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CHAPTER 1
INTRODUCTION
1
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RECEIVABLES MANAGEMENT
1.1 INTRODUCTION:
The receivables represent an important component of the current assets of a firm. The
purpose of the receivables management is to analyze the important dimensions of the efficient
management of receivables within the framework of a firms objectives of value dimensions of the
efficient management of receivables. This is followed by an in-depth analysis of the three crucial
aspects of management of receivables.
Meaning of Receia!"e# Manage$en%:
eceivables management is the process of making decisions relating to investment in trade debtors.
!e have already stated that certain investment in receivables is necessary to increase the sales and
the profits of a firm. "ut at the same time investment in this asset involves cost considerations also.
#urther$ there is always a risk of bad debts too.
The second section of the chapter e%amines the first aspect that is credit policies$ which
have two dimensions&
'i( )redit standard& defined as the criteria to determine to whom credit should be e%tended*
'ii( )redit analysis& This section evaluates policies regarding both these aspects. The second
major part of receivables management is )redit terms comprising
'i( )ash discount.
'ii( )ash discount period.
+
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'iii( )redit period.
,e%t section is concerned with the third major component of receivables from
customers. The factoring services as a receivables collection-management strategy are illustrated in
the ne%t section.
OB&ECTIVIES:
The term receivable is defined as .debt owed to the firm by customers arising from sale
of goods or services in the ordinary course of business. !hen a firm makes an ordinary sale of
goods or services and does not receive payment$ the firm grants trade credit and creates accounts
receivable$ which could be collected in the future. eceivables management$ is also called trade
credit management.
Thus$ accounts receivable represent an e%tension of credit to customers$ allowing them
a reasonable period of time in which to pay for the goods received.
The sale of goods on credit is an essential part of the modern competitive economic
systems. /n fact$ credit sales and$ therefore$ receivables are treated as a marketing tool to aid the sale
of goods.
The credit sales are generally made on open account in the sense that there are no
formal acknowledgements of debt obligations through a financial instrument. 0s a marketing tool$
they are intended to promote sales and thereby profits.
1owever$ e%tension of credit involves risk and cost. 2anagement should weigh the
benefits as well as cost to determine the goal of receivables management.
The objective of receivables management is to promote sales and profits until that point
is reached where the return on investment in further funding receivables is less than the cost of
funds raised to finance that additional credit i.e. cost of capital
3
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. The specific costs and benefits$ which are relevant to the determination of the objectives of
receivables management$
1.' NEED (OR THE STUD):
The project study is undertaken to analyze and understand how 0ndhra 4radesh 4ower
5eneration )orporation is managing its eceivables and Tariff process in power sector$ which gives
me an e%posure to practical implication of theory knowledge.
In%*o+,c%ion of %-e S%,+.
6lectric power is playing vital role in human life. ,ow a days the situation is that$ at
each and every point the usage of electric power is essential.
This study covers methodology of 2anagement of the eceivables$ managing different
#loats$ )ost of )ollection of eceivables$ brief knowledge about 5eneration Tariff and a case study
on 0456,)7 tariff$ one of the largest producers of power and a public sector unit under state
government.
T-e*e a*e +iffe*en% $e%-o+o"ogie# fo* #%,+.ing %-e Receia!"e# Manage$en%:
1. 8ifferent )osts
'. )redit 4olicies
/. 0geing 9chedule
0. #loats etc.
:
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1./ OB&ECTIVES (OR THE STUD)
1. To study the relevance of eceivables 2anagement in evaluating the 9undry 8ebtors.
+. To study the techni;ues of eceivables 2anagement for decision < making.
3. To know the effects of 4ower 5eneration techni;ues on profitable.
:. To measure the e%penses incurred against the receivables.
=. To make suggestions if any for improving the financial positions of understanding the
company.
=
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1.0 METHODOLOG) (OR THE STUD):
To achieve a fore said objective the following methodology has been adopted. The
information for this report has been collected through the 4rimary and secondary sources.
P*i$a*. So,*ce#:
Through the interaction with the e%ecutives and employees of the company.
Secon+a*. So,*ce#
These secondary data is e%isting data which is collected data by others viz. source are
financial journals$ annual reports of the 04 56,)7 >td.$ 0456,)7 website$ through personal
interview with the concerned officers and other publications of 04 56,)7.
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1.1 SCOPE (OR THE STUD):
1. >ack of awareness of power generation sector of 04 56,)7 >td.
+. >ack of time is another limiting factor the schedule period @ weeks are not sufficient to
make the study independently regarding 4ower 5eneration in 04 56,)7 >td.
3. The busy schedule of the officials in the 04 56,)7 >td is another limiting factor. 8ue
to eh busy schedule of officials restricted me to collect the complete information about
organization.
:. ,on < availability confidential financial data.

A
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CHAPTER '
COMPAN) PRO(ILE
@
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INTRODUCTION:
5overnment of 0ndhra 4radesh '5704( embarked upon eforms in 0ndhra 4radesh
4ower sector and as a se;uel erstwhile 0ndhra 4radesh state 6lectricity "oard '0496"( was
unbundled and restructured into 0ndhra 4radesh power 5eneration )orporation >td. '0456,)7(
to look after the business of 5eneration and Transmission and 8istribution respectively with effect
from B1-B+-1CCC. "y segregating the distribution activity from 04T0,9)7 four distribution
companies were formed which started functioning from B1-B:-+BBB.
CONSTITUTION:
0ndhra 4radesh 4ower generation )orporation >td. was incorporated as a company
under the provisions of )ompanies 0ct$ on +C-1+-1CC@ and obtained certificate of )ommencement
of "usiness on B=-B1-1CCC. 1owever$ with 5704 notifying the 0ndhra 4radesh 6lectricity
eforms 0ct$ 1CC@$ 0456,)7 commenced its business operations effective from B1-B+-1CCC. The
main objective that is to be pursued in accordance with the 2emorandum of 0ssociation is to
ac;uire$ establish$ construct and operate 6lectric 5enerating 9tations.
ORGANI2ATION:
The "oard consisting have a whole time )hairman and 2anaging 8irector$ 8irector
'Thermal($ 8irector '1ydel($ 8irector 'Technical($ 8irector ')ommercial($ 8irector '4rojects( and
8irector '#inance( is managing the business of the )ompany. The directors are well e%perienced in
the business of 6lectricity as former e%ecutives of erstwhile 0496". The ) D 28 is a senior /.0.9
officer and has very rich and long e%perience in the power sector.
CAPITAL STRUCTURE:
C
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The authorized share capital of the )ompany is s.+=BB crores divided into += crores
6;uity shares of s.1BB each. The entire issued and subscribed capital of s.+1BA crores is owned
by 5overnment of 0ndhra 4radesh and by virtue of this 0456,)7 is a 5overnment Endertaking
u-s.?1C of the )ompanies 0ct. /n terms of the 0ndhra 4radesh 6lectricity eforms 'Transfer
9cheme( ules$ 1CCC 0456,)7 was vested with assets aggregating s.1:1C+.1: crores out of
which the total #i%ed 0ssets were s.1B3=3.=+ crores
HUMAN RESOURCES:
0s at 1.:.+BB@ 0456,)7 was having a dedicated 1uman esource base of +??:
6%ecutives and C+@@ !orkmen. 7ut of this +::+ 6ngineering e%ecutives and A:11 7peration
D2aintenance employees are the main contributors for the outstanding performance of the 4lants.
/n fact this technical e%pertise and the dynamic leadership at "oard level are the strengths of
0456,)7
APGENCO VISION:
1. To be the best power utility in the country and one of the best in the world.
APGENCO MISION:
1. To generate ade;uate and reliable power most economically$ efficiently and echo
friendly.
+. To spearhead accelerated power development by planning and implementing new power
projects.
1B
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3. To implement .enovation and 2odernization of all e%isting units and enhance their
performance
APGENCO VALUES:
1. 6%cellence in all aspects of the company.
+. espect for the individual and 4ersonal growth
3. Tackling challenges and solving problems
:. 1onesty$ /ntegrity and 6thical business
=. 4eople as the source of strength
?. )ontinued self-improvement never being satisfied.
CORPORATE PRO(ILE:
0ndhra 4radesh 4ower 5eneration )orporation >imited is one of the pivotal organizations of
0ndhra 4radesh$ engaged in the business of 4ower generation. 0part from operation D 2aintenance
of the power plants it has undertaken the e%ecution of the ongoing D new power projects scheduled
under capacity addition programme and is taking up renovation D modernization works of the old
power stations.
0456,)7 came into e%istence on +@.1+.1CC@ and commenced operations from B1.B+.1CCC. This
was a se;uel to 5overnments reforms in 4ower 9ector to unbundle the activities relating to
5eneration$ Transmission and 8istribution of 4ower. 0ll the 5enerating 9tations owned by
erstwhile 0496" were transferred to the control of 0456,)7.
The installed capacity of 0456,)7 as on 31.1+.+B11 is @C+:.C 2! comprising =BC+.=B 2!
Thermal$ 3@+C.:B 2! 1ydro $ + 2! !ind power stations and $1.B 2! 4hoto Foltaic )ell
based9olar 4ower plant $contributes about half the total 6nergy e;uirement of 0ndhra 4radesh.
0456,)7 is third largest power generating utilitiy in the )ountry ne%t to ,T4) and 2aharashtra.
11
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/tGs installed 1ydro capacity of 3@+C.: 2! is the second highest among all power utilities in the
)ountry.
0456,)7 has an e;uity base of s.+1BA crores and about 11$BBB dedicated employees as on
31.B3.+B11.The company has an asset base of appro%imately s.+A?CB crores. ' P*oi#iona"3.
HISTOR) O( APGENCO:
!hen 0496" came into e%istence in 1C=C$ 0496" started functioning with the objectives of
maintaining the power sector efficiently and economically simultaneously ensuring demand meets
the supply.
8uring the last decade inade;uate capacity addition and low system fre;uency operation of less
than :@.= 1z for more than half a decade considerably reduced the power supply reliability.
The imbalance of the revenues against the cost of production$ no significant reduction in technical
losses and energy thefts$ high cost purchases from /44Gs$other 96"Gs gradually worsened the
financial position of 0496"
1/51 >6F6> )722/TT66 0,8 /T9 6)7226,80T/7,9
5overnment of 0ndhra 4radesh realizing the declining tendency of the financial position of 0496"
and considering the 5overnment of /ndiaGs >iberalized policy for attracting private investment into
power sector$ set up a high level committee in Hanuary 1CC= to look into present working of the
0496" and suggest remedies for improvement. The committee after detailed deliberations with all
the concerned and critical analysis submitted the report in which it suggested some
recommendations
1+
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5overnment of 0ndhra 4radesh considering the recommendations made by committee had
embarked upon the 04 6lectricity 6#729 0)T in 1CC@.0s a se;uel the 0496" was unbundled
into 0ndhra 4radesh 4ower 5eneration )orporation '0456,)7( D Transmission )orporation of
0ndhra 4radesh >imited '04T0,9)7( on B1.B+.CC. 04T0,9)7 was further unbundled w.e.f.
B1.B:.+BBB into ITransmission )orporationI and four I8istribution )ompaniesI '8/9)729(.
Thus 0456,)7 was incorporated as a company under the provisions of )ompanies 0ct$ on
+C.1+.1CC@. 0ccording to the 0ndhra 4radesh 6lectricity eforms 0ct$ 1CC@$ 0456,)7
commenced its business operations effective from 1.+.1CCC and according to the memorandum of
0ssociation 0456,)7 has to 0c;uire$ 6stablish$ )onstruct and 7perate 4ower generating stations.
APGENCO A MODEL PO4ER UTILIT)
0ndhra 4radesh 4ower 5eneration )orporation '0456,)7($ largest power generating
company of 0.4. 9tate with installed capacity of AB:@.@? 2! comprising +C?+.= 2! Thermal$
3??:.3? 2! 1ydel and +2! wind power was established by government of 0ndhra 4radesh
under the 0ndhra 4radesh 6lectricity eforms 0ct 1CC@ on B1.B+.1CCC with the principal objective
of generation of electricity.
0456,)7 provides reliable and ;ualitative power more than =BJ of its total power
re;uirement is not only engaged in the business of generation of electricity from its = own thermal
power stations and 1A 1ydro stations but is also successfully e%ecuting operation and maintenance
contract for +A+ 2! gas based power project in joint sector at Fijjeswaram and :%@ 2! 0liminati
2adhava eddy lift irrigation scheme.
0456,)7 is the third largest power utility in /ndia and has highest hydel capacity in
the country with an asset base of 13ABB core and e;uity base of s.+1B? )rore having annual turn
over of more than s :+BB crore.
13
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/t has successfully commissioned prestigious 9risailam >eft "ank 1ydro 6lectric 4ower
4roject and uni;ue under ground powerhouse with ?nos reversible units of 1=B 2! each having
special features of pump and condenser mode.
#our units of KT49 ."D) stations were renovated and up rated to 1+B 2! from 11B
2! each the present plant load factor '4>#( of these units is more than @=J when compared to
?BJ prior to the up rating.
0456,)7 thermal power stations are winning gold medals and bagging meritorious
productivity awards continuously for e%cellent performance year after year.
0456,)7 is committed to achieve the massive capacity addition programmed of 3?C?
2! by 2arch$ +B1+ and 3++@ 2! by 2arch$ +B1A$ integration its long term capacity addition
strategy for 1B
th
$ 11
th
and 1+
th
#ive Lear 4lans. 0456,)7 is playing a 4ivotal role in powering the
growth of 0ndhra 4radesh and also the country.
0456,)7 is powered with committed and dedicated work force of more than 11$BBB
with firm commitment to augment its installed capacity continuously and for better utilization of
man power and improve the ratio of 2an < 2! '1.A presently(.
1:
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Ta!"e5 '.1
APGENCO In#%a""e+ Ca6aci%.
T-e*$a" //7'.18
H.+e" /990./9
4in+ '.88
TOTAL :807.79
Ta!"e5 '.'
THERMAL In#%a""e+ Ca6aci% y
Ta!"e5 './
H)DEL In#%a""e+ Ca6aci% y
Mac-;,n+ AP /<1:=/<'/ 70.88
TB Da$ 0<>=0<> 1:.98
U66e* #i"e*, 0<98 '08.88
Don;a*a.i 1<'1 '1.88
Lo?e* #i"e*, 0<111 098.88
S*i#ai"a$ RBPH :<118 ::8.88
S*i#ai"a$ LBPH 9<118 >88.88
Naga*@,na Saga* 1<118=:<188.7 711.88
NS Rig-% Cana" PH /</8 >8.88
NS Lef% Cana" PH '</8 98.98
NiAa$ Saga* '<11 18.88
Poc-a$6a+ /<> ':.88
Penna A-o!i"a$ '<18 '8.88
Sing,* '<:.1 11.88
Pe++a6a"". Mini H.+*o '/,ni%# >.19
C-e%%i6e*aB Mini H.+*o3 '<8.1 1.88
Pa"ai* BMini H.+*o3 '<1 '.88
P*i.a+a*#-ini &,*a"a BP&HES3 '</> :7.88
To%a" H.+*o /990./9
4in+ $i""# a% Ra$agi*i 18<8.' '.88
1=
Na$e Of %-e S%a%ion# No. Uni%# < Ca6aci%.
BM43
M4
Vi@a.a?a+a 9<'18 1'98.88
Ra.a"a#ee$a '<'18 708.88
Co%-ag,+e$ 0<98='<1'8='<1'8 :'8.88
Co%-ag,+e$ S%age V '<'18 188.88
Ra$g,n+a$ B 1<9'.1 9'.18
To%a" T-e*$a" //7'.18
`
/ /
*+ *+
La*ge#% Po?e* Gene*a%ion U%i"i%. in %-e Co,n%*. La*ge#% Po?e* Gene*a%ion U%i"i%. in %-e Co,n%*.
/nstalled )apacity '2!(
0ll /ndia 1$:=$===
,T4) +@$33:
201056,)7 1B$=?:
APGENCO :D80>
'n+ Hig-e#% H.+*o Ca6aci%. in %-e Co,n%*. 'n+ Hig-e#% H.+*o Ca6aci%. in %-e Co,n%*.
1ydro )apacity '2!( 1ydro )apacity '2!(
0ll /ndia 0ll /ndia 3?$:1B 3?$:1B
,14) ,14) 3$?A3 3$?A3
APGENCO APGENCO /D990 /D990
K4)>$ Karnataka K4)>$ Karnataka 3$3?1 3$3?1
AP Po?e* G*i+ 5 In#%a""e+ Ca6aci%. BM43
APGENCO :807.>
)entral 5enerating 9tations +C?3.+
/ndependent 4ower 4roducers +13C.=
Total 1+:+3.?
SALIENT (EATURES:
1. Third largest 4ower 5eneration Etility in the )ountry.
+. +
nd
1ighest 1ydel installed capacity in the )ountry.
3. 7ne of the units in Fijayawada Thermal 4ower 9tation 'FT49( has made record for
continuous running for ::1 days without any break down.
:. anked ,o. 1 amongst all power utilities in the )ountry in terms of 4lant >oad #actor
'4>#(.
1?
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=. ayalaseema Thermal 4ower 4roject 'T44($ Kothagudam Thermal 4ower 9tation 9tage F
'KT49 F( and Fijayawada Thermal 4ower 9tation 'FT49( have secured top three positions
in the )ountry.
?. KT49 9tage F stood #/9T with a 4># of C:.=Jin the )ountry.
A. T44 stood 96)7,8 with a 4># of C+.+J in the )ountry.
@. FT49 9tage / have uni;ue plant design. The coalbunkers and mills are located in between
the boiler house an electro static precipitators unlike the usual practice of placing the
bunkers and mills in between the turbine and boiler.
C. Fijayawada Thermal 4ower 9tation 9tage // units adopted tower type coal fired "oiler with
concrete pylons$ 1ydrogen cooled generator of +1B 2! capacity. 2icro 4rocessor based
distributed digital )ontrol 9ystem$ direct-fired tube mill instead of vertical bowl mills and
steam leak detection system for the first time in )ountry.
1B. Fijayawada Thermal 4ower 9tation has received the 4restigious /97 CBB1 -+BBB
)ertification fro Muality 2anagement 9ystem.
11. 9risailam >eft "ank 4ower 1ouse is the first larges capacity underground 1ydro 6lectric
4ower 4roject in 9outh /ndia$ facilitating generation pump and condenser modes of
operations.
1+. ,agarjunasagar main 4ower 1ouse units are also reversible type with special features of
operation as that so 9risailam >eft "ank 4oser 1ouse.
13. ,agarjunasagar >eft )anal 4ower 1ouse is the first 1ydro 4ower 9tation to use 9)080 for
operation of the units from )ontrol oom.
1:. 4ochampadu 164 is the fist 4ower 9tation to use 2icroprocessor base )ontrols.
1=. 0456,)7 is making concerted efforts for fly ash utilization and presently utilizing about
:3J of total fly ash generated from all of its thermal power stations.
1A
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1?. 0456,)7 8r.,TT49 Training /nstitute has received best Technical Training /nstitute$
awarded by )entral 6lectricity 0uthority$ 57/$ ,ew 8elhi.
1A. eceived = meritorious awards from 1onble 4rime 2inister on +1.B3.+BBA for the
outstanding performance of Kothagudem T49$ ayalaseema T44 stage-/ D Epper 9ileru 41
for +BB:-B= and Fijayawada T49 D Epper 9ileru 41 for +BB=-B?.
1@. ayalaseema 9tage // '+%+1B 2!( has been commissioned.
1C. #irst + Enits of 4riyadarshini Hurala 164 '3C 2! each( have been commissioned.
+B. 0456,)7 has achieved highest generation of 33+@C 2E since inception during +BBA-B@.
+1. Thermal power stations have achieved highest generation of +3?@=.@ 2E during +BBA-B@
surpassing the previous high of +33?B 2E achieved during +BB:-B=.
++. 1ydro power stations generated C=@A.= 2E during +BBA-B@$ highest after 1CC:-C=.
+3. 0456,)7 power stations have recorded the highest daily generation of 13+.=C 2E on
+?.BC.+BB@ since inception.
+:. 0456,)7 has earned a net profit of s.1C@ )rores during +BBA-B@. 8uring +BB?-BA
0456,)7 has turned in to a 4rofit making )ompany by wiping out the accumulated losses
for the last 3 years
for nine times.
1@
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"708 7# 8/6)T79&
SRI DINESH CUMAR IAS
)hairman
SRI .C.VI&A)ANAND I.A.S
2anaging 8irector
SRI.D.PRABHACAR RAO
Hoint 2anaging 8irector
SRI G.ADISHESHU
8irector-1ydel
SRI UG CRISHNA MURTH)
8irector-Technical
1C
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SRI.C.RADHA CRISHNA
8irector-4rojects
SRI.G.VAMAN RAO
8irector-1
SRI S.AN&ANE)A RAO
8irector-Thermal
+B
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CHAPTER /
REVIE4 O( LITERATURE
/.1 RECEIVABLES MANAGEMENT
INTRODUCTION:
The receivables represent an important component of the current assets of a firm. The
purpose of the receivables management is to analyze the important dimensions of the efficient
management of receivables within the framework of a firms objectives of value dimensions of the
efficient management of receivables. This is followed by an in-depth analysis of the three crucial
aspects of management of receivables.
Meaning of Receia!"e# Manage$en%:
eceivables management is the process of making decisions relating to investment in trade debtors.
!e have already stated that certain investment in receivables is necessary to increase the sales and
+1
`
the profits of a firm. "ut at the same time investment in this asset involves cost considerations
also.#urther$there is always a risk of bad debts too.
The second section of the chapter e%amines the first aspect that is credit policies$ which
have two dimensions&
'iii( )redit standard& defined as the criteria to determine to whom credit should be e%tended*
'iv( )redit analysis& This section evaluates policies regarding both these aspects. The second
major part of receivables management is )redit terms comprising
'i( )ash discount.
'ii( )ash discount period.
'iii( )redit period.
,e%t section is concerned with the third major component of receivables from
customers. The factoring services as a receivables collection-management strategy are illustrated in
the ne%t section.
OB&ECTIVIES:
The term receivable is defined as .debt owed to the firm by customers arising from sale
of goods or services in the ordinary course of business. !hen a firm makes an ordinary sale of
goods or services and does not receive payment$ the firm grants trade credit and creates accounts
receivable$ which could be collected in the future. eceivables management$ is also called trade
credit management.
Thus$ accounts receivable represent an e%tension of credit to customers$ allowing them
a reasonable period of time in which to pay for the goods received.
++
`
The sale of goods on credit is an essential part of the modern competitive economic
systems. /n fact$ credit sales and$ therefore$ receivables are treated as a marketing tool to aid the sale
of goods.
The credit sales are generally made on open account in the sense that there are no
formal acknowledgements of debt obligations through a financial instrument. 0s a marketing tool$
they are intended to promote sales and thereby profits.
1owever$ e%tension of credit involves risk and cost. 2anagement should weigh the
benefits as well as cost to determine the goal of receivables management.
The objective of receivables management is to promote sales and profits until that point
is reached where the return on investment in further funding receivables is less than the cost of
funds raised to finance that additional credit i.e. cost of capital
. The specific costs and benefits$ which are relevant to the determination of the
objectives of receivables management$ are e%amined below
COSTS:
The major categories of costs associated with the e%tension of credit and accounts receivable are&
'i( )ollection cost.
'ii( )apital cost.
'iii( 8elin;uency cost
'iv( 8efault cost.
Bi3 Co""ec%ion Co#%&
)ollection costs are administrative costs incurred in collecting the receivables from the
customers to whom credit sales have been made. /ncluded in this category of costs are&
'a( 0dditional e%penses on the creation and maintenance of a credit department with staff
accounting records$ stationery$ postage and other related items*
+3
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'b( 6%penses involved in ac;uiring credit information either through outside specialist agencies or
by the staff of the firm itself. These e%penses would not be incurred if the firm does not sell on
credit.
Bii3 Ca6i%a" Co#%:
The increase level of accounts receivable is an investment in assets. They have to be
financed there by involving a cost. There is a time lag between the sale of goods to$ and payment
by$ the customers. 2eanwhile$ the firm has to pay employees and suppliers of raw materials$ there
by implying us the firm should arrange for additional funds to meet its own obligations while
waiting for payment form its customers. The cost on the use of additional capital to support credit
sales$ which alternatively could be profitably employed elsewhere$ is$ therefore a part of the cost of
e%tending credit or receivables.
Biii3 De"inE,enc. Co#%:
This cost arises out of the failure of the customers to meet their obligations where
payment on credit sales becomes due after the e%piry of the credit period. 9uch costs are called
delin;uency costs. The important components of this cost are&
'i( "locking-up of funds for an e%tended period$
'ii( )ost associated with steps that have to be initiated to collect the over dues$ such as$
reminders and other collection efforts$ legal charges$ where necessary$ and so on.
Bi3 Defa,"% Co#%:
#inally$ the firm may not be able to recover the over dues because of the inability of the
customers. 9uch debts are treated as bad debts and have to be written off as they are not being
realized. 9uch costs are known as default costs associated with credit sales and accounts receivable.
BENE(ITS:
+:
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0part from the costs$ another factor that has a bearing on accounts receivable
management is the benefit emanating from credit sales. The benefits are the increase sales and
anticipated profits because of a more liberal policy. !hen firms e%tend trade credit$ that is$ invest in
receivables* they intend to increase the sales. The impact of a liberal trade credit policy is likely to
take two forms. #irst$ it is oriented to sales e%pansion. /n other words$ a firm may grant trade credit
either to increase sales to e%isting customers or attract new customers. This motive for investment
in receivables is growth-oriented. 9econdly$ the firm may e%tend credit to protect its current sales
against emerging competition. 1ere$ the motive is sales-retention. 0s a result of increased sales$ the
profits of the firm will increase.
#rom the above discussion$ it is clear that investments in receivables involve both
benefits and costs. 7ther being e;ual$ relatively liberal policy and$ therefore$ higher investments in
receivables$ will produce larger sales. 1owever costs will be higher with liberal policies than with
more stringent measures. Therefore$ accounts receivable management should aim at a trade-off
between profit 'benefit( and risk 'cost(. That is to say$ the decision commit funds to receivables 'or
the decision to grant credit( will be based on a comparison of the benefits and costs involved$ while
determining the optimum level of receivables. The costs and benefits to be compared are marginal
costs and benefits. The firm should only consider the incremental 'additional( befits and costs that
the result from a change in the receivables or trade credit policy.
!hile it is true that general economic conditions and industry practices have a strong
impact on the level of receivables$ a firms investments in this type of current assets is also greatly
affected by its internal policy. 0 firm has little or no control over environmental factors$ such as
economic conditions and industry practices. "ut it can improve its profitability through a properly
conceived trade credit policy or receivables
management.
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C*e+i% Po"icie#:
/n the preceding discussions it has been clearly shown that the firms objective with
respect to receivables management is not merely to collect receivables ;uickly but attention should
also be given to the benefit cost trade-off involved in the various areas of accounts receivable
management. The first decision-area is )redit 4olicies.
The credit policy of a firm provides framework to determine
'a( !hether or not to e%tend credit to a customer and
'b( 1ow much credit to e%tend.
The credit policy decision of firm has two broad dimensions&
'i( )redit standards.
'ii( )redit analysis.
0 firm has to establish and use standards in making credit decisions$ develop appropriate sources of
credit information and methods of credit analysis. !e illustrate below how these two aspects are
relevant to the accounts receivable management of a firm.
C*e+i% S%an+a*+#:
The term credit standard represents the basic criteria for the e%tension of credit to
customers. The ;uantitative basis of establishing credit standards are factors such as credit ratings$
credit references$ average payments period and certain financial ratios. 9ince we are interested in
illustrating the trade-off between benefit and cost to the firm as a whole$ we do not consider here
these individual components of credit standards. To the cost of the firm as a whole$ we do not
consider here these individual components of credit standards. To illustrate the effect$ we have
divided the overall standards into
'a( Tight or restrictive$
'b( >iberal or non-restrictive.
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That is to say$ our aim is to show what happens to the trade-off when standards are released or$
alternatively$ tightened. The trade-off with reference to credit standards covers&
'i( The collection cost.
'ii( The average collection period-investment in accounts receivable.
'iii( >evel of bad debt losses.
'iv( >evel of sales.
These factors should be considered while deciding whether to rela% credit standards or
not. /f standards are rela%ed$ it means more credit will be e%tended while if standards are tightened$
less credit will be e%tended. The implications of the four factors are elaborated below.
The implications of rela%ed credit standards are
'i( 2ore )redit
'ii( 0 large credit department to service accounts receivable and related matters.
'iii( /ncrease in collection costs.
The effect of tightening of credit standards will be e%actly the opposite. The costs are
likely to be semi-variable. This is because up to a certain point the e%isting staff will be able to
carry on the increased workload$ but beyond that$ additional staff would be re;uired. These are
assumed to be included in the variable cost per unit and need not be separately identified.
/nvestments in eceivables or the 0verage )ollection 4eriod. The investment in
accounts receivable involves a capital cost$ as funds have to be arranged by the firm to finance them
till customers make payments.
2oreover$ the higher the average accounts receivable the higher is the capital or
carrying cost. 0 change in the credit standards-rela%ation or tightening <leads to a change in the
level of accounts receivable either
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'a( Through a change in sales$ or
'b( Through a change in collections.
0 rela%ation in credit standards$ as already stated$ implies an increase in sales which in turn$ would
lead to higher average accounts receivable. #urther$ rela%ed standards would mean that credit is
e%tended.
Ba+ De!% E<6en#e#:
0nother factor that is e%pected to be affected by changes in the credit standards is bad
debt 'default( e%penses. They can be e%pected to increase with rela%ation in credit standards and
decrease if credit standards become more restrictive.
Sa"e Vo",$e:
)hanging credit standards can also be e%pected to change the volume of sales. 0s
standards are rela%ed$ sales are e%pected to increase* conversely$ a tightening is e%pected to cause a
decline in sales.
The basic changes effects on profits arising from a rela%ation of credit standards are
summarized on e%hibit in the earlier paragraphs if the credit standards are tightened$ the opposite
effects.
4rofit on /ncremental 9ales this can be computed in two ways&
'i( >ong approach and
'ii( 9hort-cut-method.
Long A66*oac-:
0ccording to this approach$ the costs and profits on both the present and the proposed
sales level are calculated and the difference in profit at the two levels will be the incremental profit.
+@
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S-o*%5C,% Me%-o+
The profits on sales will increase by an amount e;ual to the product of the additional
profit per unit.
Co#% of Ma*gina" FInc*e$en%a" Ine#%$en% in Receia!"e#:
The second variable relevant to the decision to rela% credit standards is the cost of
marginal investment in accounts receivable. This cost can be computed by finding the difference
between the cost of carrying receivables before and after the proposed rela%ation in credit standards.
/t can be calculated as follows&
C*e+i% Ana".#i#:
"esides establishing credit standards$ a firm should develop procedures for evaluating
credit applicants. The second aspect of credit policies of a firm is credit analysis and investigation.
Two basic steps are involved in the credit investigation process&
'a( 7btaining credit information$ and
'b( 0nalysis of credit information. /t is on the basis of credit analysis that the decisions to
grant credit to a customer as well as the ;uantum of credit would be taken.
O!%aining C*e+i% Info*$a%ion:
The first step in credit analysis is obtaining credit information on which to base the
evaluation of a customer. The sources of information$ broadly speaking are
'i( /nternal
'ii( 6%ternal.
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In%e*na":
Esually firms re;uire their customers to fill various forms and documents giving details
about financial operations. They are also re;uired to furnish trade references with whom the firms
can have contacts to judge the suitability of the customer for credit. This type of information is
obtained from internal source of credit information. 0nother internal source of credit information is
derived from the records of the firms contemplating an e%tension of credit. /t is likely that a
particular customer-applicant may have enjoyed credit facility in the past. /n that case$ the firm
would have information on the behavior of the applicant 's( in terms of the historical payment
pattern. This type of information may not be ade;uate and may$ therefore$ have to be supplemented
by information from other sources.
E<%e*na":
The availability of information from e%ternal sources to assess the credit-worthiness of
customers depends upon the development of institutional facilities and industry practices. /n /ndia$
the e%ternal sources of credit information are not as developed as in the industrially advanced
countries of the world. 8epending upon the availability$ the following e%ternal sources may be
employed to collect information.
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(inancia" S%a%e$en%#:
7ne e%ternal source of credit information is the published financial statements$ that is$
the balance sheet and the profit and loss account. The financial statements contain very useful
information. They throw light on an applicants financial viability$ li;uidity$ profitability$ and debt
capacity. 0lthough the financial statements do not directly reveal the past payment record of the
applicant$ they are very helpful in assessing the overall financial position of a firm$ which
significantly determines its credit standing.
Ban; Refe*ence#:
0nother useful source of credit information is the bank of the firm$ which is contemplating the
e%tension of credit. The modus operandi here is that the firms banker collects the necessary
information from the applicants banks. 0lternatively$ the applicant may be re;uired to ask his
banker to provide the necessary information either directly to the firm or to its bank.
T*a+e Refe*ence#:
These refer to the collection of information from firms with whom the applicant has
dealings and who on the basis of their e
%perience would vouch for the applicant.
C*e+i% B,*ea, Re6o*%#:
31
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#inally$ specialist credit bureau reports from organizations specializing in supplying
credit information can also be utilized.
Ana".#i# of C*e+i%:
/nformation once the credit information has been collected different sources* it should be
analyzed to determine the credit-worthiness of the applicant. 0lthough there are no established
procedures to analyze the information the information$ the firm should devise one to suit its needs.
The analysis should cover two aspects
'i( Muantitative.
'ii( Mualitative.
Muantitative the assessment of the ;uantitative aspects is based or$ the factual
information available from the financial statements$ the past records of the firm and so on. The first
step involved in this type of assessment is to prepare an 0ging 9chedule of the accounts payable of
the applicant as well as calculate the average age of the accounts payable. This e%ercise will give an
insight into the past payment pattern of the customer. 0nother step in analyzing the credit
information is through a ratio analysis of the li;uidity profitability and debt capacity of the
applicant. These ratios should be compared with the industry average more over* trend analysis over
a period of time would reveal the financial strength of the customer.
CREDIT TERMS:
The second decision-area in accounts receivable management is the credit terms. 0fter the credit
standards have been established and the credit-worthiness of the customers has been assessed$ the
management of a firm must determine the terms and conditions on which trade credit will be made
available. The stipulations under which goods are sold on credit are referred to as credit terms. They
3+
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relate to the repayment of the amount under the credit sale. Thus$ credit terms specify the repayment
terms of receivables.
C*e+i% %e*$# -ae %-*ee co$6onen%#:
)redit period$ in terms of the duration of time for which trade credit is e%tended < during
this period the overdue amount must be paid by the customer.
)ash discount$ if any$ which the customer can take advantage of that is the overdue
amount must be paid by this customer and
)ash discount period$ which refers to the duration during which the discount can be
availed of. These terms are usually written in abbreviations$ for instance$ .+-1B net 3B. The three
numerals are e%plained below&
+ signifies the rate of cash discount '+per cent($ which will be available to the
customers if they pay the overdue within the stipulated time*
1B represents the time duration '1Bdays( within which a customer must pay to be
entitled to the discount*
3B means the ma%imum period for which credit is available and the amount must be
paid it any case before the e%piry of 3B days.
/n other words$ the abbreviation +-1B net 3B means that the customers is entitled to + per
cent cash discount 'discount rate( if he pays with in 1B days 'discount period( after the beginning of
the credit period '3B days(. /f$ however$ he does not want to take advantage of the discount$ he may
pay within 3B days. /f the payment is not made within a ma%imum period of 3B days$ the customer
would be deemed to have defaulted.
The credit terms$ like the credit standards$ affect the profitability as well as the cost of a
firm. 0 firm should determine the credit terms on the basis of cost-benefit trade-off. !e illustrate
33
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below how the three components of credit terms$ namely$ rate of discount$ and period of discount
and the credit period. 0ffect the trade-off. /t should be noted that our focus in analyzing the credit
terms is form the viewpoint of suppliers of trade credit and not the recipients for whom it is a source
of financing.
Ca#- Di#co,n%:
The cash discount has implications for the sales volume$ average collection
period-average investment in receivables$ bad debt e%penses and profit per unit. /n taking decision
regarding the grant of cash discount$ the management has to see what happens to these factors if it
initiates increase$ or decrease in the discount rate. The changes in the discount rate. The changes in
the discount rate would have both positive and negative effects. The implications of increasing or
initiating cash discount are as follows&
1. The sale volume will increase. The grant of discount implies reduced prices. /f the demand
for the products is elastic$ reduction in prices will result in higher sales volume.
+. 9ince the customers$ to take advantage of the discount$ would like to pay within the
discount period the average collection period would be reduced. The reduction in the collection
period would lead to a reduction in the investment in receivables as also the cost. The decrease in
the average collection period would also cause a fall in bad debt e%penses. 0s a result$ profits would
increase.
3. The discount would have a negative effect on the profits. This is because the decrease in
prices would affect the profit margin per unit of sale.
COLLECTION POLICIES:
3:
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The third area involved in the accounts receivable management is collection policies.
They refer to the procedures followed to collect accounts receivable when$ after the e%piry of the
credit period$ they become due. These policies cover two aspects&
1. 8egree of effort to collect the over dues$ and
2. Type of collection efforts.
Deg*ee of Co""ec%ion Effo*%:
To illustrate the effect of the collection effort$ the credit policies of a firm may be categorized into
'i( 9trict-light.
'ii( >enient.
The collection policy would be tight if very rigorous procedures are followed. 0 tight
collection policy has implications$ which involve benefits as well costs. The management has to
consider a trade-off between them. >ikewise$ a lenient collection effort also affects the cost-benefit
trade-off. The effect of tightening the collection is discussed below.
/n the first place$ the bad debt e%penses 'default cost( would decline. 2oreover$ the
average collection period will be reduced. 0s a result of these two effects$ the firm will benefit and
its profits will increase. "ut$ there would also be negative effects. 0 very rigorous collection
strategy would involve increased collection costs. Let another negative effect may be in the form of
a decline in the volume of sales. This may to because some customers may not like the pressure and
intense efforts initiated by the firm$ and may switch to other firms.
.Muick collection of funds and effective control over payments result faster turnover of receivables.
This can be done by the following measures
1. 4ayments on the due date$ e%cept when the discount offered for early payment is substantial.
+. Ese of draft 'bill of e%change( instead of che;ues.
3=
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3. 4laying the float < estimating accurately the time of presentation of issued che;ues for
having only cash balance in the bank account to honors )he;ue presented on a particular
date.
The three basics aspects of management of sundry debtors are&
1. credit policy- decisions on credit period to be allowed$ early payment discount rates etc
+. credit analysis <decisions on whether credit can be e%tended to a particular customer
3. control over receivables- steps for debtors follow up$ faster collection of debtors
:.
The cost of maintaining receivables comprises the following
1. In%e*e#% on ine#%$en% & additional funds are blocked in receivables. The cost in the of
interest 'in case of loan funds( or opportunity cost of capital 'in case of own funds(
+. A+$ini#%*a%ie co#% & costs of record keeping investigation of credit worthiness etc.
3. De"inE,enc. co#%#: cost of reminders$ phone calls$ follow-up letters etc.
:. Co""ec%ion# of co#%# & cost of contacting customers che;ues in person outstation collection
charges etc.
=. Defa,"%ing co#%#: bad debts legal charges in respects of suits pending against debtors etc.
Ro"e on Co""ec%ion 6o"ic.:
0verage collection period and bad debts losses are reduced by efficient and timely collection
of debtors. 1ence a proper collection policy should be laid down.
A#6ec%# of co""ec%ion 6o"ic.:
The following aspects should be recovered in collection policy and procedures
Timing of the collection process-when to start reminding etc.
1. 8ispatch of reminders letters to customers.
+. 0ppointment of agents for collection or follow- up.
3. 8ealing with default accounts$ legal action to be initiated$ notice to defaulting customers etc.
Co#% !enefi%# ana".#i#:
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There are certain routine costs associated with collection from customers e.g.
contacting customers collecting che;ues in person $ collecting agency fees etc. in a firm spends
more on collections of debts $ likely to have smaller bad debts. 1ence the amount of collection costs
to be incurred should be determine analysis level of e%penditure on one hand and decrease in bad
debts losses and investment in debtors on other .
Moni%o*ing of *eceia!"e# ino"e# fo""o?ing $ea#,*e#:
1. Ae*age age of *eceia!"e# & debtors turn over ratio and average collection period are
worked out intervals. These are compared with the industry norms .in case of high collection
period$ intense collection efforts are initiated.
+. Ageing #c-e+,"e: the pattern of outstanding-receivables is determined by preparing the
ageing schedule. /f the receivables are denoted old outstanding due for longer periods$
suitable action should be taken to collect immediately
3. Co""ec%ion 6*og*a$$e+: the procedures for collecting e.g. reminding letters$ direct follow
<up etc should be initiated based on the company Ns polices and procedures.

/n an .ageing schedule the receivables are classified to their according to their age$ i.e. period for
which they have been outstanding. e.g. less than 3B days$ 3B-:= days :=-?B days$ above ?B days etc.
ole& preparation of ageing schedule helps management in the following ways&
1. analysis of ;uality of individual accounts
+. intra-firm and intra-firm comparison$ / .e. li;uidity of present receivables with the past
periods and also comparing current li;uidity of receivables
3. trend analysis of debtors
:. supplement to average collection periods of receivables - sales analysis
=. recognition of recent increase and slumps in sale
The following are illustrative steps in a collection programmed
1. 2onitoring the state of receivables.
+. /ntimation of due dates to customers.
3. Telegraphic and telephone advice to customers on due date.
:. Threat of legal action on overdue accounts.
=. >egal action on overdue accounts.
3A
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The following are some alternatives for e%ternal financing of accounts receivables- debtors.
1. bills discounting
+. loans against book debts
3. >oans against supply of bills to government departments.
:. #actoring$ forfeiting etc
=. 8ebt securitization.
?. 0dvances from customers
T.6e of f"oa% Tec-niE,e
"illing float < in sending in voice to
customers
/mmediate preparation of bill$ on the date
of dispatch of goods
2ailing float- in sending invoice to
customers
Ese of faster modes of mailing. /ncluding
e-mail sending the invoice by fa% first.
#ollowed by normal mail
2ailing float- receipt of )he;ue from
customers
)he;ue processing float
"anking processing float
)oncentration banking and lock bo% system



3@
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CHAPTER 0
DATA ANAL)SIS
APGENCO -a# %?o $a@o* #o,*ce# of Reen,e
a. 9ale of 4ower to 04T0,9)7 that is the main activity.
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b. 4roviding 7peration D 2aintenance 9ervices to 2-s. 0454)> that is an ancillary activity of
0456,)7.
1ere billings in both the cases are different and the revenue is also different$ as the business is
different and terms and conditions are different. 1ence we have to deal both the cases separately.
0456,)7 has also got other income like /ncome from investments$ evenue from 9ale of 9crap
etc. "ut here we will take up only above two mentioned incomes i.e.$ evenue from 9ale of 4ower
and evenue from 7D2 services

aD SALE O( PO4ER TO APTRANSCO
The erstwhile 0496" is unbundled in 0456,)7 and 04T0,9)7 'with 8iscoms( on
1.+.1CCC. 9ince 1.+.1CCC 0456,)7 owns and operates Thermal and 1ydel$ which stand
:B
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transferred to and vested in 0456,)7 in terms of 9ection +3 and +: of the 0ndhra 4radesh
6lectricity eforms 0ct$ 1CC@ and the 0ndhra 4radesh 6lectricity eform 'Transfer 9cheme( ules$
1CCC and subse;uent additions thereon. !hereas 04T0,9)7 will operates the Transmission
lines and 8istribution activities as per the above mentioned same ules and 0cts.
0456,)7 and 04T0,9)7 have agreed on the terms and conditions of the 9ale and
4urchase of the 0vailable )apacity and 6lectric 6nergy generated in the Thermal and 1ydel stations
allotted to 0456,)7 during the eforms.
#rom then 0456,)7 main activity is to generate energy and sell the same to
04T0,9)7. 0456,)7 has the only customer i.e.$ 04T0,9)7. These organizations do the
business based on the 4ower 4urchase 0greement '440( that is prepared following the 046) and
)6) guidelines.
4ower 4urchase 0greement is entered on yearly basis and this 0greement is generally for a
financial year. This 440 is modified based on the 046) and )6) 5uidelines where ever and
whenever.
4ower 4urchase 0greement will contain the details of the Terms and )onditions to be
followed by 0456,)7 and 04T0,9)7 in raising the bills and their payment terms. 0 brief
description about the Tariff 7rder and the Terms and )onditions are given in the ne%t page.
Te*$# an+ Con+i%ion# of PPA !e%?een APGENCO G APTRANSCO
:1
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1. "illing is done on the 6nergy delivered by 0456,)7 to 04T0,9)7 during a month.
1ere month means the calendar month.
+. "ills shall be raised by 0456,)7 on monthly basis.
3. "illing date shall be = 'five( days after the 2eter eading date in each calendar month.
:. 8ue date for payment of bill is 3B days from the date of billing$ and in case of
supplementary bill shall be 3B days from the date of presentation.
=. #or arriving energy delivered$ meter readings have to be taken that are placed in all the
generating stations.
?. 2etering date for the first calendar month will be 'BB&BB hours( of 0pril and subse;uent
metering date will mean midday '1+&BB hours( of the last day of each calendar month.
1owever$ the metering dates of the financial year ends at '+:&BB hours( on 31
st
2arch.
7. Tariff for APGENCO Power Stations
The Tariff for 0456,)7 4ower 9tations is determined by 046) on the basis of a
Two < 4art Tariff and shall be fi%ed for the Tariff Lear '5enerally #inancial Lear(.
a. The monthly Tariff shall be the sum of a #i%ed )harges e;ual to one < twelfth of the
0nnual #i%ed )harges decided by 046).
!. The monthly Tariff for Fariable )harges will vary for the energy sent out through the
Thermal 9tations and based on the variation in the delivered cost of )oal and 7il.
Reen,e f*o$ Sa"e of Po?e* %o APTRANSCO
:+
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#ollowing the earlier mentioned terms and conditions 0456,)7 issues bills on monthly basis as
per the tariff proposals. The year wise revenue from sale of energy is as under&
Ta!"e50.1
)ea*
A$o,n%
BR#. in C*#3
Ene*g. Gene*a%e+
Bin Mi""ion Uni%#3
+BBA - B@ '0udited( :B?C.=B )rs. +=:+B.++ mu
+BB@ - BC '0udited( :1=?.:B )rs. +@A+B.=@ mu
+BBC - 1B '0udited( 3@??.C1 )rs. +@A?A.A= mu
+B1B < 11 '0udited( :1CC.CC )rs. 31::1.C: mu
+B11 - 1+ '0udited( :?1A.3B )rs. 333+3.33 mu
(ig,*e50.1
INTERPRETATION:
/n the above chart the revenue bars shows an increasing trend during '88:587 and slightly
decreased in '88>518./t shows an increasing trend from '818511.
O,%#%an+ing Receia!"e# BS,n+*. De!%o*#3 again#% Sa"e of Po?e* !. APGENCO
Ta!"e50.'
)ea*
A$o,n%
BR#. in C*#3
:3
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+BBA - B@ 1@::.1: )rs.
+BB@ - BC +B1C.+B )rs.
+BBC - 1B 1C=@.+B )rs.
+BB? < BA 1?3?.=A )rs.
+B11 - 1+ 1:=3.?@ )rs.
(ig,*e50.'
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INTERPRETATION:
/n the above graph the sundry debtors against sale of power curve shows an
increasing trend during the period of '88:58> and then shows an continuous decreasing trend during
the period of '88>51'
Ageing Sc-e+,"e
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!. OPERATION G MAINTENANCE SERVICES TO APGPCL
:?
PARTICULARS
2007-08
(Audited)
2008-09
(Audited)
2009-10
(Audited)
2010-11
(Audited)
2011-12
(Audited)
Revenue from Sale of
Power to
APTRANSCO (Crs.) 4069.48 416.40 !866.91 4199.99 461".!0
Amount #ue from
APTRNASCO (Crs.) 1844.14 $019.$0 198.$0 16!6." 14!.68
Out Stan%&n' Amount
(#a(s) 16 1"" 18 14$ 11
One )ont*s Cre%&t
Per&o% (#a(s) !0 !0 !0 !0 !0
#ues a+ove Cre%&t
Per&o% (#a(s) 1! 14" 1 11$ 8
#ues a+ove Cre%&t
Per&o% ()ont*s) 4.1 4.91 .16 !." $.86
Out Stan%&n' Amount
#ue &n (,) 4.!$ 48.8 0.64 !9.00 !1.00
#ues Cons&%ere%
-oo% (Crs.) 1844.14 $019.$0 198.$0 16!6." 14!.68
#ues Cons&%ere%
#ou+tful (Crs.) 0 0 0 0 0
#ues Cons&%ere% .a%
(Crs.) 0 0 0 0 0
Ta!"e50.0
Age Wise Breau! "# Su$dr% &e't"rs
PARTICULARS
2007-08
(Audited)
2008-09
(Audited)
2009-10
(Audited)
2010-11
(Audited)
2011-12
(Audited)
/ 6 mont*s (Crs.) 1844.14 $019.$0 198.$0 16!6." 14!.68
6 mont*s to 1 (ear
(Crs.) 0 0 0 0 0
1 0ear to ! 0ears
(Crs.) 0 0 0 0 0
1 ! 0ears (Crs.) 0 0 0 0 0
TOTA2 (Crs.) 1844.14 $019.$0 198.$0 16!6." 14!.68
`
BAnci""a*. ac%ii%. of APGENCO3
0454)> has constructed +A+ 2! ,aphtha-,atural 5as-2i%ed #uel based 5as Turbo
4ower 9tation '5T49(. 0456,)7 is having e%pertise in the business 7peration and maintaining
power-generating stations and 0454)> has engaged 0456,)7 to perform operation and
maintenance of said power generating station upon the terms and conditions set forth in the
agreement. This agreement is governed by and construed in accordance with the >aws of /ndia.
0456,)7 shall maintain the #acility with base load and with best professional skills by
employing 4rudent Etilities 4ractices and meet the performance targets. 0456,)7 shall provide
technical advice and support to 0454)> regarding operation and maintenance issues. 7peration
and maintenance is an ancillary activity of 0456,)7.
This 7peration and maintenance contract agreement is entered initially for a period of =
years$ on e%piry of the initial = years this agreement is renewed regularly for the succeeding periods
with modifications in the agreement. This shows that 0456,)7 is providing this service up to the
satisfaction of the owner '0454)>(.
Te*$# an+ Con+i%ion# of O6e*a%ion an+ Main%enance Con%*ac% !e%?een
APGENCO G APGPCL
:A
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1. 1ere 0456,)7 is the service provider called as operator and 0454)> is the service recipient
and the owner.
2. The agreement period between these two parties is initially for a period of = years and also
e%tendable based on the interest of the 0454)> 'owner(.
3. 0456,)7 has to provide the owner with a monthly summary of all operation and maintenance
activities performed by 0456,)7 during such month.
4. 0456,)7 has to maintain the facility in perfect condition and if any repairs operator must inform
to the owner and get it done.
5. 0456,)7 has to maintain the "ooks of 0ccounts of 0454)>.
6. 0456,)7 has to maintain the confidentiality with regard to the critical designs and other vital
information and shall divulge to any person or organization other that statutory authorities during
the continuance of 7D2 contract or thereafter.
TERMS O( PA )MENT
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A. Pa.$en%# fo* Se*ice Po*%ion
(o* (i*#% )ea*
1. +=J of the fee applicable for 1
st
year shall be paid as mobilization advance against 0dvance "ank
5uarantee as per the #ormat after submission of )ontract 4erformance 9ecurity and siding of this
agreement.
2. "alance A=J of the fee applicable for 1
st
year shall be paid in twelve e;ual monthly installments$
commencing one month after the date of handing over of the plant to the 7perator.
3. The bank guarantee against the advance payment shall be released after the last payment of the first
year.
(o* %-e S,!#eE,en% )ea*
1. 0nnual 9ervice )harges for the respective years shall be paid in twelve e;ual monthly installments
for that year.
B Pa.$en%# fo* S,66". of S6a*e# Po*%ion
1. #or the complete contract period. 0nnual charges for the spares supply shall be paid in twelve
e;ual monthly installments for that year.
`
B. Pa.$en%# fo* Ma@o* Oe*-a,"#
:C
`
1. #or each major overhaul the owner has to pa 1BJ of the cost of spares and service charges for one
overhauling shall be paid as advance$ 3B days upon satisfactory before the scheduled overhaul
against furnishing of "ank 5uarantee.
2. "alance CBJ of the cost of spares and service charges for one overhauling shall be payable within
3B days upon satisfactory completion of the major overhauling as certified by owners
representatives.
3. The "ank 5uarantee against the advance payment shall be released within 3B days upon
satisfactory completion of 2ajor 7verhaul and receipt of 7verhaul eports form the 7perator.
4. 4rice of each major overhaul will not change even if the time schedule is altered due to any reason
whatsoever. /n case$ any of the 2ajor overhauling does not take place due to any reasons
whatsoever$ the 7perator will not be entitled to receive that particular payment.
Reen,e f*o$ O6e*a%ion an+ Main%enance con%*ac% %o APGPCL
=B
`
#ollowing the earlier mentioned terms and conditions 0456,)7 issues bills on monthly basis. The
year wise revenue from 7peration and 2aintenance is as under&
Ta!"e50.1
)ea* A$o,n%
BR#. in C*#3
+BBA - B@ '0udited( 1=.B: )rs.
+BB@ - BC '0udited( 1=.1@ )rs.
+BBC - 1B '0udited( +B.@+ )rs.
+B1B - 11'0udited( ++.?B )rs.
+B11 - 1+ '0udited( +=.CC )rs.
(ig,*e50./
INTERPRETATION
/n the above graph the revenues curves from 7 D 2 shows a continuous increasing trend during the
period of '8115'81' %o '8115'81'.
O,%#%an+ing Receia!"e# BS,n+*. De!%o*#3 again#% OGM Con%*ac% !.
APGENCO Ta!"e50.9
En+ of %-e )ea* A$o,n%
=1
`
BR#. in C*#3
+BBA - B@ '0udited( 1.=A )rs.
+BB@ - BC '0udited( :.=3 )rs.
+BBC - 1B '0udited( 13.B+ )rs.
+B1B - 11'0udited( 13.:B )rs.
+B11 - 1+ '0udited( 1@.C@ )rs.
(ig,*e50.0
INTERPRETATION:
=+
`
/n the above graph the sundry debtors against 7 D 2 curve shows an
continuous increasing trend from +BBA - B@to +B11-+B1+.
Ageing Sc-e+,"e
Ta!"e50.:
CHAPTER 1
(INDINGS
=3
PARTICULARS
2007-08
(Audited)
2008-09
(Audited)
2009-10
(Audited)
2010-11
(Audited)
2011-12
(Audited)
Revenue from
O3) Contra4ts 1.04 1.18 $0.8$ $$.60 $.99
#ue 1." 4.! 1!.0$ 1!.40 18.98
O.S &n %a(s !8 109 $$8 $16 $6"
One )ont*s Cre%&t
Per&o% (&n #a(s) !0 !0 !0 !0 !0
#ues a+ove Cre%&t
Per&o% (&n #a(s) 8 "9 198 186 $!"
O.S Amount #ue
&n (,) 10.4 $9.84 6$." 9.$9 "!.0$
Ta'(e-)*8
Age +ise 'reau! "# Su$dr% &e't"rs
PARTICULARS
2007-08
(Audited)
2008-09
(Audited)
2009-10
(Audited)
2010-11
(Audited)
2011-12
(Audited)
/ 6 mont*s 1." 4.! 1!.0$ 1!.40 18.98
6 mont*s to 1 (ear 0 0 0 0 0
1 0ear to ! 0ears 0 0 0 0 0
1 ! 0ears 0 0 0 0 0
TOTA2 1." 4.! 1!.0$ 1!.40 18.98
`
SUGGESSTIONS
CONCLUSIONS
1.1.1 (INDINGS Bin *e#6ec% of Reen,e f*o$ Sa"e of Po?e* %o APTRANSCO3
#rom the Terms and conditions$ 0geing 9chedules$ and the #loat )hart the following observations
were made&
1. 0456,)7 is issuing bills on monthly basis.
2. 0456,)7 is giving a credit period of 1 month.
3. 04T0,9)7 has to pay the bill amount within 3B days from the date of bill issued.
4. 04T0,9)7 has to open an irrevocable >etter of )redit for an amount of s.+BB )rores.
5. There is no penalty clause in the 4ower 4urchase 0greement.
6. 0456,)7 is issuing penalty bills even though there is no clause in the 4ower 4urchase
0greement.
=:
`
7. 0456,)7 is maintaining regular correspondence with 04T0,9)7 and 04 5overnment for the
dues receivable from 04T0,9)7.
8. 0456,)7 is conducting regular meetings with 04T0,9)7 and 048/9)729 for bringing the
outstanding dues from 04T0,9)7.
9. The 4ower 4urchase 0greement suggests paying the !orking )apital >oan brought by 0456,)7
to meet the regular routine raw material e%penses.
1.1.' SUGGESITIONS Bin *e#6ec% of Reen,e f*o$ Sa"e of Po?e* %o APTRANSCO3
#ollowing are some of the suggestions which 0456,)7 may consider for improving the
receivables from 04T,09)7&
1. /t may suggested to 0456,)7 to reduce the billing period 1= days instead of 1 month$ so
that bills can be issued regularly and the amount can be recovered early.
'. /t may suggested to include the penalty clause in the future 4ower 4urchase 0greement* due
to fear of the penalties 04T0,9)7 may make the payments in time to 0456,)7.
/. The "illing #loat can be reduced and the preparation of the bill may be done within a day or
two$ due to which the bill can be served ;uickly and this will reduce the creditor pe
0. riod.
1. The )redit period can also be reduced in order to make ;uick recovery of the bill amount.
==
`
9. 0456,)7 must insist for the >etter of )redit for s.+BB )rores from 04T0,9)7 as
agreed in the 4ower 4urchase 0greement$ in order to ensure in timely recovery of the bills
issued.
:. 0456,)7 and 04T0,9)7 must go for internet banking in order to reduce the payment
float i.e.$ )he;ue preparation #loat$ 2ailing #loat$ 8epositing of the received )he;ue float
etc. due to which whenever 04T0,9)7 want to release payment that amount can be
directly credited in to 0456,)7s account with out any above mentioned floats.
7. )ash discount must be given to 04T0,9)7 if the pay the bill amount 'or( over due amount
with in the given stipulated time.
>. 0456,)7 must know the credit worthiness of its customer '04T0,9)7( in order to the
li;uidity position of 04T0,9)7 for giving the credit period.
1.1./ CONCLUSIONS Bin *e#6ec% of Reen,e f*o$ Sa"e of Po?e* %o APTRANSCO3
04T0,9)7 D 0456,)7 are both undertaking by government. The rules framed in
4ower purchase agreement towards receivables are not so rigid and the 0456,)7 is losing lot of
amounts in the form of interest due to delay payment and obtaining lot of loans for working capital
re;uirement from the ageing schedule it can be made that$ dues receivables are less than ?months it
can be said all are debts receivable are good debts and all the debts can be realized from these it is
conclude that there are no bad and doubtful debts
=?
`
1.'.1 (INDINGS Bin *e#6ec% of APGPCL OGM CONTACT3
#rom the Terms and conditions$ 0geing 9chedules$ and the #loat )hart the following observations
were made&
1. 0456,)7 and 0454)> both are in the same business of 4ower 5eneration.
'. 0456,)7 issues the 7peration and 2aintenance )ontract bills on monthly basis.
/. epairs and 2aintenance e%penditure is initially borne by 0456,)7 and then reimbursed
by 0454)>.
0. 0456,)7 can raise supplementary bill based on the actual generation.
1. 0456,)7 can also claim incentive bill based on the 4lant >oad #actor.
=A
`
9. )redit period for any bill raised is 3B days.
:. 0456,)7 has never done credit evaluation of 0454)>.
7. /t is learnt that a meeting was held between 0454)> and 0456,)7$ because of the
outcome of the meeting 0454)> has cleared all the dues were cleared by 0454)> during
#-L B@ < BC$ as the accounts were under finalization figures are not disclosed.
1.'.' SUGGESITIONS Bin *e#6ec% of APGPCL OGM CONTACT3
1. 0456,)7 has to perform the credit evaluation of 0454)>.
+. 0s the receipts seems to be good in respect of 7peration and 2aintenance )ontract with
0454)>$ the only suggestion that can be give to 0456,)7 is maintain an /nternet
"anking account in order to reduce the )he;ue receipt float$ 8eposit float and clearance
float by the bank.
=@
`
1.'./ CONCLUSIONS Bin *e#6ec% of APGPCL OGM CONTACT3
The receipt from 0454)> is to be reasonable.the entire debt outstanding on the last day of the year
seems to be good.as the age of outstanding amount seems to be lessthan ?months and there is no
much flot found in the operation and maintance contract with 0454)>
#inally it can be concluded from the above findings and dues positions that 0456,)7
D 0454)> has very good terms in respect of the bussiness
=C
`
1./ OVER ALL SUGGESTION
TO APGENCO IN RESPECT O( ALL THE BUSINESSES
1. /t may suggested to include the penalty clause in all 0456,)7s agreements* absence of
the penalty clause is the main reason for delayed receipts or bad debts.
+. 0456,)7 has to carry out the )redit 6valuation of its customers$ by studying the
#inancial 9tatements$ )redit worthiness certificate from bankers or any other consultants
etc.$ to know that how far the credit can be allowed to its customers.
3. #actoring services must also be availed from the bankers for early recovery of its
outstanding dues.
:. /t may suggested to give cash discounts so as to make effective and early recoveries.
?B
`
=. !hile discounting the bills care must be taken that there is no negative effect on the profits$
because the decrease in prices would affect the profit margin per unit of sale.
?. !hile giving credit 0456,)7 must also make )redit 0nalysis i.e.$ by obtaining credit
information from /nternal sources$ 6%ternal sources$ #inancial statements$ "anks$ )redit
"ureaus etc.
A. The most important suggestion / want to give to 0456,)7 is to open an /nternet "anking
2echanism in order to reduce the cost of collection and float in )he;ue receipt$ )he;ue
deposit and its clearance.
?1
`
BIBILOGRAPH)
BIBLIOGRAPH)
"ooks eferred&
1. /.2. 4andey $ #inancial 2anagement$ Fikas 4ublishers$ 8elhi$ 4age ,o.s-@:3-@?:
+. .4.ustagi$ #inancial 2anagement$ 5algotia 4ublications$ 8elhi $ 4age ,os-?C1-?C?
3. 2.L.Khan D 4K Hain$ #inancial 2anagement$ 2) 5raw 1ill )ompany$ 4age ,os-3B.1-
3B.C
:. 9hashi K 5upta$ 2anagement 0ccounting$ Kalyani 4ublishers$ 4age ,os-+:.1A-+:.+3
!ebsites browsed&
1. www.apgenco.co.in
+. www.tatamcgrawhill.com
?+
`
&o,*na" A*%ic"e#
1. !allis >4$ Nmanaging your receivables in todays economy$O Hournal&strategic
finance$Lear&+BB+$Folume&@:$issue&+
+. Hanice 1.levin$ Nselling accounts receivable and the underinvestments problem$O
3. Hames 0.gentry and jesus m$ N0 generalized modle for monitoring accounts
receivable$1C@=O
:. 9mith$)lifford!.$Hr.$9hehzad >$ N0ccounts receivable management policy&theory and
evidence$O "lackwell publishers >td$journal of finance$/99,&BB++-1B@+$Lear&1CC+
=. Pvi >ieber$Lair 6.orgler$ N0n integrated model for accous receivable managementO
?. 0uthor&osentein$8aniel$stein$5eorge$ N0utomatcing payables and receivables$O )#7
publishing corp$treasuryDrisk management$/99,&1B?A-B:3+$Lear&+BB3
?3