Summer Training Project Report

On

“ACCOUNTS PAYABLE”

Submitted to

I.K.GUJRAL PUNJAB TECHNICAL UNIVERSITY KAPURTHALA

In partial fulfillment of the requirement

for the award of degree of

Master of Business Administration (MBA)

Submitted by: Supervisor:

Bhanu Mr. Sumit Garg

2217850 Director

MBA 3sem

MBA DEPARTMENT

CHANDIGARH BUSINESS

SCHOOL OF ADMINSTRATION LANDRAN,

MOHALI
(2022-24)
ii
 STUDENT DECLERATION

I,” Bhanu”, hereby declare that I have undergone my summer training at “kandor accounting
financial services”, from (1th July 2023) to (15th August 2023). I have completed a research
project titled “ACCOUNTS PAYABLE” under the guidance of Mr. / Ms. (Mr. Shashi
bhushan verma).

Further I hereby confirm that the work presented herein is genuine and original and has not
been published elsewhere.
(Bhanu)

iii
 FACULTY DECLERATION

I hereby declare that the student Mr./Ms. (Bhanu) of MBA(II) has undergone his/her summer
training under my periodic guidance on the Project titled ”ACCOUNTS PAYABLE”.
Further I hereby declare that the student was periodically in touch with me during his/her
training period and the work done by student is genuine &original.

DR. ARUNI
(Assistant Professor)
Dr. Charu
(Head of department)

iv
 ACKNOWLEDGEMENT

At the Passage, I take the privilege to convey my sincere gratitude to those whose

cooperation, suggestions and support helped me to accomplish the project work successfully.

I would like to thank the Director “Sumit Garg”. For his valuable guidance and regular

support, this has greatly helped me through the project.

I am also thankful to our Course Coordinator Dr. Aruni for her encouragement and timely

suggestions, which helped me greatly during the course of this project.

I would like to thank Mr. Shashi bhushan verma (executive officer at kandor accounting

services) for his valuable guidance.

Thank you.

v
 TABLE OF CONTENT

Certificate by Guide ii

Student Declaration iii

Faculty Declaration iv

Acknowledgement v

CHAPTER NO CHAPTER TITLE PAGE NO

1 Introduction to the company

2 Introduction to the research problem

3 Need Scope and objectives of the study

4 Research methodology

5 Data analysis and Interpretation

6 Findings of the study

7 Suggestions , conclusion and

recommendations of the study
References and Bibliography

Appendix
(Questionnaire, Glossary of terms, Abbreviations, Documents, Performa,
etc.)
 CHAPTER-1
INTRODUCTION TO THE COMPANY

Kas has extensive accounting industry knowledge and experience. It is that knowledge and
experience that we leverage on, to give you the best possible services in this area. You can
entrust us with your bookkeeping, financial reporting, financial statement presentation, audits
and review’s needs. You can also entrust us with your tax planning and preparation needs.
Other areas you can rely on us are those of employee stock compensation, SEC compliance,
capitalization and revenue recognition… In a nutshell, you entrust us with all your accounting-
related needs. In entrusting us with those functions, you would have confidence that we have
the necessary industry knowledge and experience to help you get it right consistently.

History:
ABB resulted from the 1988 merger of the Swedish corporation Allmänna Svenska Elektriska
Aktiebolaget (ASEA) and the Swiss company Brown, Boveri & Cie (BBC); the latter had
absorbed the Maschinenfabrik Oerlikon in 1967. CEO at the time of the merger was the former
CEO of ASEA, Percy Barnevik, who ran the company until 1996.
ABB's history goes back to the late 19th century. ASEA was incorporated by Ludwig Fredholm
in 1883 and Brown, Boveri & Cie (BBC) was formed in 1891 in Baden, Switzerland, by Charles
Eugene Lancelot Brown and Walter Boveri as a Swiss group of electrical companies producing
AC and DC motors, generators, steam turbines and transformed.

Organizational structure:
ABB is the world's largest builder of electricity grids and is active in many sectors, its core
businesses being in power and automation technologies. The company has one corporate
division and five production divisions since reorganization in January 2010. ABB is one of the
few large companies that have successfully implemented the matrix structure in their
organization.

Corporate and Other:

The Corporate and Other department of ABB deals with the overall management and
functioning of the company as well as asset management and investment. It supports MNCs.

Discrete Automation and Motion:

The division Discrete Automation and Motion provides products and services for industrial
production. It includes electric motors, generators, drives, programmable logic controllers
(PLCs), power electronics and industrial robots. ABB has installed over 200,000 robots. In
2006; ABB opened a manufacturing center in Shanghai, China. Also, wind generator, solar
power inverter, UPS products belong to this division.

Low Voltage Products:

The Low Voltage Products division manufactures low-voltage circuit breakers,

switches, and control products, wiring accessories, enclosures and cable systems
to protect people, installations and electronic equipment from electrical overload.
Low Voltage Products also incorporates a Low Voltage Systems unit
manufacturing low voltage switchgear and motor control centers. Customers
include a wide range of industry and utility operations, plus commercial and
residential building.
Power Products:
Power products are the key components for the transmission and distribution of
electricity. The division incorporates ABB's manufacturing network for
transformers, switchgear, circuit breakers, cables, and associated high voltage
and medium voltage equipment such as digital protective relays. The division is
subdivided into three business units - High Voltage Products, Medium Voltage
Products and Transformers.
Power Systems:
Power Systems offers turnkey systems and service for power transmission and
distribution grids, and for power plants. Electrical substations and substation
automation systems are key areas. Additional highlights include flexible AC
transmission systems (FACTS), high-voltage direct current (HVDC) systems
and network management systems. In power generation, Power Systems offers
the instrumentation, control and electrification of power plants. The division is
subdivided into four business units - Grid Systems, Substations, Network
Management, and Power Generation.

Process Automation:
The main focus of this ABB business is to provide customers with systems for
control, plant optimization, and industry-specific automation applications. The
industries served include oil and gas, power, chemicals and pharmaceuticals,
pulp and paper, metals and minerals, marine and turbocharging. By 2014, PA
will consist of six business units: Turbocharging, Marine, Control Technology
(the world's No 1DCS supplier) Measurement Products & Services, and
Industrial Solutions (consolidation of O&G, Mining, and PMC into one business
unit).

Primary investors:
The largest single stake in the firm is held by the Swedish investment company
Investor AB, controlled by the Wallenberg family, which holds 8.3%.

LINE OF BUSINESS:
We are the authorized stockist for 1.0 M/s.ABB LTD for their Electric Motors &
AC Variable Drives 2.0 .We are proud to claim that we are the first dealers of
M/s.BONFIGLIOLI TRANSMISSION PVT LTD for their Geared Boxes &
Gear Motors. We have established well in the market with more than 250 OEM
customers in addition to various industries in diverse fields like chemical,
petrochemical, paper, leather, sugar, pharmaceutical, auto ancillaries and
automobile companies. We are willing to add additional products in similar line
and application of well-known reputed brand and hence this proposal. Our
present turnover is Rs.45MN INR and we expect a growth of 20% this year in
our present activities.

MANAGEMENT:
Ours is professionally managed concern having five Qualified Mechanical
Engineers two electrical and electronics engineer besides two service technicians
possessing excellent experience in marketing and servicing of engineering
products to various core sectors. The undersigned is an engineer having more
than 30 years of experience in Marketing of Motors, Gearboxes and Drivers.

FACILITES:
We have our Office and Godown Facilities measuring approximately 3000
sq.ft.situated in the heart of the city of Chennai. We have adequate infrastructure
and communication facilities like Telephones, Fax and Internet etc.We have
well trained sales Force of eight Sales Engineers and service personnel besides
well- trained Administrative Staff.
KEY FIGURES:
 Complete range of motors, generators and mechanical power transmission
products and services
 120 years of experience
 Present in more than 100 countries
 Manufacturing in 41 factories in 11 countries
 65 ABB service centers and more than 100 authorized service providers
 5,600 ABB external channels

1.1 INTRODUCTION TO THE STUDY

The basis for financial planning, analysis and decision-making is the financial
information contained in the cash flow and fund flow statements is used by management,
creditors, investors and others to form judgement about the operating performance and
financial position of the firm.

Users of financial statements can get further insight about financial strength and
weaknesses of the firm if they properly analyse information reported in these statements.

With this objective the project was undertaken inorder to analyse forms ability to meet
trade creditors claims over a very short period of time. This would further help the
management to know about financial strength of the firms to make the best use and be able to
spot out financial weaknesses of the firm to take suitable corrective action.
1.2 IMPORTS PROCEDURE AND TERMS OF PAYMENT AT
ABB MOTORS.,
Purchase order is created by Procurement in Ranjangoan and with one copy sent to
vendor. If the payment term is against documentary credit, Letter of Credit is opened at Delhi
and sent to the supplier.

When the material gets shipping by the supplier, negotiable documents are received
either directly or through bank after acceptance. Negotiable documents (i.e.) Bill of Lading
(or) Airways bill is given to the Customs House Agent for clearance of goods. Customs
House Agent informs Import Clerk of Financial Accounting Team the payment advice of the
duty charge, customers charge etc by E-mail. Then imports staff creates the custom clearing
payment voucher in SAP & Prepares a payment request document to bank for triggering
payment. Financial Manager and Financial Head is required to sign on the request according
to Board resolution.

The goods are received in the factory and goods receipt note (GRN) entry is passed in
the SAP system which updates the stock also Customs House Agent will send the original
documents to Import staff in Ranjangoan. He inputs the details of the bills into a manual
control working paper and then pass the bill to Duty Entry team for recording duty entries in
SAP. On the basis of GRN entry, invoice verification is done in the system by same imports
staff.

Import clerk prepares a cross check list for double check SAP record against actual
document details for freight charges, duties, goods amount LIC creates an entry against
vendor by Debit expense, tax, credit agent name.

Copy of Invoice, copy of Bill of lading and exchange control copy of bill of entry is
sent to New Delhi for payment of import material. On due date the above mentioned
documents along with application for remittance are sent to bank. In case of Advance
payment, purchase order entered in system (which has been cleared by authorized person) &
Performa invoice is sent along with application for remittance.
Statutory payment for Imports
Statutory payment is initiated for clearing agent charges, Customs payment and
shipping charges due to import from foreign vendors. It is processed as advanced payment.
Voucher is created in SAP before cheque request. Deputy Manager of planning plans and
decides the day to make payment and he submits the request by emailing to Finance Manager
with Import clearing details. Then clerk at Import Department prepares a spreadsheet based
cheque request to Finance Manager. Finance Manager reviews the cheque request with email
details and then he as well as Finance Head will sign off the cheque request before faxing the
request to Citi Bank of Pune for initiate payment. For statutory payment there is no limitation
of the authority on the approval by Finance Head.

Advance payment
For vendor advance payment, copy of approved purchase order entered in system
(Which has been cleared by authorized person) showing advance term and Performa Invoice,
Request form are sent along with application for remittance. Advance payment of Purchase
order or deviation from purchase order is approved my Management.

1.3 ABB Motors is a manufacturing sector which by its raw material from :
1. Domestic Market
2. Imports

Domestic Trade and Terms of Payment

In economics, a market is a mechanism which allows people to trade. The domestic
market therefore includes all trade mechanisms within one country, excluding exports and
imports.

Market can also be thought of as a group of people who might buy a given product. In
this sense, a company might be doing well in the college age market, but poorly with elders.
While a person could make any number of arbitrary distinctions between different groups of
potential customers, whether these people live ( or operate ) within the same country is more
important than many other divisions. Doing business within a company's domestic market
avoids import and export tariffs.
TERMS OF PAYMENT

Cash Payment
Currency is an important means of payment in India, with 19% of M3 represented by
currency, as against its share of 6 to 7% in advanced countries. It is supplemented by cheques
and drafts for payments in commercial transactions.

Bills of Exchange
A negotiable instrument is a specialized type of contract for the payment of money
which is unconditional and capable of transfer by negotiation. Note that a negotiable
instrument is not a per se contract as contract formation requires an offer, acceptance and
consideration, none of which are elements of a negotiable instrument (in the US). The rights
of the payee (or holder in due course) are better than those provided by ordinary contracts as
follows:
 The rights to payment are not subject to set-off, and do not rely on the validity of
the underlying contract giving rise to the debt (for example if a cheque was drawn
for payment for goods delivered but defective, the drawer is still liable on the
cheque)
 No notice needs to be given to any prior party liable on the instrument for transfer
of the rights under the instrument by negotiation
 Transfer free of equities -- the holder in due course can hold better title than the
party he obtains it from
 The bill of exchange involves 3 parties:
 The drawer - the one who issues the document, and through which he invites the
drawee to pay.
 The drawee - who has to pay the sum of money at the due date; he must have a
liability towards the drawer and this liability constitutes the provision and the due
amount
 The beneficiary - to whom the drawee has to pay. The beneficiary can be the
drawer himself or a third party to whom he might owe money (pay at order
clause).
 Negotiation enables the transferee to become the party to the contract, and to
enforce the contract in his own name. Negotiation can be effected by indorsement
and delivery (order instruments), or by delivery alone (bearer instruments). The
two primary classes of negotiable instruments are as follows:
  The promissory note, which is a written promise by the maker to pay money to the
payee. The most common type of promissory note is a bank note, which is defined
as a promissory note made by a bank and payable to bearer on demand; and
 The bill of exchange, which is a written order by the drawer to the drawee to pay
money to the payee. The most common type of bill of exchange is the cheque,
which is defined as a bill of exchange drawn on a banker and payable on demand.
Bills of exchange are used primarily in international trade, and are written orders
by one person to his bank to pay the bearer a specific sum on a specific date
sometime in the future. Prior to the advent of paper currency, they were a more
significant part of trade.

DEMAND DRAFT
The Demand Draft is a pre-paid Negotiable Instrument, wherein the drawee bank
undertakes to make payment in full when the instrument is presented by the payee for
payment. The demand draft is made payable on a specified branch of a bank at a specified
centre. In order to obtain payment, the beneficiary has to either present the instrument directly
to the branch concerned or have it collected by his / her bank through the clearing mechanism.
1.4 IMPORT PROCEDURE AND TERMS OF PAYMENT

Import Process
[As governed by the Foreign Trade (Development & Regulation) Act, 1992].
With the globalization of Indian economy and consequent upon comfortable balance
of payment position Government of India has liberalized the Import Policy and practically all
Controls on imports have been lifted. Imports may be made freely except to the extent they
are regulated by the provisions of Import Policy or by any other law for the time being in
force.

Inquiry
The person wanting to import some goods into India, has first of all to send a letter of
inquiry to a foreign exporter. Through the letter of inquiry, the importer asks for information
as to:
 Availability of goods
 The price at which such goods would be available
 The terms and conditions in regard to delivery, payment, etc. on his part, he must
give all the details as to the goods wanted by him, viz., quality, quantity, size,
design, pattern, color, etc.
If necessary he may also ask for some samples, patterns, etc., to be sent to him.

Quotation
In reply to his inquiry, the importer would receive a quotation. The quotation contains
particulars as to the goods available in ready stock with the foreign exporter, their quality,
size, suitability, etc. then there is a mention of the price at which the goods would be supplied.
There are also other terms and conditions prescribed by the exporter.

Now the importer has to make his choice. Must he take the lunge and place the order ?
Should he write to some other supplier? It he already has quotations from some other
suppliers, he must ascertain who among the suppliers has offered the most favorable terms. In
case he wants some modifications in the terms, or a clarification, he must write to the exporter
before placing his order.
Import Licence and Quota
As earlier stated, the government to play safe with its foreign exchange reserves,
always endeavours to ensure a favourable balance of payments. With this end in view, it has
enacted the Imports and Exports (Control) Act, to exercise control over both imports and
exports.

But for understandable reasons, the government pursues a far more restrictive policy
with regard to imports. With a view to using imports as an instrument of growth within the
country, the government announces its import policy every six months. Under it, the quantity
of items that can be imported into the country within a given time is specified. There is also
reference to the countries from where such items can be imported.

To comply with the regulations, the intending importer has first to apply to the
Controller of Imports for a quota certificate. But for this he has to produce evidence of his
past performance on this score. If the controller is satisfied with it, he issues the necessary
quota certificate. The certificate lays down the type and quantity of goods be imported and
their value.

This done, the importer has now to make an application for the issue of an import
licence. The application must be accompanied by the income tax verification certificate.
Also, he has to produce the proof of his having paid the necessary import licence fee.

Upon this, the Controller carries out his own scrutiny and if satisfied in every respect,
he issues the licence to the importer. One copy of the licence is then sent to the customs
authorities and another to the exchange control authorities.
 General and Individual Licence: A license under which goods may be imported
from any country is a general licence. The licence that allows imports only from
specified countries is called an individual licence.
 Open General Licence (OGL): For the goods mentioned in the open general
licence list, import licence is issued freely. For the import of goods not covered by
this list, licences have to be secured in the normal course.
Foreign Exchange Booking
Imports have to be paid for in the currency of the exporter’s country, this means the
importer has to secure the necessary foreign exchange to pay for the goods to be imported by
him.

Foreign exchange for this purpose is allocated by the exchange control department of
the Reserve Bank of India. But its distribution is through the foreign exchange banks or
commercial banks authorized in this behalf.

As a safety device against unfavourable fluctuations in the rate of exchange (already

explained in the discussion on export procedure), the importer may arrange with his bank to
buy the necessary foreign exchange on a future date but at the rate agreed upon at the time of
the contract.

Order
Having secured the necessary quota, licence and foreign exchange, the importer now
sends his order to the foreign exporter. The order may be sent directly to the exporter or it may
be sent to him through an indent house.

For an importer who is new to this business or who operates on a small scale, it is
always good to deal with his foreign exporters through an indent house.

In any case, the order must give full particulars of the goods required, viz., quality,
price, size, design, pattern, color, trade mark, etc.

LETTER OF CREDIT
Letters of credit accomplish their purpose by substituting the credit of the bank for that
of the customer, for the purpose of facilitating trade. There are basically two types:
commercial and standby. The commercial letter of credit is the primary payment mechanism
for a transaction, whereas the standby letter of credit is a secondary payment mechanism.
COMMERCIAL LETTER OF CREDIT
Commercial letters of credit have been used for centuries to facilitate payment in
international trade. Their use will continue to increase as the global economy evolves.

Letters of credit used in international transactions are governed by the International

Chamber of Commerce Uniform Customs and Practice for Documentary Credits. The general
provisions and definitions of the International Chamber of Commerce are binding on all
parties. Domestic collections in the United States are governed by the Uniform Commercial
Code.

A commercial letter of credit is a contractual agreement between a bank, known as the

issuing bank, on behalf of one of its customers, authorizing another bank, known as the
advising or confirming bank, to make payment to the beneficiary. The issuing bank, on the
request of its customer, opens the letter of credit. The issuing bank makes a commitment to
honor drawings made under the credit. The beneficiary is normally the provider of goods
and/or services. Essentially, the issuing bank replaces the bank's customer as the payee.

Elements of a Letter of Credit

 A payment undertaking given by a bank (issuing bank)
 On behalf of a buyer (applicant)
 To pay a seller (beneficiary) for a given amount of money
 On presentation of specified documents representing the supply of goods
 Within specified time limits
 Documents must conform to terms and conditions set out in the letter of credit
 Documents to be presented at a specified place

Beneficiary
The beneficiary is entitled to payment as long as he can provide the documentary
evidence required by the letter of credit. The letter of credit is a distinct and separate
transaction from the contract on which it is based. All parties deal in documents and not in
goods. The issuing bank is not liable for performance of the underlying contract between the
customer and beneficiary. The issuing bank's obligation to the buyer, is to examine all
documents to insure that they meet all the terms and conditions of the credit. Upon requesting
demand for payment
the beneficiary warrants that all conditions of the agreement have been complied with. If the
beneficiary (seller) conforms to the letter of credit, the seller must be paid by the bank.

Issuing Bank
The issuing bank's liability to pay and to be reimbursed from its customer becomes
absolute upon the completion of the terms and conditions of the letter of credit. Under the
provisions of the Uniform Customs and Practice for Documentary Credits, the bank is given a
reasonable amount of time after receipt of the documents to honor the draft.

The issuing banks' role is to provide a guarantee to the seller that if compliant
documents are presented, the bank will pay the seller the amount due and to examine the
documents, and only pay if these documents comply with the terms and conditions set out in
the letter of credit.

Typically the documents requested will include a commercial invoice, a transport

document such as a bill of lading or airway bill and an insurance document; but there are
many others. Letters of credit deal in documents, not goods.

Advising Bank
An advising bank, usually a foreign correspondent bank of the issuing bank will
advise the beneficiary. Generally, the beneficiary would want to use a local bank to insure that
the letter of credit is valid. In addition, the advising bank would be responsible for sending the
documents to the issuing bank. The advising bank has no other obligation under the letter of
credit. If the issuing bank does not pay the beneficiary, the advising bank is not obligated to
pay.

Confirming Bank
The correspondent bank may confirm the letter of credit for the beneficiary. At the
request of the issuing bank, the correspondent obligates itself to insure payment under the
letter of credit. The confirming bank would not confirm the credit until it evaluated the
country and bank where the letter of credit originates. The confirming bank is usually the
advising bank.

Common Defects in Documentation

 Bill of Lading evidences delivery prior to or after the date range stated in the credit.
  Stale dated documents.
 Changes included in the invoice not authorized in the credit.
 Inconsistent description of goods.
 Insurance document errors.
 Invoice amount not equal to draft amount.
 Ports of loading and destination not as specified in the credit.
 Description of merchandise is not as stated in credit.
 A document required by the credit is not presented.
 Documents are inconsistent as to general information such as volume, quality, etc.
 Names of documents not exact as described in the credit. Beneficiary information
must be exact.
 Invoice or statement is not signed as stipulated in the letter of credit.

When a discrepancy is detected by the negotiating bank, a correction to the document

may be allowed if it can be done quickly while remaining in the control of the bank. If time is
not a factor, the exporter should request that the negotiating bank return the documents for
corrections.

If there is not enough time to make corrections, the exporter should request that the
negotiating bank send the documents to the issuing bank on an approval basis or notify the
issuing bank by wire, outline the discrepancies, and request authority to pay. Payment cannot
be made until all parties have agreed to jointly waive the discrepancy.

 Latest shipping date and the maximum time allowed between dispatch and
presentation.
 If the letter of credit calls for documents supplied by third parties, make reasonable
allowance for the time this may take to complete.
 After dispatch of the goods, check all the documents both against the terms of the
credit and against each other for internal consistency.

Advice Note and Documentary Bills

The importer on his part having sent the order as also the proof that he means to pay
for the goods. It is now for the exporter to arrange an early dispatch of goods. No sooner
the
exporter dispatches the goods then he communicates it to the importer through an advice note
also contains a reference as to when the importer might except to receive the goods.

Soon, the shipping documents, viz, bill of lading insurance policy, certificate of origin,
consular invoice, etc, follow. Along with these, the exporter also sends a bill of exchange
drawn on the importer. The bill, called a documentary bill (because of the above documents
having been attached to it), is presented to the importer through the exporter’s bank. In case it
is a D/A (document against acceptance) bill, the importer can take delivery of the documents
by signing his acceptance on it. On the other hand, if it is a D/P (document against payment)
bill, he can get the documents only after he has paid the amount mentioned in the bill.

Delivery Order
Having secured the documents of the title to the goods, the importer has now to keep
waiting for the announcement in the newspapers about arrival of the ship carrying his
consignment. After the ship has arrived, the importer obtains and endorsement for delivery of
the goods from the shipping company.

Such endorsement is made on the bill of lading. The shipping company may also issue
a separate delivery order for this purpose. but before doing so the shipping company ensures
that the freight has been fully paid. In case the freight has been paid by the exporter, the
importer will be given the delivery order straightaway. However, if the exporter has not made
the payment and, consequently, it is the importer who will now have to pay the freight before
getting the deliver order.

Application to Import
After securing the delivery order, the importer now turns to the customs office to see if
any customs duty has to be paid on the goods. To this end, he submits a copy of the port trust
dues receipt and two copies of the bill of entry to the customs office. These documents
contain all particulars as to the value, quantity, type, etc., of the goods.

If the goods received by the importer are free goods, on which no import duty is
payable, the customs authorities mark FREE on the bill of entry and the importer can now
take away the goods.
 On the other hand, if the goods are dutiable, i.e., there is provision for payment of
import duty on them, the customs authorities mark DUTY on the bill of entry in which case
the goods will be released only after the requisite duty has been paid on them.

Import duty may be specific or advalorem. It is specific when it is levied on the basis
of quantity, measure or weight of the goods. The value of the goods does not count for this
purpose.

Import duty is advalorem when it is levied on the basis of the value of goods. The
value for this purpose means the market value and not what is given in the invoice. However,
if the market value cannot be ascertained, then the invoice price constitutes the basis for
determining the import duty.

Sometimes, the importer may not be able to furnish all the particulars as to the goods
imported by him. This happens where the foreign exporter does not provide all the particulars
relating to the goods exported by him. The importer in such a case is allowed to fill in a
special form called bill of sight. In this the importer states all that he knows about his
purchase and records his in ability to provide the remaining details until he has inspected the
goods. The customs authorities then allow him to open the packages and complete the bill of
entry on the basis of the information thus gathered.

Regular import. For those who import goods ob a regular basis may be a problem
paying the import duty every time they receive a consignment. To get over this, they open an
account with the customs office and keep on depositing money in it from time to time.
Whenever they receive any dutiable goods. The customs office debits their account with the
amount of duty payable by them.. the bill of entry in such a case is maked deposit system so
that the goods are cleared without paying the requisite import duty, there and the.

Bonded Warehouse. Then there may be importers who are not in a position to pay the
import duty all at once.

The goods received by such importers are kept in a bonded warehouse and released
only upon payment of duty.
Delivery of Goods
All the necessary formalities having been gone through, the importer is now well set to
get the goods delivered to him. He presents the delivery order form to the foreman in charge
of the shed where the ship is docked. The delivery order is then signed and a gate pass issued
to him.

The bill of lading is then surrendered at the time of actual delivery of goods. The fact
of the receipt of goods is acknowledged on the bill of lading itself.

Having secured the possession of goods, the importer now makes a move for the gate
through which, upon surrendering the gate pass, he is allowed to take out the goods

Clearing Agents
Of course, it is not necessary for the importer to go through all the tedious and time-
consuming formalities himself. For this purpose, this purpose, he can avail of the services
offered by the clearing agents for a nominal fee.

Payment
This marks the last stage of an import transaction. If the importer has not paid the price
in advance, he may adopt of the following method for the payment of the price

Letter credit: The importer pays the amount to his bank which, in turn, agrees to honour
the cheques or bills drawn by the exporter in his own country.

Bill of exchange: In case the exporter has drawn a D/A (documents against
acceptance) bill, the importer gives his acceptance to the bill before taking deliver of the
documents to the title. He then makes arrangements to honor the bill on its maturity.
However, if the exporter has chosen to draw a D/P (documents against payment) bill, the
importer has to pay the price before taking delivery of the documents of title.

Payment to the Exporter’s Agent: If the exporter has an agent operating in the
importer’s country, he sends the documents of title through such agent. Here again, the
importer has to pay the price before the documents of title are delivered to him.
CUSTOMS CLEARANCE OF IMPORTED GOODS
Customs Authorities and the Clearing agents play the key role in the import of goods.
All goods imported into India have to pass through the procedure of Customs clearance as
they cross Indian border. The goods are examined, appraised, assessed, evaluated and then
allowed to be taken out of charge of the Customs for use by the importer. The entire process
of customs clearance is complex and to carry out this procedure smoothly, the help of
accredited customs clearing agents has to be taken.

The importers need to present a Bill of Entry on receipt of the advise of the arrival of
the vessel. The B/E is noted in Import Department, with corresponding endorsement made
against the consignment entry in the IGM along with the date. The B/E will then be presented
in the Appraising Department with all the relevant documents like invoice, Bill of Lading,
Import license and catalogue literature. The appraising procedure may be of two types.

The First Check Procedure-Applicable only when appraisers/assessing group finds it

difficult to complete the assessment on the basis of the documents made available.

The Scrutinizing Appraiser in the group gives the examination order. The goods are
then examined in the docks and the B/E returned to the Scrutinizing Appraiser for completion
and license debit. In this case the Customs 'out of charge' is given by the Accounts

Department soon after the recovery of duty

The Second Check Procedure-Under this 80 to 90 percent of the consignments are
cleared. If the documents are adequate for determining the classification, value, ITC license,
the form is completed by the Appraiser and then countersigned by The Assistant Collector. It
is then forwarded to the License Department for licensing debit and audit. Then it is returned
to the importers for payment of duty in the Accounts/Cash department. After recovery of duty
the original B/E is retained in the Accounts Department and the duplicate and other copies are
returned to the importer for getting the goods examined in the docks.

In the docks, the Shed Appraiser/Examiner shall examine the goods and if in order,
shall give the out of charge for taking delivery from the custodian of the goods viz. Port Trust,
after payment of Port Trust charges.
 Irrespective of the procedure, examination of cargo for assessment purpose is chiefly
the function of the Appraising Department having special staff of examiners in the docks/Air
cargo shed. The records of the examination and weighment should be declared, attested and
dated at the time of the examination. If the examination spreads over more than one day, the
result on each day's progress should be disclosed.

These apart some of the Customs house in India have introduced the simplified
computer procedure for speedy clearance of consignment through B/E.

Custom Authorities
The customs administration vests in CBEC for implementing the provisions of the
Customs Act.1962. There are two main wings of Customs House. In the 'Appraisement' wing
the job of collection of revenue is assigned, while the 'Preventive' one aims at prevention of
smuggling.

The Customs authority functions under the Ministry of Finance (MoF) with the
Central Board of Excise & Customs at the apex. The board is headed by a Chairman and
assisted by Members. The Member (Customs) looks after the following matters:

Customs Law and its interpretation and application, policy and broad procedures
(other than those concerning anti-smuggling). Enforcement of Import Export prohibitions.
Foreign Travel and Cases on imports and exports Baggage concessions and rules; Customs
Valuations; Tariff classification and Tariff advice; customs procedures, Customs House
Agents Valuations; Tariff Classification and Tariff advices; Customs procedures, Customs
House Agents Regulations; Warehousing inland Bonded warehouses’ FTZs, EPZs, 100%
EOUs etc. Matters relating to Drawback; Customs Co-operations Council. GATT and
ESCAP and international talks and agreements, organizations concerning customs; All other
works on Customs not specified elsewhere; Supervision and control over Customs
Commissionerate of Mumbai, Calcutta, Chennai, Kandla, Bangalore, Cochin, Delhi,
Visakhapatnam, Goa and Tuticorin and Customs Divisions of other Central Excise
Commissioners, Assistant Commissionerates regarding Customs work handled by them
Chemical laboratories and Directorate of Drawback.
 The Ministry of Finance (MOF) issues Customs Notifications to levy duty on the
imported goods. The changes are made each year on the Day of the Fiscal Budget. Customs
clearance of the imported goods is done by the customs Authorities functioning under the
overall charge of MOF. The hierarchy of the Authorities: Central Board of Excise & Customs
(CBEC) in the MoF. Under which operates; Customs Commissionerates of Mumbai,
Calcutta, Chennai, Kandla. Banglaore, Cochin, Delhi, Vizag, Goa and Tuticorin. Directorate
of Draw Back Field level; Principal Commissioners Customs. Commissioners, Addl.
Commissioners, Dy. Commissioners, Asst. Commissioners, Port of clearance.

Classification of Customs Tariff

The basic legislation is the Indian Customs Act, 1962 read with Customs Tariff Act,
1975. Section 12 of the Customs Act,'62 empowers levy of duties on goods imported into or
exported from India.

However, the rates at which the different import export duties shall be leviable have
been respectively specified in the First and Second Schedule to the Customs Tariff Act, 1975-
called the import Tariff and Export Tariff respectively.

With effect from Feb. 28, 1986, the new tariff import schedule based on international
convention of Harmonised Commodity and Coding system, commonly known as Harmonised
Coding System came into being. The basic features of the Import Tariff. Nomenclature are
outlined below: The headings, the Section and Chapter Notes and the interpretive Rules,
Customs duties are levied in three ways-Specific rate-at the rate prescribed per unit of item
i.e. weight or number of length; Ad-valorem duty-levied on the value of the item; Specific and
advalorem-levied in both ways.
(a) Types & Levy of Customs duties
Customs duties are levied on the imported goods and in a few cases on export goods at the rates specified in the schedules to the
Customs Tariff Act, 1975. The taxable event is import into or export from India. Import duties generally consist of the following :

 Basic Duty
 Additional Customs Duty equal to Central Excise duty leviable on like goods
produced manufactured in India.
 Countervailing Duty
 Surcharge @ 10% of Basic Duty
 Special Additional Duty @ 4% to be computed on the aggregate of (i) assessable
value, (ii) basic duty, (iii) surcharge and (iv) additional duty of Customs
 Additional duty of Customs @ Rs.1/- per litre on imported motor spirit (petrol)
and high speed diesel oil.
 Anti dumping duty/safeguard duty for import of specified goods.

Basic duty: all goods imported into India are chargeable to duty as prescribed in the
1st Schedule of Customs Tariff Act. This Schedule is amended from time to time of Customs
Tariff Act. This duty can be levied either as a percentage of value of goods or at a specified
rate.

Surcharge: It is levied at the rate of 10% of the basic rate on all commodities except
crude oil and petroleum products, GATT-bound items, gold and silver. Additional Duty: Also
known as countervailing duty, is levied on the cost of imported goods and is equal to excise
duty levied on like goods when manufactured in India. The objective is to ensure that the
protection provided by the import duty to domestic industry is not eroded.

Special Additional Duty: It is levied at the rate of 4%. Anti-dumping Duty: This is
levied on specified goods imported from specified countries to protect indigenous industry
from injury resulting from USA, Korea and so on.

Customs Duty Assessment: The assessment of goods to duty is done on the basis
Whether the goods covered by the B/E are such as are regularly imported, or are required to
be tested by the customs house laboratory for fulfillment of license conditions, or The
appraisers desires to see the representative sample before completing the bill of entry for the
purpose of verification of the value/description, etc. or The required document is not
forthcoming.
 Customs Duty Rates: When the import invoice is in any currency other than Indian
rupees, customs fix the exchange rate for conversion into the Indian rupees at a predetermined
rate which is published in customs houses on a daily basis.

Imports from specified countries enjoy preferential duty. This is generally the result of
special status accepted under bilateral trade agreements or otherwise. However, the incidence
of customs duties on various goods imported is obtained as follows:

Total duty payable = (Landed cost including CIF of the item concerned + Basic
customs duty under the Customs Tariff Act + Surcharge thereon + Additional duty + Special
Additional duty as per Finance Act).

Getting Import License checked-The appraising official checks the license for their
description, value, validity period, importers name, etc. It is for the importer to establish that
the goods satisfied the description in the license unless he is able to establish the fact he
would not be entitled to lawful import thereof. If the appraising official is satisfied that the
license is in order, he will send the license with B/E to license section for registration and
audit. The department maintains a register for every license accepted and debited showing the
last balance on the license.

The importer is likely to know the term of license, the type of goods and whether they
can be lawfully imported as per the terms of the license. In case there is any error on the part
of the appraising authority then possession of even a valid license will not confer any right
upon the importers to import such goods again on the basis of similar licenses.

Bill of Entry-This is a document on the strength of which clearance of imported goods

can be effected. Its form has been standardized by the Central Board of Excise and Customs.
All goods discharged from a vessel, from foreign or coastal Ports, are cleared on this
prescribed forms presented under the B/E Regulations, 1971.

It should be presented for 'noting' in the import dept. of the customs house after the
import General Manifest which gives a detailed description item wise of the goods brought by
the concerned vessel is filed by the steamer Agent.
Warehousing Of Imported Goods
An importer may not like to clear or may have certain problems in clearing the
imported goods immediately on payment of duty for home consumption. In that case the
importer can deposit the goods in a Public or Private Bonded Warehouse, provided he is
satisfied with the arrangement. Thus, the importer can avail the facility of deferring payment
of duty on imported goods pending their actual clearance. Towards this the importer should
file a set of yellow colored B/E known as warehousing B/E.

Self-Assessment Scheme: Applicable to goods without any ITC license/CCP or any

restrictions thereof. The objective is to enable importers effecting repetitive imports of some
commodities to assess their own B/E and determine their duty liability and pay the duty
accordingly. Any importer, including Govt. bodies and PSUs, with proven identity and track
record can avail of this.

This process does away with the procedure of processing, and the time consumed by
the appraising and licensing sections.

When the duty is paid, the goods would be cleared in the docks, provided the goods
are partly examined and payment of duty verified.

Green Channel: This fast-track facility has been introduced to simplify and expedite
the process of cargo clearance. Instead of going in for a hundred per cent examination only a
part of the cargo is checked. Bulk importers, Govt. Depts. & PSUs, consignment of a single
product of well known brand name and importers with identified and unblemished track
record are allowed to avail this facility.
Facility of import of restricted items by service providers:
Service providers shall be entitled to import restricted items up to 10% of the foreign
exchange earned by them during the preceding licensing year for import of essential goods
related to their line of business, including office and other equipment required for their own
professional use.

Import Of Samples
Bona fide technical and trade samples of items, even those in the restricted in
ITC(HS)Classifications of Export and Import items is allowed without a license for a value
not more than Rs. 1 lakh (CIF) in one consignment save vegetable seeds, bees and new drugs
by any importer. Tea samples not above Rs.2000 (CIF) in one consignment is allowed without
a license by any person connected with Tea industry.

Prototype Import: This may be allowed on payment of duty without a license to an

actual user, industrial engaged in the production of or having industrial license/LoI or
research, as the case may be, provided the number of items imported does not exceed 10 in
number in a year.

1.5 100% EXPORT ORIENTED UNITS

The Government amended in November 1983 a concession scheme to facilitate the
setting up of export-oriented units (EOUs) in order to enable them to meet requirements of
foreign demand in terms of pricing, quality, precision etc.

EOUs can be set up anywhere in the country and may be engaged in the manufacture
and production of software, floriculture, horticulture, agriculture, aquaculture, animal
husbandry, pisciculture, poultry and sericulture or other similar activities.

A 100 per cent export-oriented unit is an industrial unit offering for export its entire
production, excluding the permitted levels of domestic tariff area sales. EOUs may be set up
with a foreign equity participation of up to 100 per cent. For setting up a 100 per cent EOU
the following conditions are applicable:
(i) The entire production and operation of 100 per cent EOUs must be in a customs
bonded factory, unless specifically exempt from physical bonding; Goods will be
imported into the customs bonded factory.
(ii) The unit shall undertake to manufacture in the bonded area and to export its entire
production for a period of 10 years ordinarily and 5 years in case of products liable to
rapid technological change.

Regarding the export obligations of 100 per cent EOUs, the following conditions
apply:
- EOUs need not export their manufactured goods themselves but may use an
export house/trading house/star trading house or other EOUs subject to certain
conditions;
- EOUs may execute export orders also through third parties given that the
goods will be directly transferred from the customs bonded factory to the port of
shipment and all export benefits will be to EOUs only.

(iii) an approved EOU will execute a bond/legal undertaking with the Development
Commissioner concerned; Failure to fulfil the obligations stipulated in the letter of
approval or intent will render the unit liable to penalty.

(vi) EOUs have to adhere to the minimum value addition conditions incorporated in
the letter of permission/letter of intent/industrial license issued to them; In general,
such minimum value addition will be 35 per cent for automatic approvals and 20 per
cent for other cases.

(v) EOUs have to maintain a proper account of the imports, consumption and
utilization of all imported materials and exports made by the unit; These accounts will
be submitted periodically to the Development Commissioner. Wherever an existing
industrial unit is operating both as a domestic unit as well as an approved 100 per cent
EOU, it should have two distinct identities with separate accounts.

(vi) EOUs are permited to sell part of the production in the domestic tariff area subject
to certainimits
 (viii) the f.o.b. value of exports of an EOU can be clubbed with the f.o.b. value of
exports of its parent company in the domestic tariff area to attain export house, trading
house or star trading house status for the parent company;

(ix) supplies produced in the domestic tariff area under global tender conditions,
against payment in foreign exchange, against advance licenses and other import
licenses, and to other EOUs with the permission of the Development Commissioner,
will be counted towards the fulfillment of export obligations.

On completion of the bonding period, it shall be open to the unit to continue under the
scheme or to opt out of the scheme. Debonding will, however, be subject to the industrial
policy in force at the time the option is exercised.

Where debonding is sought before the stipulated export obligation period of 5 to 10

years, or where EOUs are unable to fulfill their export commitments out of various reasons, it
is considered premature debonding. This is subject to payment of all leviable duties without
the benefit of depreciation, and also subject to penalties and other conditions as decided by
the Board of Approvals for 100 per cent EOUs. Customs duties on capital goods as well as
customs dutes on unused raw materials, components, consumables and spares are leviable on
debonding after the export period

PROCEDURE
Units undertaking to export their entire production of goods and services may be set
up under the Export Oriented Unit (EOU) Scheme, Export Processing Zone (EPZ) Scheme,
Electronic Hardware Technology Park (EHTP) Scheme or Software Technology Park (STP)
Scheme. Such units may be engaged in manufacture, production of software, agriculture,
aquaculture, animal husbandry, floriculture, horticulture, pisciculture, viticulture, poultry and
sericulture. Units engaged in service activities may qalso be considered. Existing DTA units
having an export obligation under the EPCG scheme, may also apply for conversion into an
EOU. On such a conversion, the export obligation under the EPCG scheme will be met
concurrently from the exportsby the unitsas an EOU. The entire operations of the
EOU/STP/EHTP will be in a custom bonded factory, unless otherwise specifically exempted
from physical bonding.
 In accordance with the policy to give a special thrust to export of computer software,
such units would be encouraged to be set up under any of the aforementioned export oriented
schemes. Software units may undertake exports using data communication links or in the
form of physical exports (which may be through courier service also), including export of
professional services.

Importability of goods
An EOU/EPZ/EHTP/STP unit may import free of duty all types of goods, including
capital goods, required by it for manufacture, production , processing, or in connection
therewith, provided they are not prohibited items in the Negative List of Imports. However,
import of Basmati paddy/brown rice shall be prohibited. The units shall also be permitted to
import capital goods on loan from clients for specified periods for executing specified
projects. STP/EHTP/EPZ may import free of duty all types of goods for creating a central
facility for use by software development units in STP/EHTP/EPZ.

An EOU engaged in agriculture, animal husbandry, floriculture, horticulture,

pisciculture, viticulture, poultry or sericulture may import free of duty only such goods as are
permitted to be imported duty free under a Customs Notification issued in this behalf.

Second hand Capital goods

All second hand goods, other than capital goods, shall be restricted for imports and
may be imported only in accordance with a Public Notice or a license issued in this behalf.

Leasing of Capital goods

An EOU/EPZ/EHTP/STP unit may, on the basis of a firm contract between the
parties, source the capital goods from a domestic/foreign leasing company. In such a case, the
EOU/EPZ/EHTP/STP unit and the domestic/foreign leasing company shall jointly file the
import documents to enable import of the capital goods free of duty
Net Foreign Exchange Earning as a percentage of exports (NFEP) and minimum export
performance
The Unit shall be a net foreign exchange earner. The minimum level of foreign
exchange earning as a percentage of exports(NFEP) as defined below and the minimum
export performance shall be as specified in Appendix 1 of the Policy. Items of manufacture
for export specified in the Letter of Permission/Letter of Intent alone shall be taken into
account for calculation of net foreign exchange earning as a percentage of exports and export
performance. However, for STP units export obligation norms alone, as notified, would apply.
Notwithstanding the above, electronic hardware units shall be allowed to be set up without
stipulation of a minimum net foreign exchange earning as a percentage of exports.

Legal Undertaking
The unit shall execute a legal undertaking with the Development Commissioner
concerned and in the event of failure to fulfil the obligations, as stipulated in Appendix I of
the Policy, it would be liable to penalty in terms of the legal undertaking and/or under any
other law for the time being in force.

Automatic Approvals
Project applications for EOU/EPZ units satisfying the conditions mentioned in the
appropriate press note of the Ministry of Industry may be given automatic approval within
fifteen days by the concerned Development Commissioner of the EPZ.

Other cases
In other cases, approval may be granted by the Board(s) of Approval (BOA) set up for
this purpose or Secretariat for Industrial Assistance , as the case may be.
1.6 FACTORS INFLUENCING PAYABLES OR PAYMENT LAGS
 The bills may not be properly accounted.
 Changes in tax amendment.
 Changes or variation in price level.
 When bills are over- paid (i.e) double payment.
 Transport Risk - the risk of loss of, or damage to, the goods whilst in transit from the
Seller to the Buyer.
 Quality Risk - the risk the goods are not in accordance with samples, or quality is not
as specified.
 Delivery Risk - merchandise not arriving within the time required.
 Exchange Risk -a change in the final amount paid in Australian Dollars due to
exchange rate movements.
 CHAPTER - II

REVIEW OF LITERATURE

Review of Literature is the abstract from published or unpublished Bibliographies,

Academic journals, Conference proceedings, Government reports, Books, Articles, etc.,

2.1 MANAGEMENT OF ACCOUNTS PAYABLE

Accounts payable includes trade credit and accrued expenses which together provide
finance to the operations of a ongoing basis.

Managing accounts payables

Accounts payable originates from the production budget of an enterprise but enters
into the books of accounts when material are delivered and taken to stores. While timing of
purchases or placing an order is the domain of materials procurement manager, he will be able
to increase the value to the firm if he works in close collaboration with the finance manager.
The quantity discount for large purchases acts as a powerful incentive for a purchase manager,
even to the point of allurement, to place large orders.

While the goal of accounts payable management is to provide as much spontaneous

financing as possible at zero cost, a firm has to operate within a given terms of purchase
(which is mostly dependent upon market practice). This determines the cost to the firm of
financing obtained from the suppliers.

Terms of purchase
Terms of purchase generally consists of a credit period and a cash discount for early
payment. If the term is quoted as 2/10 net 30, it means that a 2 percent discount on the billed
amount will be payable if paid with ten days; otherwise normal credit period of 30 days will
be available. There may or may not be any penal clause attached to the terms. Penalty comes
in the form of upfront payment on the bill amount, if it is not paid by the due date.
Stretching Accounts Payable
Cost-benefit analysis of an accounts payable policy will invariably rest on minimizing
the net present value (NPV) of disbursement. The model will obviously include cash discount
as a benefit – variable. But minimisation of NPV of an accounts payable disbursement
provides an incentive to the finance manager to stretch the payment beyond the due date, i.e.
to increase the float. Longer the time for payment, lower is the net present value of such
payment and higher the value of the firm.
A responsible company should :
 Have a clear, consistent policy that it pays bills in accordance with the contract.
 Ensure that the finance and purchasing departments are both aware of this policy
and adhere to it.
 Agree payment terms at the outset of a deal and stick to them.
 Not extend or alter payment terms without prior agreement.
 Provide suppliers with clear guidance on payment procedures.
 Ensure that there is a system for dealing quickly with complaints and disputes and
advise suppliers without delay when invoices or parts of invoices are contested.

2.2 NINE STRATERGIES FOR WRITING ACCOUNTS PAYABLE PROCEDURE

WHICH IS GIVEN BY CHRIS ANDERSON
Accounts payable focus is on increasing the size of the asset, while maintaining a solid
credit rating.

Strategies developed by CHRIS ANDERSON focused on reducing payables expenses

and increase the efficiency of payables by implementing new design or procedure
 Eliminate papers
 Integrate ERP Systems
 Increase Payment Terms.
 Take Payment Discounts.
 Review Purchases
 Communicate with Suppliers
 Eliminate Disputes.
 Reduce Errors
 Train personnel
2.3 TECHNIQUES FOR EFFECTIVE PAYABLES MANAGEMENT
WHICH IS GIVEN BY MARCY FISHER
Payables is a balance sheet item which equals the sum of all money owed by a
company and the due within one year, also called current liabilities or current debt
1. Not all bills should be paid on time. The firm goal is to hold on cash.
2. Maintain alternative vendor sources where practical.
3. Use available payment deferrals and negotiate for lower prices and great discount
4. Try to make credit period shorter

2.4 TIPS FOR USING CASH WISELY WHICH IS GIVEN BY H.PAUL PHILIP
Payables management :
The administration of a company's outstanding debts, or liabilities, to vendors for
purchases of goods and services made on credit
 Take full advantage of creditor payment terms. If a payment is due in 30 days,
don't pay it in 15 days.
 Use electronic funds transfer to make payments on the last day they are due
 Communicate with your suppliers so they know your financial situation. If you
ever need to delay a payment, you will need their trust and understanding
 Carefully consider vendors' offers of discounts for earlier payments
 Do not always focus on the lowest price when choosing suppliers. Sometimes
more flexible payment terms can improve your cash flow more than a bargain-
basement price

2.5 MANAGING ACCOUNTS PAYABLE WHICH IS GIVEN BY JOHN WILSEY,

NEW YORK 1991
The main purpose of accounts payables department is to process and account for
invoices and cash disbursement.

Responsibilities for accounts payable management include:

 Monitoring routine system processes such as voucher creation and cash
disbursements
 Ensuring the proper retention of reports, documents, and other records.
 Maintaining internal controls.
 Hiring and managing staff employees.
 Coordinating activities with related departments such as internal audit, purchasing,
general accounting, and treasury.
 Reporting relevant matters to executive financial management.
 Executing their directives with respect to the above responsibilities.
 CHAPTER – III

OBJECTIVES OF THE STUDY

 The main objective is to know the efficiency of payables management of an organization.

 To understand and payable processing procedure of the company and
supplier relationship.
 To understand cash management in payables.
 To analyse factors influencing payables.
 To identify the causes for delays in payment process.
 CHAPTER – IV

RESEARCH METHODOLOGY

4.1 COLLECTION OF DATA

Primary data

The primary data are those, which are collected afresh and for the first time, and thus
happen to be original in character .The primary data are to be originally collected.

Sources : Some type of information were gathered through oral conversation with
Mr. Ramasubramanian (Finance Executive).

Secondary Data

Secondary data are those which have already been collected by someone else and
which have already been passed through the statistical process.

Sources : Collected from Balance Sheet, Books, Journals, Internet, and Articles.

4.2 Tools used

 Payable turnover ratio

 Cash flow analysis

4.3 Period of study : The analysis is based on financial statement covering a

period of (2001 – 2002 to 2005 – 2006 at ABB Motors.).

 CHAPTER - V

DATA ANALYSIS AND INTERPRETATION

5.1 PAYABLES MANAGEMENT

The administration of a company’s outstanding debts or liabilities, to vendor for
purchase goods and services made on credit.

Techniques
1. Payables turnover ratio.
2. Average number of days of payables outstanding.

5.1.1 Payables turnover ratio. The payables turnover ratio measures the umber of times
your business recycles, or "turns over" its payables in a year. A higher ratio suggests you pay
your accounts payable sooner. Too high of a ratio may suggest you pay "too soon." To
calculate payables turnover, divide purchases by average accounts payable.

If vendors did not offer discounts or penalize you in any way, you would naturally
stretch out payments, which lowers your payables turnover ratio. For business-relationship
reasons (as well as the possibility of late fees), however, it's important to evaluate the trade-
off in paying late with the risk of alienating your vendors.

5.1.2. Average number of days of payables outstanding. Average number of days of

payables outstanding (days payable) measures the number of days it takes, on average, to pay
the balance of your accounts payable. This ratio is simply the inverse of the payables turnover
ratio.

To calculate days payable, divide the number of days in a year (365) by the payables
turnover ratio.
PAYABLES TURNOVER RATIO = NET CREDIT PURCHASES
AVERAGE CREDITORS

TABLE NO. 5.1 PAYABLE TURNOVER RATIO

YEAR NET CREDIT AVERAGE RATIO IN

PURCHASE (Rs.) CREDITORS (Rs.) TIMES
2001-2002 61063.14 26489.57 2.31 times
2002-2004 65930.64 26694.79 2.46 times
2004-2005 51969.24 25446.35 2.04 times
2005-2006 69239.07 27331.68 2.53 times
DEBT PAYMENT PERIOD ENJOYED RATIO = MONTHS OR DAYS IN A YEAR
PAYABLES TURNOVER
TABLE NO : 5.2
DEBT PAYMENT PERIOD ENJOYED RATIO

YEAR DAYS IN A CREDITOR/PAYABLES NO. OF

YEAR TUROVER RATIO DAYS

2001-2002 365 2.31 times 158days

2002-2004 365 2.46times 148days

2004-2005 365 2.05times 179days

2005-2006 365 2.53times 145days

Average number of days payables outstanding is 158 days (158+148+179+145/4).

Interpretation :

It is found that the credit period allowed to the company is 90 days. The Average
Debit payment period enjoyed by the company is 158 days. Which implies that the company
is efficiently using its credit period.

CHART NO : 5.2
DEBT PAYMENT PERIOD

DEBT PAYMENT
PERIOD
600
500
400 NO OF DA
300 PAY RATI
200 DAYS
100
0
2001- 2002- 2004- 2005-
2002 2004 2005 2006
5.2 CASH FLOW ANALYSIS
5.2.1 MANAGING CASH FLOW IN PAYABLES
A healthy cash flow is an essential part of any successful business. Some business
people claim that a healthy cash flow is even more important than y business's ability to
deliver its goods or services! That may be placing a bit too much importance on your cash
flow, but consider this, if an organization fail to satisfy a customer and lose that customer's
business, it can always work harder to please the next customer. But if it fails to have enough
cash to pay your suppliers, creditors, or your employees, then it is out of business! No doubt
about it, proper management of your cash flow is a very important step in making your
business successful.

5.2.2 UNDERSTANDING HOW CASH FLOW WORKS

In its simplest form, cash flow is the movement of money in and out of the business.
It could be described as the process in which the business uses cash to generate goods or
services for the sale to the customers, collects the cash from the sales, and then completes this
cycle all over again.

Inflows : Inflows are the movement of money into the cash flow. Inflows are most likely from
the sale of your goods or services to the customers. If you extend credit to the customers and
allow them to charge the sale of the goods or services to their account, then an inflow occurs
as you collect on the customers' accounts. The proceeds from a bank loan is also a cash
inflow.

Outflows: Outflows are the movement of money out of the business. Outflows are generally
the result of paying expenses. If the business involves reselling goods, then your largest
outflow is most likely to be for the purchase of retail inventory. A manufacturing business's
largest outflows will mostly likely be for the purchases of raw materials and other
components needed for the manufacturing of the final product. Purchasing fixed assets,
paying back loans, and paying accounts payables are also cash outflows.
5.3 CASH FLOW STATEMENT (OPERATIONS ACTIVITIES) FOR THE
YEAR ENDED DECEMBER 2001
(RS IN LACS)
Net profit before Tax & Extraordinary adjustment for non 1418.71
cash items
Add : Depreciation 3910.48
Miscellaneous expenditure written off 453.84
Prov for bad & Doubtful debts advances 361.05
Prov. for diminution in value of investment 36.66
Foreign Exchange fluctuations 47.90
Interest & Finance charges 4726.11 9536.04
10,954.75
Less : Non-operating income
Profit on sale of fixed asset 139.65
Profit on redemption of unit 0.55
Interest income 77.86
Dividend Income 4.92 (222.98)
Fund from operations 10731.77
Add : Decrease in current assets
Bills receivables 786.03
Inventories 1785.79
Increase in current liabilities 6653.01
Payables 4081.19
Cash generated from operation 17384.78
Direct Taxes 7.55
Cash used before extra ordinary items 17392.33
Payment relating to SAP (918.81)
Cash from operations 16473.52
5.4 CASH FLOW STATEMENT (OPERATIONS ACTIVITIES) FOR THE
YEAR ENDED DECEMBER 2002
(RS IN LACS)
Net profit before Tax & Extraordinary adjustment for non 852.76
cash items
Add : Depreciation 4118.69
Miscellaneous expenditure written off 634.28
Prov for bad & Doubtful debts advances 374.75
Prov. for diminution in value of investment 8.18
Foreign Exchange fluctuations 378.57
Interest & Finance charges 3511.28
Loss on sale of fixed asset 388.33 10266.84

Less : Non-operating income

Interest income 397.05
Dividend Income 0.41 (397.46)
Fund from operations 9869.38
Add : Decrease in current assets - -
Increase in current liabilities
Payables 9693.58
19562.96
Less : Increase in current asset
Receivables 12348.73
Inventories 2065.84 14414.57
Cash generated from operation 5148.39
Direct taxes 95.00
Cash used before extra ordinary items 5243.39
Payment relating to SAP (3925.70)
Cash from operations 1317.69
5.5 CASH FLOW STATEMENT (OPERATIONS ACTIVITIES) FOR THE
YEAR ENDED DECEMBER 2004
(RS IN LACS)
Net loss before Tax & Extraordinary adjustment for non (5014.13)
cash items
Add : Depreciation 4596.89
Miscellaneous expenditure written off 1535.35
Prov for bad & Doubtful debts advances 198.82
Interest & Finance charges 3773.55
Loss on sale of fixed asset 292.18 10688.97
5382.66
Less : Non-operating income
Interest income 76.54
Dividend Income 0.28
Profit on redemption of units 10.15
Provision for diminution in value of investment 29.15
Foreign exchange fluctuation gain 150.85 226.97
Fund from operations 5115.69
Add : Decrease in current assets
Receivables 1695.86
Inventories 957.69 2653.55
7769.24
Less : Decrease in current liabilities
Payables (8138.45)
Cash generated from operation (369.21)
Add : Direct taxes 165.25
Cash used before extra ordinary items (203.96)
Payment relating to SAP (52.42)
Cash from operations (256.38)
5.6 CASH FLOW STATEMENT (OPERATIONS ACTIVITIES) FOR THE
YEAR ENDED DECEMBER 2005
(RS IN LACS)
Net loss before Tax & Extraordinary adjustment for non (9938.70)
cash items
Add : Depreciation 3216.88
Miscellaneous expenditure written off 1232.54
Prov for bad & Doubtful debts advances 461.68
Interest & Finance charges 2557.90
Loss on sale of fixed asset 89.44 7558.44
(2380.26)
Less : Non-operating income
Interest income 31.50
Dividend Income 0.35
Profit on redemption of units 11.00
Provision for diminution in value of investment 0.01
Foreign exchange fluctuation gain 6.51 (49.37)
Fund lost in operations (2429.63)
Less : Increase in current asset
Bills receivable 5386.46
Inventories 6396.35

Decrease in current liabilities

Payables (4348.31)
Cash generated from operation (13701.49)
Add : Direct taxes 18650.75
Cash used before extra ordinary items (203.96)
Payment relating to SAP 65.57
Cash from operations (18495.18)
5.7 CASH FLOW STATEMENT (OPERATIONS ACTIVITIES) FOR THE YEAR
ENDED DECEMBER 2006
(RS IN LACS)
Net loss before Tax & Extraordinary adjustment for non (5333.07)
cash items
Add : Depreciation 3655.24
Miscellaneous expenditure written off 1366.24
Prov for bad & Doubtful debts advances 579.87
Interest & Finance charges 1710.03
Loss on sale of fixed asset 41.99
Foreign exchange fluctuation loss 88.87 7442.23
2109.16
Less : Non-operating income
Interest income (15.75)
Fund from operations 2093.41
Add : Decrease in current asset
Receivables 2455.07
Inventories 1600.33 4055.40
6148.81
Decrease and current liabilities
Payables 2375.75
3773.06
Less : Direct Taxes 331.66
Payment relating to VRS 4013.25 4344.91
Cash from operations 8117.97
 INTERPRETATION

 From the above tables ,the Fund from operations calculated shows positive balance
for all the years except for the year 2005. Though it is in positive it shows a
declining balance for the remaining years (2003-2006).

From the analysis it is inferred that though fund are invested in a satisfactory manner,
its declining balance will affect the company’s growth in future

 The table shows Cash from operations for the first two years 2001 and 2002. This
indicates that the company is self sufficient in funding its daily operations, whereas for
the remaining three years 2003-2006, the tables shows cash lost in operations. This
indicates company has spent more on inventories and there is increased receivable,
implying that the major portion of cash is locked in the form of inventories and
receivables, which in turn will affect the working capital of the firm.

From the above analysis it is understood that the company’s payables management is
not satisfactory
 CHAPTER – VI

FINDINGS OF THE STUDY

 Credit period allowed to the company for the payment of debt is 90 days and the
average payment period enjoyed by the company is 158 days which is satisfactory.

 The declining fund from operations except for the year 2005 indicates that the fund
generated from operations is not satisfactory.

 In the first two years (2001-2002) cash from operations indicates that the company
was self-sufficient in funding its daily operations.

 In the forthcoming year (2004-2006) there is cash lost in operations. It is understood

that the company is highly relying on the outsider’s funds to manage its payables and
other daily activities. Thus it implies cash management of the organisation is not
satisfactory.

 It is understood from the study as the company’s cash management is not satisfactory
the management is not able to make prompt payment to its suppliers which may affect
their cordial relationship in the future. Also it is understood that the reason for cash
loss is due to receivables, inventories and payment of interest. This in turn affect the
payables.

 In the year 2002 and 2005, the cash is locked in the form of increased receivables
and inventories which in turns affect the payables.

 It is found lag in payments may be due to changes in tax amendment and avriation
in price levels.
 CHAPTER-VII

7.1 SUGGESTIONS AND RECOMMENDATIONS

 Payables though managed efficiently in the company, it is important to evaluate the

trade-off paying late with the risk of alienating vendors

 Funds should be properly invested, so that the working capital of the company
improves to show a positive fund from operations

 In the year 2002 and 2005 it is found that receivables has increased ,which means cash
is due from customers. The company can sell the receivables to a factor for instant
cash
 7.2 CONCLUSION

 From the critical analysis throughout the study, it is evident that the overall payables
position of the company with regards to cash management is not satisfactory

 But still it is seen that the organization is more efficiently using its credit period, the
longer the company stretching out the payments. Though it is advantageous to the
company it is important to maintain smooth relationship with the vendors.

 Payables management is affected by increased cash flows in inventories and

receivables, so the company is required to plan and control these activities in such a
way that there is positive cash flow which would help the management to pay its
suppliers promptly
i.e. on time

 It is seen that the longer the company’s stretches out its payment the more efficient is
organization in using the credit facilities given by the suppliers.
 8.2 SCOPE FOR FURTHER STUDY

 It helps the management to know their financial strength and weaknesses.

 It helps the potential lenders or creditors who want a clear picture of the company’s
ability to repay.

 It helps the investor who need to judge whether the company is financially sound.

 The project work helped to put the theoretical knowledge gained in financial
accounting and financial management help to widen the knowledge about payables.
 BIBLIOGRAPHY

 KHAN M.Y. AND P.K.JAIN, Financial Management [Fourth Edition-2006] TATA

MCGRAW-HILL, Publishing Company Limited, New Delhi

 I M PANDEY, Financial Management, VIKAS Publishing House Pvt.Ltd.

WEBSITES
o www.encyclopedia.com
o www.investorpedia.com
o www.commerce.nic.in
o www.cbec.gov.in