Accounts Receivable Management

Lecture Notes
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Accounts Receivable Management

- formulating and implementing account management plans and procedures, and

ensuring that receivables are retained at a predetermined amount and collectible as
expected.

Receivable Management Strategy

- extend credit where incremental sales outweigh incremental costs. Or expand credit
sales to the point that the marginal cost equals the marginal profit (Cost benefit analysis)

WAYS OF ACCELERATING COLLECTION OF RECEIVABLES

1. Shorten credit terms.

2. Offer special discounts to customers who pay their accounts within a specified
period.

3. Speed up the mailing time of payments from customers to the firm.

4. Minimize float, that is, reduce the time during which payments received by the
firm remain uncollected funds.
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1. CREDIT TERMS

This describes the credit duration and discount given for prompt payment by
customers. The following expenses relating to credit terms shall be taken into
account: cash discounts, credit analysis and collection costs, bad debt losses and
financing costs.

TRADE CREDIT

- is granted in order to increase the sales volume. Nevertheless, it also involves

spending or through the receivables of the company's accounts. The company's
investment in receivables is the contingent costs generated by the receivable
accounts, and not the volume of reported credit sales.