SOLVED FIN704 GDB2 Solution and discussion
Total Marks 10
Starting Date Friday, August 02, 2019
Closing Date Wednesday, August 07, 2019
Question Title Receivables Management
Topic for Discussion: “Receivables Management”
To assess the knowledge related to accounts receivables management
To understand the process of receivables management
To understand the importance of credit policies for customers
To know the importance of receivables management software for the business
To understand how effectively receivables can be managed through automation
Does every customer pay in time for his outstanding invoices? Has the already requested payment amount finally arrived? This is where receivables management play its role for the companies. It is in fact, one of the most concerned areas where companies strive to keep cash collection cycle as quick as they can to maintain liquidity. However, in case of bigger customer base, it becomes more difficult for the companies to keep track their receivables. There are several researches related to working capital and receivables management already done in the past. Most of them came up by saying that it is more like a technological phenomenon where automation of the system has significant impact for effective management of receivables. Therefore, incorporation of a good receivables management software in existing system of the companies is a key to survive where technology is rapidly changing and reshaping the business environment.
Being the student of Managerial Accounting, you are supposed to comment on the importance of receivables management software for the companies and how it can bring automation in the system?
Carefully review your GDB before submission as it cannot be replaced once it is submitted.
Your discussion must be based on logical aspects of the topic requirements with proper justification.
Use the font style “Times New Roman” and font size “12”.
Your answer should be relevant to the topic i.e. clear and concise.
Word limit for GDB is 250.
Do not copy or exchange your answer with other students. Two identical / copied comments will be marked Zero (0) and may damage your grade in the course.
Books, websites and other reading material may be consulted before posting your comments; but copying or reproducing the text from books, websites and other reading materials is strictly prohibited. Such comments will be marked as Zero (0) even if you provide references.
You should post your answer on the Graded Discussion Board (GDB), not on the Moderated Discussion Board (MDB). Both will run parallel to each other during the time specified above. Therefore, due care will be needed.
Obnoxious or ignoble answer should be strictly avoided.
You cannot participate in the discussion after the due date via email.
Questions / queries related to the content of the GDB, which may be posted by the students on MDB or via e-mail, will not be replied till the due date of GDB is over.
For planning your semester activities in an organized manner, you are advised to view schedule of upcoming Assignments, Quizzes and GDBs in the overview tab of the course website on VULMS.
Accounts Receivable Management
How to prepare a good Accounts Receivable policy
Accounts receivable management incorporates is all about ensuring that customers pay their invoices. Good receivables management helps prevent overdue payment or non-payment. It is therefore a quick and effective way to strengthen the company’s financial or liquidity position. This Wiki explains the importance of receivables management, the benefits and how to prepare a good receivables process.
The importance of receivables management What is the benefit? Preparing good receivables management Which systems will you require? Automating receivables management
The importance of receivables management
Every company wants to buy low and sell high. But they can lose everything with poor receivables management during the last phase of the sales process (payment). Over half of all bankruptcies can be attributed to poor receivables management, which demonstrates its importance. Receivables management involves much more than reminding customers to pay. It is also about identifying the reason for non-payment. Perhaps a product or service was not delivered? Or there was an administrative error in the invoice? Good receivables management is a comprehensive process consisting of:
Determining the customer’s credit rating in advance Frequently scanning and monitoring customers for credit risks Maintaining customer relations Detecting late payments in due time Detecting complaints in due time Reducing the total balance outstanding (DSO) Preventing any bad debt in receivables outstanding
What is the benefit?
Good receivables management directly contributes to a company’s profit because it reduces bad debt. The company also has a better cash flow and higher available liquidity for use in investments or acquisitions. Furthermore, good receivables management boosts a company’s professional image.
Preparing good receivables management
In principle, good receivables management involves two steps. Firstly, you determine your strategy and then you specify the appropriate procedures.
Step 1. Determine the strategy
Which customers do you accept and under which conditions? Which customers do you monitor? Who should no longer be accepted, and when is the exit?
Step 2. Prepare appropriate procedures
What is your invoicing process like? What is your invoice like? When do you remind a customer by phone? When do you remind a customer in writing? What does the reminder look like? When do you engage a debt collection agency? When will you start legal proceedings? What is the role of your employees in this respect? Will you choose outsourcing or in-house management?
Which systems will you require?
Companies use different applications and systems to limit the risks and update the data. These can help you set up and design your receivables management.
Acceptance system. Based on credit information, you determine whether a new customer is accepted or not. This may be a manual or automated process. Monitoring system. This system checks the entire portfolio for continuous insight into existing customers and suppliers. This is essential, particularly with regard to chain parties. Invoicing system. Invoices may be sent manually or automated (sometimes as a digital invoice) and reminders must be logically aligned. Bookkeeping system. All receivables and payables are booked in this system, which provides insight into the cash flow and receivables risk. CRM system. The Customer Relationship Management (CRM) system lists information relating to agreements, contact and contracts with customers. Complaints can also be processed in this system to improve insight into the background of non-payment.
Automating receivables management
Automating receivables management allows you to link all the above systems. This improves workflow efficiency and provides better insight by generating cash flow and customer reports. Automatically linking credit information reduces the percentage of non-paying new customers. By automatically integrating the debt collections in the process, the percentage of non-paying existing customers also falls.