Question

What are some ways we can manage our accounts receivable? Research or explain from your experience an example of an organization using their accounts receivable in their operations.

Answer 1

Some of the general ways which are used in managing our accounts receivables are as follows:

1) Credit in sales shall be given to the new customers, only after checking their credit worthiness. E.g. CIBIL rating of that customer

2) In case of existing customers their past purchasing history shall be analysed. Know whether he is a loyal customer of our business or not.

3) Financial position of the customer should be analysed in order to know whether he is capable to pay the debt owed to us in the given period of time.

4) Credit policy should be included with some items like, providing discount for the customers who will pay the debt berore the credit period, penealising clause in the credit policy with intrest on debt amount for late payment...etc..

5) Another way is to using services of collection agencies who will collect our debt from the customer on behalf of us.

6) Selling all our accounts payable to any finance companies at some discount rate which is called as discounting of bills.

7) At the same time mantaining of debtors records, promptly calculating number of outstanding days and informing them to pay the debt amount without any fail before some days.

Eventhough there involves some risk in suppling goods on credit to customers, it increases our sales as we are giving some comfort to our customers in paying the amount.

According to my experience in a well known organization of my friend, the following are some ways followed by them in managing their accounts receivables.

The above given ways are some, which generally all organisations follow. But following are the ways apart from the above mentioned which are follwed along with them.

1) Creating provision for bad debts based on the past experiences.

2) Insuring Accounts payables with some insurance agencies.

3) In case to increase the credit limit the past credit history and payment history shall be taken into consideration, who have promptly paid for certain years, whether he is continuously is in business relationship with us or not...shall be analysed and after satisfying with the above issues credit limit can be increased.

4) Address proofs and documents showing previous year financial status shall be received as a attachment with the credit policy agreement and it should be duly signed by the customer.

These are the ways in which we can manage our account receivables.