9 MW comprising 5092. Tackling challenges and solving problems 4.12. engaged in the business of Power generation. All the Generating Stations owned by erstwhile APSEB were transferred to the control of APGENCO.40 MW Hydro . This was a sequel to Governments reforms in Power Sector to unbundle the activities relating to Generation. Excellence in all aspects of the company. Continued self-improvement never being satisfied.1998 and commenced operations from 01.0 MW Photo Voltaic Cell basedSolar Power plant . 2. 3829. APGENCO came into existence on 28.

( Provisional).5 Hz for more than half a decade considerably reduced the power supply reliability. no significant reduction in technical losses and energy thefts.03. The imbalance of the revenues against the cost of production. APGENCO has an equity base of Rs. HISTORY OF APGENCO: When APSEB came into existence in 1959.000 dedicated employees as on 31.27690 crores.4 MW is the second highest among all power utilities in the Country. set up a high level committee in January 1995 to look into present working of the APSEB and suggest remedies for improvement. high cost purchases from IPP's.` It's installed Hydro capacity of 3829. During the last decade inadequate capacity addition and low system frequency operation of less than 48.2011. The committee after detailed deliberations with all the concerned and critical analysis submitted the report in which it suggested some recommendations 12 .other SEB's gradually worsened the financial position of APSEB HIGH LEVEL COMMITTEE AND ITS RECOMMENDATIONS Government of Andhra Pradesh realizing the declining tendency of the financial position of APSEB and considering the Government of India's Liberalized policy for attracting private investment into power sector. APSEB started functioning with the objectives of maintaining the power sector efficiently and economically simultaneously ensuring demand meets the supply.2107 crores and about 11.The company has an asset base of approximately Rs.

Construct and Operate Power generating stations.2000 into "Transmission Corporation" and four "Distribution Companies" (DISCOMS). 1998. 01. APGENCO is the third largest power utility in India and has highest hydel capacity in the country with an asset base of 13700 core and equity base of Rs. According to the Andhra Pradesh Electricity Reforms Act. APGENCO provides reliable and qualitative power more than 50% of its total power requirement is not only engaged in the business of generation of electricity from its 5 own thermal power stations and 17 Hydro stations but is also successfully executing operation and maintenance contract for 272 MW gas based power project in joint sector at Vijjeswaram and 4x8 MW Aliminati Madhava Reddy lift irrigation scheme.12.36 MW Hydel and 2MW wind power was established by government of Andhra Pradesh under the Andhra Pradesh Electricity Reforms Act 1998 on 01. APTRANSCO was further unbundled w. 13 .1999 with the principal objective of generation of electricity. Establish.f. on 29.2106 Crore having annual turn over of more than Rs 4200 crore.5 MW Thermal.02. APGENCO – A MODEL POWER UTILITY Andhra Pradesh Power Generation Corporation (APGENCO). largest power generating company of A.2.1998. Thus APGENCO was incorporated as a company under the provisions of Companies Act. APGENCO commenced its business operations effective from 1.P.As a sequel the APSEB was unbundled into Andhra Pradesh Power Generation Corporation (APGENCO) & Transmission Corporation of Andhra Pradesh Limited (APTRANSCO) on 01.1999 and according to the memorandum of Association APGENCO has to Acquire.02.99.e. 3664.04.86 MW comprising 2962. State with installed capacity of 7048.` Government of Andhra Pradesh considering the recommendations made by committee had embarked upon the AP Electricity REFORMS ACT in 1998.

2017. 11th and 12th Five Year Plans. APGENCO thermal power stations are winning gold medals and bagging meritorious productivity awards continuously for excellent performance year after year. APGENCO is committed to achieve the massive capacity addition programmed of 3696 MW by March.7 presently).` It has successfully commissioned prestigious Srisailam Left Bank Hydro Electric Power Project and unique under ground powerhouse with 6nos reversible units of 150 MW each having special features of pump and condenser mode. 14 . Four units of KTPS ‘B&C’ stations were renovated and up rated to 120 MW from 110 MW each the present plant load factor (PLF) of these units is more than 85% when compared to 60% prior to the up rating. APGENCO is playing a Pivotal role in powering the growth of Andhra Pradesh and also the country. APGENCO is powered with committed and dedicated work force of more than 11. integration its long term capacity addition strategy for 10th. 2012 and 3228 MW by March.000 with firm commitment to augment its installed capacity continuously and for better utilization of man power and improve the ratio of Man – MW (1.

50 Hydel 3664.5 62.00 Kothagudem Stage V 2x250 500.36 Wind 2. Units x Capacity MW (MW) Vijayawada 6x210 1260.00 Peddapally Mini Hydro 23units 9.00 Penna Ahobilam 2x10 20.50 Table.50 Total Thermal 3382.00 Total Hydro 3664.00 Donkarayi 1x25 25.00 Nagarjuna Sagar 1x110+7x100.00 NS Right Canal PH 3x30 90.00 Ramgundam B 1x62.36 Wind mills at Ramagiri 10x0.00 Srisailam RBPH 7x110 770.00 NS Left Canal PH 2x30 60.00 TB Dam 4x9+4x9 57.5 15.60 Nizam Sagar 2x15 10.00 Pochampad 3x9 27.00 Kothagudem 4x60+2x120+2x120 720.00 15 .3 HYDEL Installed Capacity Machkund AP 3x17+3x23 84.2 2.00 Rayalaseema 2x210 840.00 TOTAL 7048.2.` Table.00 Singur 2x7.00 Priyadarshini Jurala (PJHES) 2x39 78.16 Chettipera( Mini Hydro) 2x0.2.00 Lower sileru 4x115 460.5 1.2 THERMAL – Installed Capacity Name Of the Stations No.00 Srisailam LBPH 6x150 900.86 Table.2.00 Palair (Mini Hydro) 2x1 2.60 Upper sileru 4x60 240.1 APGENCO – Installed Capacity Thermal 3382.8 815.

361 AP Power Grid .5 Total 12423. Karnataka 3. 3. 4. 2nd Highest Hydel installed capacity in the Country.6 SALIENT FEATURES: 1.` 3rd Largest Power Generation Utility in the Country Installed Capacity (MW) All India 1.664 KPCL. One of the units in Vijayawada Thermal Power Station (VTPS) has made record for continuous running for 441 days without any break down.410 NHPC 3.564 APGENCO 7.2 Independent Power Producers 2139.049 2nd Highest Hydro Capacity in the Country Hydro Capacity (MW) All India 36. Third largest Power Generation Utility in the Country. 2.673 APGENCO 3. 16 .45. Ranked No.Installed Capacity (MW) APGENCO 7048.555 NTPC 28.9 Central Generating Stations 2963.334 MAHAGENCO 10. 1 amongst all power utilities in the Country in terms of Plant Load Factor (PLF).

2% in the Country. KTPS Stage V stood FIRST with a PLF of 94. VTPS Stage I have unique plant design. Hydrogen cooled generator of 210 MW capacity. APGENCO is making concerted efforts for fly ash utilization and presently utilizing about 43% of total fly ash generated from all of its thermal power stations. 7.5%in the Country. 9. Vijayawada Thermal Power Station has received the Prestigious ISO 9001 -2000 Certification fro Quality Management System. 6. Nagarjunasagar Left Canal Power House is the first Hydro Power Station to use SCADA for operation of the units from Control Room. Pochampadu HEP is the fist Power Station to use Microprocessor base Controls. direct-fired tube mill instead of vertical bowl mills and steam leak detection system for the first time in Country. Rayalaseema Thermal Power Project (RTPP). facilitating generation pump and condenser modes of operations. Micro Processor based distributed digital Control System. Srisailam Left Bank Power House is the first larges capacity underground Hydro Electric Power Project in South India. Kothagudam Thermal Power Station Stage V (KTPS V) and Vijayawada Thermal Power Station (VTPS) have secured top three positions in the Country. 17 . 13. 8. RTPP stood SECOND with a PLF of 92. 10. The coalbunkers and mills are located in between the boiler house an electro static precipitators unlike the usual practice of placing the bunkers and mills in between the turbine and boiler. Nagarjunasagar main Power House units are also reversible type with special features of operation as that so Srisailam Left Bank Poser House. 12. Vijayawada Thermal Power Station Stage II units adopted tower type coal fired Boiler with concrete pylons. 11.` 5. 15. 14.

NTTPS Training Institute has received best Technical Training Institute. First 2 Units of Priyadarshini Jurala HEP (39 MW each) have been commissioned. Rayalaseema TPP stage-I & Upper Sileru PH for 2004-05 and Vijayawada TPS & Upper Sileru PH for 2005-06.2008 since inception. 23. GOI.8 MU during 2007-08 surpassing the previous high of 23360 MU achieved during 2004-05.03.09. 22. APGENCO power stations have recorded the highest daily generation of 132. 21.2007 for the outstanding performance of Kothagudem TPS. 18. Rayalaseema Stage II (2x210 MW) has been commissioned. awarded by Central Electricity Authority. Received 5 meritorious awards from Hon’ble Prime Minister on 21. 24. 18 . 19. Hydro power stations generated 9587. Thermal power stations have achieved highest generation of 23685. highest after 1994-95.5 MU during 2007-08. During 2006-07 APGENCO has turned in to a Profit making Company by wiping out the accumulated losses for the last 3 years for nine times. 17.59 MU on 26. APGENCO Dr.198 Crores during 2007-08. 20.` 16. APGENCO has earned a net profit of Rs. New Delhi. APGENCO has achieved highest generation of 33289 MU since inception during 2007-08.

K.ADISHESHU Director/Hydel SRI UG KRISHNA MURTHY Director/Technical 19 .` BOARD OF DIRECTORS: SRI DINESH KUMAR IAS Chairman SRI .VIJAYANAND I.S Managing Director SRI.PRABHAKAR RAO Joint Managing Director SRI G.A.D.

VAMAN RAO Director/HR SRI S.RADHA KRISHNA Director/Projects SRI.G.ANJANEYA RAO Director/Thermal 20 .C.` SRI.

` CHAPTER – 3 REVIEW OF LITERATURE 3. This is followed by an in-depth analysis of the three crucial aspects of management of receivables. Meaning of Receivables Management: Receivables management is the process of making decisions relating to investment in trade debtors.1 RECEIVABLES MANAGEMENT INTRODUCTION: The receivables represent an important component of the current assets of a firm. We have already stated that certain investment in receivables is necessary to increase the sales and 21 . The purpose of the receivables management is to analyze the important dimensions of the efficient management of receivables within the framework of a firm’s objectives of value dimensions of the efficient management of receivables.

But at the same time investment in this asset involves cost considerations also.there is always a risk of bad debts too. is also called trade credit management. OBJECTIVIES: The term receivable is defined as ‘debt owed to the firm by customers arising from sale of goods or services in the ordinary course of business’. Thus.` the profits of a firm. (iv) Credit analysis: This section evaluates policies regarding both these aspects. which have two dimensions: (iii) Credit standard: defined as the criteria to determine to whom credit should be extended. which could be collected in the future. (iii) Credit period. accounts receivable represent an extension of credit to customers. (ii) Cash discount period. allowing them a reasonable period of time in which to pay for the goods received.Further. When a firm makes an ordinary sale of goods or services and does not receive payment. The factoring services as a receivables collection/management strategy are illustrated in the next section. Next section is concerned with the third major component of receivables from customers. the firm grants trade credit and creates accounts receivable. 22 . Receivables management. The second major part of receivables management is Credit terms comprising (i) Cash discount. The second section of the chapter examines the first aspect that is credit policies.

The specific costs and benefits. 23 . cost of capital’ . are examined below COSTS: The major categories of costs associated with the extension of credit and accounts receivable are: (i) Collection cost. which are relevant to the determination of the objectives of receivables management. extension of credit involves risk and cost. The objective of receivables management is to promote sales and profits until that point is reached where the return on investment in further funding receivables is less than the cost of funds raised to finance that additional credit i. Included in this category of costs are: (a) Additional expenses on the creation and maintenance of a credit department with staff accounting records. Management should weigh the benefits as well as cost to determine the goal of receivables management. (i) Collection Cost: Collection costs are administrative costs incurred in collecting the receivables from the customers to whom credit sales have been made. In fact.e.` The sale of goods on credit is an essential part of the modern competitive economic systems. The credit sales are generally made on open account in the sense that there are no formal acknowledgements of debt obligations through a financial instrument. (iii) Delinquency cost (iv) Default cost. (ii) Capital cost. receivables are treated as a marketing tool to aid the sale of goods. postage and other related items. However. they are intended to promote sales and thereby profits. therefore. stationery. credit sales and. As a marketing tool.

the customers. which alternatively could be profitably employed elsewhere.` (b) Expenses involved in acquiring credit information either through outside specialist agencies or by the staff of the firm itself. Such costs are called delinquency costs. (ii) Cost associated with steps that have to be initiated to collect the over dues. the firm has to pay employees and suppliers of raw materials. These expenses would not be incurred if the firm does not sell on credit. Such debts are treated as bad debts and have to be written off as they are not being realized. Such costs are known as default costs associated with credit sales and accounts receivable. where necessary. (iii) Delinquency Cost: This cost arises out of the failure of the customers to meet their obligations where payment on credit sales becomes due after the expiry of the credit period. legal charges. They have to be financed there by involving a cost. Meanwhile. therefore a part of the cost of extending credit or receivables. (iv) Default Cost: Finally. is. there by implying us the firm should arrange for additional funds to meet its own obligations while waiting for payment form its customers. and so on. BENEFITS: 24 . and payment by. reminders and other collection efforts. such as. The cost on the use of additional capital to support credit sales. There is a time lag between the sale of goods to. (ii) Capital Cost: The increase level of accounts receivable is an investment in assets. The important components of this cost are: (i) Blocking-up of funds for an extended period. the firm may not be able to recover the over dues because of the inability of the customers.

While it is true that general economic conditions and industry practices have a strong impact on the level of receivables. This motive for investment in receivables is growth-oriented. But it can improve its profitability through a properly conceived trade credit policy or receivables management. Secondly. When firms extend trade credit. will produce larger sales. relatively liberal policy and. the firm may extend credit to protect its current sales against emerging competition.` Apart from the costs. Here. The impact of a liberal trade credit policy is likely to take two forms. As a result of increased sales. However costs will be higher with liberal policies than with more stringent measures. the motive is sales-retention. the decision commit funds to receivables (or the decision to grant credit) will be based on a comparison of the benefits and costs involved. the profits of the firm will increase. it is clear that investments in receivables involve both benefits and costs. In other words. The benefits are the increase sales and anticipated profits because of a more liberal policy. such as economic conditions and industry practices. The costs and benefits to be compared are marginal costs and benefits. another factor that has a bearing on accounts receivable management is the benefit emanating from credit sales. Other being equal. they intend to increase the sales. therefore. First. accounts receivable management should aim at a trade-off between profit (benefit) and risk (cost). That is to say. a firm may grant trade credit either to increase sales to existing customers or attract new customers. From the above discussion. invest in receivables. a firm’s investments in this type of current assets is also greatly affected by its internal policy. higher investments in receivables. while determining the optimum level of receivables. A firm has little or no control over environmental factors. that is. it is oriented to sales expansion. Therefore. The firm should only consider the incremental (additional) befits and costs that the result from a change in the receivables or trade credit policy. 25 .

Since we are interested in illustrating the trade-off between benefit and cost to the firm as a whole. average payments period and certain financial ratios. To the cost of the firm as a whole. We illustrate below how these two aspects are relevant to the accounts receivable management of a firm. 26 . develop appropriate sources of credit information and methods of credit analysis. (b) Liberal or non-restrictive. we do not consider here these individual components of credit standards. The quantitative basis of establishing credit standards are factors such as credit ratings. The credit policy decision of firm has two broad dimensions: (i) Credit standards.` Credit Policies: In the preceding discussions it has been clearly shown that the firm’s objective with respect to receivables management is not merely to collect receivables quickly but attention should also be given to the benefit cost trade-off involved in the various areas of accounts receivable management. To illustrate the effect. The credit policy of a firm provides framework to determine (a) Whether or not to extend credit to a customer and (b) How much credit to extend. A firm has to establish and use standards in making credit decisions. credit references. Credit Standards: The term credit standard represents the basic criteria for the extension of credit to customers. we do not consider here these individual components of credit standards. (ii) Credit analysis. we have divided the overall standards into (a) Tight or restrictive. The first decision-area is Credit Policies.

The implications of relaxed credit standards are (i) More Credit (ii) A large credit department to service accounts receivable and related matters. as funds have to be arranged by the firm to finance them till customers make payments. These are assumed to be included in the variable cost per unit and need not be separately identified. (iv) Level of sales. A change in the credit standards-relaxation or tightening –leads to a change in the level of accounts receivable either 27 . additional staff would be required. tightened. (iii) Level of bad debt losses. the higher the average accounts receivable the higher is the capital or carrying cost. (ii) The average collection period/investment in accounts receivable. alternatively. The implications of the four factors are elaborated below. The trade-off with reference to credit standards covers: (i) The collection cost. The investment in accounts receivable involves a capital cost.` That is to say. If standards are relaxed. The effect of tightening of credit standards will be exactly the opposite. it means more credit will be extended while if standards are tightened. This is because up to a certain point the existing staff will be able to carry on the increased workload. less credit will be extended. our aim is to show what happens to the trade-off when standards are released or. The costs are likely to be semi-variable. Investments in Receivables or the Average Collection Period. Moreover. but beyond that. These factors should be considered while deciding whether to relax credit standards or not. (iii) Increase in collection costs.

would lead to higher average accounts receivable. implies an increase in sales which in turn. Long Approach: According to this approach. As standards are relaxed. A relaxation in credit standards. relaxed standards would mean that credit is extended. as already stated. The basic changes effects on profits arising from a relaxation of credit standards are summarized on exhibit in the earlier paragraphs if the credit standards are tightened. Profit on Incremental Sales this can be computed in two ways: (i) Long approach and (ii) Short-cut-method. Sale Volume: Changing credit standards can also be expected to change the volume of sales.` (a) Through a change in sales. a tightening is expected to cause a decline in sales. sales are expected to increase. Bad Debt Expenses: Another factor that is expected to be affected by changes in the credit standards is bad debt (default) expenses. the costs and profits on both the present and the proposed sales level are calculated and the difference in profit at the two levels will be the incremental profit. the opposite effects. They can be expected to increase with relaxation in credit standards and decrease if credit standards become more restrictive. or (b) Through a change in collections. Further. conversely. 28 .

a firm should develop procedures for evaluating credit applicants. Cost of Marginal /Incremental Investment in Receivables: The second variable relevant to the decision to relax credit standards is the cost of marginal investment in accounts receivable. and (b) Analysis of credit information. Obtaining Credit Information: The first step in credit analysis is obtaining credit information on which to base the evaluation of a customer. This cost can be computed by finding the difference between the cost of carrying receivables before and after the proposed relaxation in credit standards. The second aspect of credit policies of a firm is credit analysis and investigation. broadly speaking are (i) Internal (ii) External.` Short-Cut Method The profits on sales will increase by an amount equal to the product of the additional profit per unit. It can be calculated as follows: Credit Analysis: Besides establishing credit standards. Two basic steps are involved in the credit investigation process: (a) Obtaining credit information. 29 . The sources of information. It is on the basis of credit analysis that the decisions to grant credit to a customer as well as the quantum of credit would be taken.

have to be supplemented by information from other sources. Depending upon the availability. the firm would have information on the behavior of the applicant (s) in terms of the historical payment pattern. External: The availability of information from external sources to assess the credit-worthiness of customers depends upon the development of institutional facilities and industry practices. the external sources of credit information are not as developed as in the industrially advanced countries of the world. therefore. This type of information is obtained from internal source of credit information. In that case. the following external sources may be employed to collect information. 30 .` Internal: Usually firms require their customers to fill various forms and documents giving details about financial operations. They are also required to furnish trade references with whom the firms can have contacts to judge the suitability of the customer for credit. This type of information may not be adequate and may. It is likely that a particular customer/applicant may have enjoyed credit facility in the past. Another internal source of credit information is derived from the records of the firms contemplating an extension of credit. In India.

Credit Bureau Reports: 31 . which is contemplating the extension of credit. profitability. Trade References: These refer to the collection of information from firms with whom the applicant has dealings and who on the basis of their e xperience would vouch for the applicant. Alternatively. that is.` Financial Statements: One external source of credit information is the published financial statements. the balance sheet and the profit and loss account. The modus operandi here is that the firm’s banker collects the necessary information from the applicant’s banks. which significantly determines its credit standing. and debt capacity. Bank References: Another useful source of credit information is the bank of the firm. The financial statements contain very useful information. They throw light on an applicant’s financial viability. they are very helpful in assessing the overall financial position of a firm. liquidity. the applicant may be required to ask his banker to provide the necessary information either directly to the firm or to its bank. Although the financial statements do not directly reveal the past payment record of the applicant.

CREDIT TERMS: The second decision-area in accounts receivable management is the credit terms. trend analysis over a period of time would reveal the financial strength of the customer. the management of a firm must determine the terms and conditions on which trade credit will be made available. After the credit standards have been established and the credit-worthiness of the customers has been assessed. (ii) Qualitative. The first step involved in this type of assessment is to prepare an Aging Schedule of the accounts payable of the applicant as well as calculate the average age of the accounts payable. Another step in analyzing the credit information is through a ratio analysis of the liquidity profitability and debt capacity of the applicant. the firm should devise one to suit its needs. it should be analyzed to determine the credit-worthiness of the applicant. This exercise will give an insight into the past payment pattern of the customer. the factual information available from the financial statements. the past records of the firm and so on. The stipulations under which goods are sold on credit are referred to as credit terms. Although there are no established procedures to analyze the information the information.` Finally. Quantitative the assessment of the quantitative aspects is based or. These ratios should be compared with the industry average more over. specialist credit bureau reports from organizations specializing in supplying credit information can also be utilized. The analysis should cover two aspects (i) Quantitative. They 32 . Analysis of Credit: Information once the credit information has been collected different sources.

‘2/10 net 30’. The three numerals are explained below:  2 signifies the rate of cash discount (2per cent).` relate to the repayment of the amount under the credit sale. We illustrate 33 . which will be available to the customers if they pay the overdue within the stipulated time. credit terms specify the repayment terms of receivables. which refers to the duration during which the discount can be availed of. the customer would be deemed to have defaulted. in terms of the duration of time for which trade credit is extended – during this period the overdue amount must be paid by the customer.  10 represents the time duration (10days) within which a customer must pay to be entitled to the discount. In other words. which the customer can take advantage of that is the overdue amount must be paid by this customer and  Cash discount period. for instance. Thus. if any. he does not want to take advantage of the discount. the abbreviation 2/10 net 30 means that the customers is entitled to 2 per cent cash discount (discount rate) if he pays with in 10 days (discount period) after the beginning of the credit period (30 days). If. he may pay within 30 days. Credit terms have three components:  Credit period. like the credit standards. affect the profitability as well as the cost of a firm. The credit terms. These terms are usually written in abbreviations.  30 means the maximum period for which credit is available and the amount must be paid it any case before the expiry of 30 days. however. If the payment is not made within a maximum period of 30 days. A firm should determine the credit terms on the basis of cost-benefit trade-off.  Cash discount.

2. namely. The sale volume will increase. If the demand for the products is elastic. In taking decision regarding the grant of cash discount. COLLECTION POLICIES: 34 . The decrease in the average collection period would also cause a fall in bad debt expenses.` below how the three components of credit terms. The changes in the discount rate would have both positive and negative effects. would like to pay within the discount period the average collection period would be reduced. It should be noted that our focus in analyzing the credit terms is form the viewpoint of suppliers of trade credit and not the recipients for whom it is a source of financing. The implications of increasing or initiating cash discount are as follows: 1. the management has to see what happens to these factors if it initiates increase. to take advantage of the discount. average collection period/average investment in receivables. This is because the decrease in prices would affect the profit margin per unit of sale. The reduction in the collection period would lead to a reduction in the investment in receivables as also the cost. 3. or decrease in the discount rate. The grant of discount implies reduced prices. Cash Discount: The cash discount has implications for the sales volume. Since the customers. bad debt expenses and profit per unit. and period of discount and the credit period. As a result. profits would increase. reduction in prices will result in higher sales volume. rate of discount. Affect the trade-off. The changes in the discount rate. The discount would have a negative effect on the profits.

This may to because some customers may not like the pressure and intense efforts initiated by the firm. the average collection period will be reduced.Quick collection of funds and effective control over payments result faster turnover of receivables. . the credit policies of a firm may be categorized into (i) Strict/light. In the first place. A tight collection policy has implications. 2. and may switch to other firms.` The third area involved in the accounts receivable management is collection policies. This can be done by the following measures 1. They refer to the procedures followed to collect accounts receivable when. The management has to consider a trade-off between them. a lenient collection effort also affects the cost-benefit trade-off. the bad debt expenses (default cost) would decline. Payments on the due date. Yet another negative effect may be in the form of a decline in the volume of sales. 35 . Use of draft (bill of exchange) instead of cheques. Degree of Collection Effort: To illustrate the effect of the collection effort. Type of collection efforts. (ii) Lenient. The effect of tightening the collection is discussed below. Degree of effort to collect the over dues. But. Likewise. there would also be negative effects. which involve benefits as well costs. after the expiry of the credit period. A very rigorous collection strategy would involve increased collection costs. These policies cover two aspects: 1. and 2. Moreover. As a result of these two effects. they become due. except when the discount offered for early payment is substantial. The collection policy would be tight if very rigorous procedures are followed. the firm will benefit and its profits will increase.

Dispatch of reminders letters to customers. Cost benefits analysis: 36 . Aspects of collection policy: The following aspects should be recovered in collection policy and procedures Timing of the collection process-when to start reminding etc. early payment discount rates etc 2. 5. credit analysis –decisions on whether credit can be extended to a particular customer 3. notice to defaulting customers etc. 2. Appointment of agents for collection or follow.up. faster collection of debtors 4. Hence a proper collection policy should be laid down. The cost in the of interest (in case of loan funds) or opportunity cost of capital (in case of own funds) 2. Delinquency costs: cost of reminders. phone calls. legal action to be initiated.steps for debtors follow up. Interest on investment: additional funds are blocked in receivables. Playing the float – estimating accurately the time of presentation of issued cheques for having only cash balance in the bank account to honors Cheque presented on a particular date. Administrative cost: costs of record keeping investigation of credit worthiness etc. Collections of costs: cost of contacting customers cheques in person outstation collection charges etc. The three basics aspects of management of sundry debtors are: 1.decisions on credit period to be allowed. control over receivables. Defaulting costs: bad debts legal charges in respects of suits pending against debtors etc. Dealing with default accounts. credit policy. follow-up letters etc. 3. 3. The cost of maintaining receivables comprises the following 1. 1. Role on Collection policy: Average collection period and bad debts losses are reduced by efficient and timely collection of debtors. ` 3. 4.

Monitoring of receivables involves following measures: 1. contacting customers collecting cheques in person . 2. Monitoring the state of receivables. analysis of quality of individual accounts 2. above 60 days etc. recognition of recent increase and slumps in sale The following are illustrative steps in a collection programmed 1. Telegraphic and telephone advice to customers on due date. Average age of receivables : debtors turn over ratio and average collection period are worked out intervals. These are compared with the industry norms . 30-45 days 45-60 days. Legal action on overdue accounts. 37 . less than 30 days. Hence the amount of collection costs to be incurred should be determine analysis level of expenditure on one hand and decrease in bad debts losses and investment in debtors on other . in a firm spends more on collections of debts .e. Ageing schedule: the pattern of outstanding/receivables is determined by preparing the ageing schedule. liquidity of present receivables with the past periods and also comparing current liquidity of receivables 3. Intimation of due dates to customers. suitable action should be taken to collect immediately 3. collecting agency fees etc. e. Role: preparation of ageing schedule helps management in the following ways: 1. Collection programmed: the procedures for collecting e. direct follow –up etc should be initiated based on the company “s polices and procedures.g.g.in case of high collection period. I . 4. likely to have smaller bad debts. supplement to average collection periods of receivables / sales analysis 5. reminding letters. In an ‘ageing schedule’ the receivables are classified to their according to their age. 2. Threat of legal action on overdue accounts. intra-firm and intra-firm comparison. trend analysis of debtors 4. period for which they have been outstanding. If the receivables are denoted old outstanding due for longer periods. intense collection efforts are initiated. 3. 5.` There are certain routine costs associated with collection from customers e.g. i.e.

1. 6. on the date customers of dispatch of goods Mailing float. 4. bills discounting 2. Debt securitization.receipt of Cheque from Concentration banking and lock box system customers Cheque processing float Banking processing float 38 .in sending invoice to Use of faster modes of mailing. Including customers e-mail sending the invoice by fax first. Advances from customers Type of float Technique Billing float – in sending in voice to Immediate preparation of bill. loans against book debts 3. Factoring. forfeiting etc 5.` The following are some alternatives for external financing of accounts receivables/ debtors. Followed by normal mail Mailing float. Loans against supply of bills to government departments.

` CHAPTER – 4 DATA ANALYSIS APGENCO has two major sources of Revenue a. 39 . Sale of Power to APTRANSCO that is the main activity.

` b. as the business is different and terms and conditions are different. Providing Operation & Maintenance Services to M/s. SALE OF POWER TO APTRANSCO The erstwhile APSEB is unbundled in APGENCO and APTRANSCO (with Discoms) on 1.1999. APGENCO has also got other income like Income from investments. Here billings in both the cases are different and the revenue is also different.2. APGPCL that is an ancillary activity of APGENCO. Hence we have to deal both the cases separately. Revenue from Sale of Scrap etc.e.2. But here we will take up only above two mentioned incomes i.1999 APGENCO owns and operates Thermal and Hydel.. which stand 40 . Revenue from Sale of Power and Revenue from O&M services a. Since 1.

A brief description about the Tariff Order and the Terms and Conditions are given in the next page. This PPA is modified based on the APERC and CERC Guidelines where ever and whenever. 1998 and the Andhra Pradesh Electricity Reform (Transfer Scheme) Rules. Whereas APTRANSCO will operates the Transmission lines and Distribution activities as per the above mentioned same Rules and Acts. Power Purchase Agreement is entered on yearly basis and this Agreement is generally for a financial year. APGENCO and APTRANSCO have agreed on the terms and conditions of the Sale and Purchase of the Available Capacity and Electric Energy generated in the Thermal and Hydel stations allotted to APGENCO during the Reforms. These organizations do the business based on the Power Purchase Agreement (PPA) that is prepared following the APERC and CERC guidelines.e. 1999 and subsequent additions thereon. APTRANSCO. Power Purchase Agreement will contain the details of the Terms and Conditions to be followed by APGENCO and APTRANSCO in raising the bills and their payment terms. APGENCO has the only customer i. Terms and Conditions of PPA between APGENCO & APTRANSCO 41 ..` transferred to and vested in APGENCO in terms of Section 23 and 24 of the Andhra Pradesh Electricity Reforms Act. From then APGENCO main activity is to generate energy and sell the same to APTRANSCO.

Tariff for APGENCO Power Stations The Tariff for APGENCO Power Stations is determined by APERC on the basis of a Two – Part Tariff and shall be fixed for the Tariff Year (Generally Financial Year). Here month means the calendar month. and in case of supplementary bill shall be 30 days from the date of presentation. a. Billing is done on the Energy delivered by APGENCO to APTRANSCO during a month. b. 5. 4. 7. meter readings have to be taken that are placed in all the generating stations. Bills shall be raised by APGENCO on monthly basis. 2. Billing date shall be 5 (five) days after the Meter Reading date in each calendar month. Due date for payment of bill is 30 days from the date of billing. The monthly Tariff for Variable Charges will vary for the energy sent out through the Thermal Stations and based on the variation in the delivered cost of Coal and Oil. Revenue from Sale of Power to APTRANSCO 42 . 3.` 1. The monthly Tariff shall be the sum of a Fixed Charges equal to one – twelfth of the Annual Fixed Charges decided by APERC. the metering dates of the financial year ends at (24:00 hours) on 31st March. Metering date for the first calendar month will be (00:00 hours) of April and subsequent metering date will mean midday (12:00 hours) of the last day of each calendar month. However. For arriving energy delivered. 6.

10 (Audited) 3866.33 mu Figure-4.94 mu 2011 .30 Crs.` Following the earlier mentioned terms and conditions APGENCO issues bills on monthly basis as per the tariff proposals. 28720.50 Crs. 28767. Outstanding Receivables (Sundry Debtors) against Sale of Power by APGENCO Table-4.It shows an increasing trend from 2010-11.99 Crs. in Crs) 43 .40 Crs. 31441.1 Amount Energy Generated Year (Rs. in Crs) (in Million Units) 2007 . 33323.08 (Audited) 4069.2 Amount Year (Rs.22 mu 2008 .1 INTERPRETATION: In the above chart the revenue bars shows an increasing trend during 2007-08 and slightly decreased in 2009-10.09 (Audited) 4156.12 (Audited) 4617.58 mu 2009 .75 mu 2010 – 11 (Audited) 4199. 25420. The year wise revenue from sale of energy is as under: Table-4.91 Crs.

08 1844.09 2019.20 Crs. Figure-4. 2009 .57 Crs.10 1958. 2008 . 2006 – 07 1636.2 44 . 2011 .14 Crs.20 Crs.` 2007 .12 1453.68 Crs.

` INTERPRETATION: In the above graph the sundry debtors against sale of power curve shows an increasing trend during the period of 2007-09 and then shows an continuous decreasing trend during the period of 2009-12 Ageing Schedule 45 .

57 1453.14 2019.16 3.48 4156.20 1958.) 1844.58 50.57 1453.91 5.99 4617.14 2019.86 Out Standing Amount Due in (%) 45.68 Out Standing Amount (Days) 165 177 185 142 115 One Months Credit Period (Days) 30 30 30 30 30 Dues above Credit Period (Days) 135 147 155 112 85 Dues above Credit Period (Months) 4.20 1636.51 4.68 Dues Considered Doubtful (Crs.4 Age Wise – Breakup of Sundry Debtors 2007-08 2008-09 2009-10 2010-11 2011-12 PARTICULARS (Audited) (Audited) (Audited) (Audited) (Audited) < 6 months (Crs.68 6 months to 1 year (Crs. OPERATION & MAINTENANCE SERVICES TO APGPCL 46 .57 1453.00 Dues Considered Good (Crs.20 1636.) 0 0 0 0 0 > 3 Years (Crs.00 31.` 2007-08 2008-09 2009-10 2010-11 2011-12 PARTICULARS (Audited) (Audited) (Audited) (Audited) (Audited) Revenue from Sale of Power to APTRANSCO (Crs.20 1958.) 0 0 0 0 0 Dues Considered Bad (Crs.57 1453.32 48.91 4199.68 b.) 4069.) 1844.20 1636.14 2019.20 1958.) 0 0 0 0 0 TOTAL (Crs.14 2019.20 1636.) 0 0 0 0 0 1 Year to 3 Years (Crs.) 1844.) 0 0 0 0 0 Table-4.30 Amount Due from APTRNASCO (Crs.75 2.20 1958.) 1844.40 3866.64 39.

APGENCO shall maintain the Facility with base load and with best professional skills by employing Prudent Utilities Practices and meet the performance targets. APGENCO shall provide technical advice and support to APGPCL regarding operation and maintenance issues. Operation and maintenance is an ancillary activity of APGENCO. Terms and Conditions of Operation and Maintenance Contract between APGENCO & APGPCL 47 . This shows that APGENCO is providing this service up to the satisfaction of the owner (APGPCL). This agreement is governed by and construed in accordance with the Laws of India. This Operation and maintenance contract agreement is entered initially for a period of 5 years. on expiry of the initial 5 years this agreement is renewed regularly for the succeeding periods with modifications in the agreement.` (Ancillary activity of APGENCO) APGPCL has constructed 272 MW Naphtha/Natural Gas/Mixed Fuel based Gas Turbo Power Station (GTPS). APGENCO is having expertise in the business Operation and maintaining power-generating stations and APGPCL has engaged APGENCO to perform operation and maintenance of said power generating station upon the terms and conditions set forth in the agreement.

`

1. Here APGENCO is the service provider called as operator and APGPCL is the service recipient

and the owner.

2. The agreement period between these two parties is initially for a period of 5 years and also

extendable based on the interest of the APGPCL (owner).

3. APGENCO has to provide the owner with a monthly summary of all operation and maintenance

activities performed by APGENCO during such month.

4. APGENCO has to maintain the facility in perfect condition and if any repairs operator must inform

to the owner and get it done.

5. APGENCO has to maintain the Books of Accounts of APGPCL.

6. APGENCO has to maintain the confidentiality with regard to the critical designs and other vital

information and shall divulge to any person or organization other that statutory authorities during

the continuance of O&M contract or thereafter.

TERMS OF PAYMENT

48

`

A. Payments for Service Portion

For First Year

1. 25% of the fee applicable for 1st year shall be paid as mobilization advance against Advance Bank

Guarantee as per the Format after submission of Contract Performance Security and siding of this

agreement.

2. Balance 75% of the fee applicable for 1st year shall be paid in twelve equal monthly installments,

commencing one month after the date of handing over of the plant to the Operator.

3. The bank guarantee against the advance payment shall be released after the last payment of the first

year.

For the Subsequent Year

1. Annual Service Charges for the respective years shall be paid in twelve equal monthly installments

for that year.

B Payments for Supply of Spares Portion

1. For the complete contract period. Annual charges for the spares supply shall be paid in twelve

equal monthly installments for that year.

`

B. Payments for Major Overhauls

49

`

1. For each major overhaul the owner has to pa 10% of the cost of spares and service charges for one

overhauling shall be paid as advance, 30 days upon satisfactory before the scheduled overhaul

against furnishing of Bank Guarantee.

2. Balance 90% of the cost of spares and service charges for one overhauling shall be payable within

30 days upon satisfactory completion of the major overhauling as certified by owner’s

representatives.

3. The Bank Guarantee against the advance payment shall be released within 30 days upon

satisfactory completion of Major Overhaul and receipt of Overhaul Reports form the Operator.

4. Price of each major overhaul will not change even if the time schedule is altered due to any reason

whatsoever. In case, any of the Major overhauling does not take place due to any reasons

whatsoever, the Operator will not be entitled to receive that particular payment.

Revenue from Operation and Maintenance contract to APGPCL

50

82 Crs.18 Crs.11(Audited) 22. 2008 .04 Crs.08 (Audited) 15.3 INTERPRETATION In the above graph the revenues curves from O & M shows a continuous increasing trend during the period of 2011-2012 to 2011-2012. 2009 .60 Crs.12 (Audited) 25. in Crs) 2007 .09 (Audited) 15. 2011 .` Following the earlier mentioned terms and conditions APGENCO issues bills on monthly basis.10 (Audited) 20.99 Crs.6 End of the Year Amount 51 . Figure-4. The year wise revenue from Operation and Maintenance is as under: Table-4. Outstanding Receivables (Sundry Debtors) against O&M Contract by APGENCO Table-4.5 Year Amount (Rs. 2010 .

40 Crs.98 Crs. in Crs) 2007 . Figure-4.57 Crs.09 (Audited) 4.11(Audited) 13.10 (Audited) 13.08 (Audited) 1. 2009 .53 Crs.4 INTERPRETATION: 52 .12 (Audited) 18. 2010 .` (Rs.02 Crs. 2008 . 2011 .

99 Due 1.02 Table-4.S Amount Due in (%) 10.` In the above graph the sundry debtors against O & M curve shows an continuous increasing trend from 2007 .53 13.98 O.04 15.02 13.S in days 38 109 228 216 267 One Months Credit Period (in Days) 30 30 30 30 30 Dues above Credit Period (in Days) 8 79 198 186 237 O.40 18.98 CHAPTER – 5 FINDINGS 53 .57 4.57 4.08to 2011-2012.02 13.02 13.7 2007-08 2008-09 2009-10 2010-11 2011-12 PARTICULARS (Audited) (Audited) (Audited) (Audited) (Audited) Revenue from O&M Contracts 15.18 20.53 13.29 73.82 22.8 Age wise breakup of Sundry Debtors 2007-08 2008-09 2009-10 2010-11 2011-12 PARTICULARS (Audited) (Audited) (Audited) (Audited) (Audited) < 6 months 1.53 13.45 29.57 4. Ageing Schedule Table-4.84 62.40 18.57 59.40 18.60 25.98 6 months to 1 year 0 0 0 0 0 1 Year to 3 Years 0 0 0 0 0 > 3 Years 0 0 0 0 0 TOTAL 1.

1 FINDINGS (in respect of Revenue from Sale of Power to APTRANSCO) From the Terms and conditions. 4. ` SUGGESSTIONS CONCLUSIONS 5. 2. 6. 5.200 Crores. APGENCO is giving a credit period of 1 month. Ageing Schedules. APTRANSCO has to open an irrevocable Letter of Credit for an amount of Rs. APTRANSCO has to pay the bill amount within 30 days from the date of bill issued. 54 . There is no penalty clause in the Power Purchase Agreement. and the Float Chart the following observations were made: 1. 3. APGENCO is issuing bills on monthly basis.1. APGENCO is issuing penalty bills even though there is no clause in the Power Purchase Agreement.

APGENCO is maintaining regular correspondence with APTRANSCO and AP Government for the dues receivable from APTRANSCO. so that bills can be issued regularly and the amount can be recovered early. APGENCO is conducting regular meetings with APTRANSCO and APDISCOMS for bringing the outstanding dues from APTRANSCO. due to fear of the penalties APTRANSCO may make the payments in time to APGENCO. 5. The Credit period can also be reduced in order to make quick recovery of the bill amount. 8. riod. It may suggested to include the penalty clause in the future Power Purchase Agreement. ` 7. 5. due to which the bill can be served quickly and this will reduce the creditor pe 4.2 SUGGESITIONS (in respect of Revenue from Sale of Power to APTRANSCO) Following are some of the suggestions which APGENCO may consider for improving the receivables from APTRNASCO: 1. It may suggested to APGENCO to reduce the billing period 15 days instead of 1 month. 3. 9.1. The Power Purchase Agreement suggests paying the Working Capital Loan brought by APGENCO to meet the regular routine raw material expenses. 2. 55 . The Billing Float can be reduced and the preparation of the bill may be done within a day or two.

1. 7. in order to ensure in timely recovery of the bills issued. Mailing Float. 8. Cheque preparation Float. Depositing of the received Cheque float etc.200 Crores from APTRANSCO as agreed in the Power Purchase Agreement. APGENCO and APTRANSCO must go for internet banking in order to reduce the payment float i. APGENCO must know the credit worthiness of its customer (APTRANSCO) in order to the liquidity position of APTRANSCO for giving the credit period. 5. APGENCO must insist for the Letter of Credit for Rs.` 6. 9. dues receivables are less than 6months it can be said all are debts receivable are good debts and all the debts can be realized from these it is conclude that there are no bad and doubtful debts 56 .. Cash discount must be given to APTANSCO if the pay the bill amount (or) over due amount with in the given stipulated time. The rules framed in Power purchase agreement towards receivables are not so rigid and the APGENCO is losing lot of amounts in the form of interest due to delay payment and obtaining lot of loans for working capital requirement from the ageing schedule it can be made that.3 CONCLUSIONS (in respect of Revenue from Sale of Power to APTRANSCO) APTRANSCO & APGENCO are both undertaking by government.e. due to which whenever APTRANSCO want to release payment that amount can be directly credited in to APGENCO’s account with out any above mentioned floats.

` 5. 2.2. APGENCO issues the Operation and Maintenance Contract bills on monthly basis. 3. Repairs and Maintenance expenditure is initially borne by APGENCO and then reimbursed by APGPCL. 57 . Ageing Schedules. 5. and the Float Chart the following observations were made: 1. APGENCO can also claim incentive bill based on the Plant Load Factor.1 FINDINGS (in respect of APGPCL O&M CONTACT) From the Terms and conditions. 4. APGENCO and APGPCL both are in the same business of Power Generation. APGENCO can raise supplementary bill based on the actual generation.

7. because of the outcome of the meeting APGPCL has cleared all the dues were cleared by APGPCL during F/Y 08 – 09. as the accounts were under finalization figures are not disclosed.2 SUGGESITIONS (in respect of APGPCL O&M CONTACT) 1. 2.` 6. Credit period for any bill raised is 30 days.2. 5. the only suggestion that can be give to APGENCO is maintain an Internet Banking account in order to reduce the Cheque receipt float. APGENCO has never done credit evaluation of APGPCL. As the receipts seems to be good in respect of Operation and Maintenance Contract with APGPCL. Deposit float and clearance float by the bank. 58 . 8. APGENCO has to perform the credit evaluation of APGPCL. It is learnt that a meeting was held between APGPCL and APGENCO.

as the age of outstanding amount seems to be lessthan 6months and there is no much flot found in the operation and maintance contract with APGPCL Finally it can be concluded from the above findings and dues positions that APGENCO & APGPCL has very good terms in respect of the bussiness 59 .` 5.3 CONCLUSIONS (in respect of APGPCL O&M CONTACT) The receipt from APGPCL is to be reasonable.the entire debt outstanding on the last day of the year seems to be good.2.

absence of the penalty clause is the main reason for delayed receipts or bad debts.3 OVER ALL SUGGESTION TO APGENCO IN RESPECT OF ALL THE BUSINESSES 1. It may suggested to give cash discounts so as to make effective and early recoveries. 4. 3. 2. Credit worthiness certificate from bankers or any other consultants etc. by studying the Financial Statements.. It may suggested to include the penalty clause in all APGENCO’s agreements. 60 .` 5. to know that how far the credit can be allowed to its customers. Factoring services must also be availed from the bankers for early recovery of its outstanding dues. APGENCO has to carry out the Credit Evaluation of its customers.

Cheque deposit and its clearance. Credit Bureaus etc. The most important suggestion I want to give to APGENCO is to open an Internet Banking Mechanism in order to reduce the cost of collection and float in Cheque receipt. While giving credit APGENCO must also make Credit Analysis i. 6. because the decrease in prices would affect the profit margin per unit of sale.e. by obtaining credit information from Internal sources. Financial statements. External sources. 7. Banks. While discounting the bills care must be taken that there is no negative effect on the profits.` 5.. 61 .

P.M. Page No.Rustagi. Delhi. Financial Management. Pandey .in 2. Delhi .23 Websites browsed: 1. Vikas Publishers. Financial Management.` BIBILOGRAPHY BIBLIOGRAPHY Books Referred: 1. www.com 62 . Page No’s-24.apgenco. Shashi K Gupta. Galgotia Publications.Khan & PK Jain.Y. Financial Management. Page No’s-30.9 4. www. Kalyani Publishers.1- 30. M.’s-843-864 2. Management Accounting.17-24.co. Page No’s-691-696 3. I. R. MC Graw Hill Company.tatamcgrawhill.

.ISSN:1067-0432.Year:2002. Author:Rosentein.orgler.` Journal Articles 1.issue:2 2.CliffordW.Yair E. “Automatcing payables and receivables.” Blackwell publishers Ltd.” CFO publishing corp. “Accounts receivable management policy:theory and evidence.1985” 4.ISSN:0022-1082. “An integrated model for accous receivable management” 6.” 3. Zvi Lieber. “selling accounts receivable and the underinvestments problem.gentry and jesus m.journal of finance.Daniel. “managing your receivables in todays economy.Jr.treasury&risk management. Janice H.George.” Journal:strategic finance.Year:1992 5. Wallis LP.Year:2003 63 . James A.Volume:84..levin. Smith.stein.Shehzad L. “A generalized modle for monitoring accounts receivable.