Global:

Accounts Receivable (AR) is one of the largest and most liquid of corporate assets (Kimtai, 2006)
which are very important in facilitating business transactions. Pike and Neale (1999) consider accounts
receivable as both a source and use of finance in that it can be obtained and extended. However, it can
be unproductive unless it generates additional business since it ties up scarce financial resources and
exposes organizations to risk of default in situations whereby the credit period is lengthy (Pike and
Neale, 1999). Huge amounts of accounts receivable is likely to reduce the firm value and as such the
need to have best Accounts Receivable best practices. Mbula, Memba and Njeru (2016) assert that
Accounts receivable is a current asset and a component of working capital.

The starting point for accounts receivable management practices is to understand the policies
and procedures for sales. Two critical questions to answer are, how and when a firm should evaluate a
customer for credit, and whether there exists a credit policy. Myers (2003) describes AR management as
methods and strategies adopted by a firm to ensure that they maintain the best optimal level of credit
and its effective management. It is a component of financial management which involves Accounts
Receivable analysis, Accounts Receivable extension, Accounts Receivable collection and Accounts
Receivable financing. Some of the other components of Accounts receivable management practices are
policies, measurement and outsourcing options.

Having accounts receivables is both good and bad. It is good because it means that you have
sales and customers. It is bad because it is cash that you don’t have now, and there is always a
possibility that you won’t collect. When you offer credit terms to your customers, it is extremely
important to have a system in place to manage your accounts receivable. The function of accounts
receivable management emanates from its goals which is stated simply as setting out credit terms,
selecting the customers, installing appropriate collection and monitoring system and financing
receivables for maximizing the value of the firm (Hrishikes 2002). The first issue for the management of
trade debtors is to decide whether to grant credit at all (Arnold, 2005). Although accounts receivable is
short term in nature the policy decisions that create them often have a long-term impact on the
organization and its financial structure because, once a receivables policy is determined it is difficult to
come out of it except at the cost of adverse market reactions. Credit policy decisions are part of an
integrated approach, and interface actively with production, marketing and finance functions of an
enterprise (Hrishikes, 2002).

In many organizations the growth in access to credit has led to a rising level of consumer
indebtedness which is having a significant impact on business profitability (Haris, 2010). Accounts
receivables management is an issue for every institution offering credit to its customers and the
challenge for organizations is to protect profit margins by reducing write-offs, cutting the cost to collect
and maximizing the cash collected. In practice, Onwumere et al (2012) argue that it has become one of
the most important issues in organizations with many financial executives struggling to identify the basic
accounts receivables drivers and the appropriate level of accounts receivables to hold so as to minimize
risk, effectively prepare for uncertainty and improve the overall performance of their businesses.
South East Asia:

A common goal of accounts receivable management is to ensure debts are collected

within specified credit terms (Pike and Cheng, 2001). Another common goal is the
identification of delinquent accounts to reduce the total trade credit which is written
off as a bad debt (Jackling et al., 2004, p. 384; Peacock et al., 2003). These two goals
normally go hand-in-hand, as early identification of delinquent customers reduces the
size and age of accounts receivable and also reduces the probability of accounts
defaulting (Peacock et al., 2003).
A common goal of accounts receivable management is to ensure debts are collected
within specified credit terms (Pike and Cheng, 2001). Another common goal is the
identification of delinquent accounts to reduce the total trade credit which is written
off as a bad debt (Jackling et al., 2004, p. 384; Peacock et al., 2003). These two goals
normally go hand-in-hand, as early identification of delinquent customers reduces the
size and age of accounts receivable and also reduces the probability of accounts
defaulting (Peacock et al., 2003).
A common goal of accounts receivable management is to ensure debts are collected
within specified credit terms (Pike and Cheng, 2001). Another common goal is the
identification of delinquent accounts to reduce the total trade credit which is written
off as a bad debt (Jackling et al., 2004, p. 384; Peacock et al., 2003). These two goals
normally go hand-in-hand, as early identification of delinquent customers reduces the
size and age of accounts receivable and also reduces the probability of accounts
defaulting (Peacock et al., 2003).
Accounts receivables is broadly defined as the sales that have already been made as well as
delivered, but not yet paid for it. This is called selling it on credit. The money is owed to the company or
the firm because of selling a service or product on credit terms. Thus, it means that the company doesn’t
receive cash for it immediately. (Pandey, 2004). Therefore, one of the important characteristic of
accounts receivables throughout the decades has been the whole idea of tracking, because of its nature
of providing customers on credit. It is essential to keep a record and monitor of who owes money
because these debts eventually require to be paid off for the company’s profitability. The whole concept
of accounts receivables varies from accounts payable, which are a list of outstanding invoices that you or
your business has not yet paid to other people.

Accounts receivables includes a very thorough and correct credit application process, procedure
and approval because there is always a risk of payments being delayed or even no payment. So this is
why, one of the important parts of the management of accounts receivables involve the correct and
proper selection of customers which comes about from the process of credit applications and credit
approvals (Hrishikes, 2002). However, no matter how much risk is involved in it, or the idea of receiving
the payment later sometime in the future or maybe never at all, it is still one of the main characteristics
of account receivables because it acts as a boost up of sales for the companies eventually optimizing the
company’s profit as well as the means of building a retaining business relation with the customers
(Barad, 2010). As Damilola writes in her own paper that the purpose of offering credit is mainly to
maximize profit (Damilola, 2005). So, this is where the risks associated with it evolved for which reason
proper management of accounts receivables is required. The effective management of accounts
receivables comes about through proper strategies adopted and carried out by companies. Team work,
credit control, marketing, finance and accounting functions altogether in a company builds up a strong
accounts’ receivables. (Megginson 2008)
 Management of accounts receivable is made complex because it forms an integral part of the
marketing function as the granting of credit attracts customer thus resulting to increased sales and sales
revenue (Cooper, 1985). Management of the accounts receivables asset is a complex task as it addresses
the ramifications of practices and processes usually outside the span of the responsible manager, thus it
requires balancing of opposing priorities of the sales, marketing and finance functions (Salek, 2005).

A common goal of accounts receivable management is to ensure debts are collected within a
specific credit terms (Pike and Cheng, 2001). Another common goal is the identification of delinquent
accounts to reduce the total trade credit which is written off as bad debt (Jackling et al., 2004, p.384;
Peacock et al., 2003).

Poor management and control of accounts receivable often results to disruption of the firm’s
daily operations caused by cash flow problems which results to non-payment of suppliers of goods and
services, non-payments of employees and inability to meet statutory obligations. The overall effect is
non-supply of materials and services leading to disruption in production, a demotivated workforce and
penalties from authorities. Hence J. Salek (2005) opines that cash is the “life blood” of any company and
every dollar of a company‟s revenue that becomes a receivable must be management and collected.

Poor management of accounts receivable impacts negatively on profits in two ways; first, bad
debts written off reduce the firms‟ profits directly in the profit and loss account; Secondly, when a lot of
funds are tied up in accounts receivable, the company may find itself borrowing funds to finance
operations; these borrowed funds attracts interest which also reduces profit. Other than the bad debt
and interest expense, there are legal expenses associated with collecting debts.

Philippines:

Accounts receivable refers to money that others owe to the company; these are the amount a
company has a right to collect because it sold goods or services on credit to a customer. Thus, this
increases a company’s cash when properly collected. However, receivables, also commonly known as
collections, are often the most challenging part of working capital management. After all, it is hard to
control your customers' payment behaviors. For treasurers, receivables reconciliation can be a challenge
due to incomplete information on incoming payments, missing remittance advice, and inadequate
technological support (DBS Treasury Prism, 2018).

Furthermore, William cited other studies on accounts receivables management such as the
following: a study by Lazaridis and Dimitrios found that firms who pursue increase in accounts
receivables to an optimal level increase their profitability; study by Juan & Martinez emphasized that
firms can create value by reducing their number of days of accounts receivable, thus confirmed the
finding of Deloof who established that the length of receivables collection period has a negative effect
on a firm’s performance; and a study by Sushma & Bhupesh also affirmed that, putting in place a sound
credit policy ensures proper debt collection procedures and is pivotal in improving efficiency in
receivables management hence the performance of firms.

Parrott (2016) suggested 3 key areas of accounts receivable management. (1) Before a company
grants credit to a customer it should ensure, as far as possible, that the customer is worthy of that credit
and that bad debt will not result. Checks should continue to be carried out by existing customers as a
company would like to have early warning of any problems which may be developing. This is especially
true for key customers of the company. (2) Once the decision has been taken to grant credit, then
suitable credit terms must be set and the receivables that arise must be monitored efficiently if the costs
of giving credit are to be kept under control. (3) A key area of the management of accounts receivable is
the final collection of cash from customers. Any company must have a rigorous system to ensure that all
customers pay in a timely fashion as, without this, the level of receivables and the cost of financing
these receivables will inevitably rise, as will the risk and cost of bad debts. Parrot further cited the
importance of assessing creditworthiness (such as band reference, trade reference, credit/rating
reference agency, financial statements, information from financial media and visit), setting credit terms
and monitoring accounts receivable (such as explaining credit terms and conditions, setting credit limit,
monitoring of accounts receivable thru aged analysis and credit utilization report), collecting cash (such
as giving customers invoice very quickly and accurately, sending monthly statements, chasing letters,
chasing phone calls, personal approach, stopping supplies, legal action, and outsourcing external debt
collection agency), employing the methods of speeding up cash collection from accounts receivable, and
giving invoice discounting.

References:

Sindani, M.N., 2019. The Moderating Effect of Financial Literacy on the Relationship between Accounts
Receivable Management Practices and Growth of SMEs in Kenya. Retrieved from
http://finance.expertjournals.com/ark:/16759/EJF_701sindani1-7.pdf

Akinleye, G. T. & Adebowale, O. J. 2019. Account Receivables’ Management and Performance of

Manufacturing Firms. Retrieved from https://zambrut.com/wp-content/uploads/2019/07/Account-
Receivables.pdf

Munene, F. & Tibbs, C. Y. (2018). Accounts receivable management and financial performance of Embu
Water and Sanitation Company Limited, Embu County, Kenya. International Academic Journal of
Economics and Finance, 3(2), 216-240

Leitch, P. & Lamminmaki, D. (2009) Refining measures to improve performance measurement on the
accounts receivable collection function. Retrieved from
https://www.researchgate.net/publication/46455194_Refining_measures_to_improve_performance_m
easurement_of_the_accounts_receivable_collection_function/citation/download

Khan, S. (2018) Efficient Management of Accounts Receivable at CoreStaff, Darwin, Australia. Retrieved
from http://dspace.bracu.ac.bd/xmlui/bitstream/handle/10361/11279/15364012_MBA.pdf?
sequence=1&isAllowed=y

Cabañas, D. M., (2018) The Cash Management Practices of Micro-Entrepreneur Borrower Clients of
Tulay sa Pag-Unlad, Inc. In Metro Manila. Retrieved from
https://www.academia.edu/40750119/Chapter_1_THE_PROBLEM_AND_ITS_SETTING?
fbclid=IwAR3wvO6el3Ef9cvB3nkDdaviMmZYXjX2MT_74lX1-AMyjpO7A_jlXGozlL0