Managing the company's receivables is impossible without a sound credit policy - an established set of rules that govern the possibility of providing a commercial loan, and the procedure for repayment of receivables. The approval of the order on the credit policy of the enterprise is adopted annually in order to be able to clarify the goals and objectives, accepted standards, approaches and conditions.
If you want the management of the receivables of the enterprise to be effective, its goal should be the following:
- increasing the efficiency of investing in current and long-term receivables;
- increase in sales, or rather profit from it;
- increased return on investment.
In addition to the formalization of goals, the management of an enterprise's receivables includes the definition of tasks for which the achievement of target values will be achieved (for example, successful appearance in new sales markets). Each of the formulated tasks should have both the ability to measure the amount of funds and the real terms of its implementation.
Typically, the following methods for managing receivables are distinguished:
The way the company accounts receivable is managed has a direct impact on its profitability, determines what the credit policy will be, the provision of discounts to inefficient buyers, and how the process of debt repayment and reduction of bad debts will be accelerated. The conditions of sale, which provide guaranteed receipts of working capital, also depend on this. Doubtful or bad debts, as a rule, include unpaid bills. This means that for each unit of money for goods shipped with a deferred payment and not paid on time, a certain percentage is not returned.
In order to be able to make a qualitative analysis and management of receivables, it is required to conduct:
- order accounting;
- accounting of issued accounts;
- timely establish the characteristics of arising receivables;
- calculate the amount of lost profits in connection with the investment of funds (consent to deferred payment of goods shipped or services provided).
Management in this case is associated with the following types of time reserves:
- statement of invoice;
- sending by mail.
The time required to issue an invoice is equal to the number of days elapsing from the moment the products are sent to the buyer until the invoice is sent. The time for sending by mail is the number of days after which the invoice will be received by the buyer.
But the main key point is the setting of certain loan terms, which have a significant impact on the final and forecasted sales volumes, and, consequently, the receipt of funds. For example, if a distribution company provides a longer loan term, this will lead to an increase in sales. But it should be borne in mind that the loan term has a direct impact on the cost part. That is, we have a twofold situation. On the one hand, when tightening the terms of receivables, the company will have sales volumes that fall, but at the same time losses associated with non-return of funds will significantly decrease. On the other hand, milder conditions will increase sales, but the company will lose money in two directions - the emergence of bad debt and lost profits. In this case, seasonality of sales must also be taken into account.