Professional Documents
Culture Documents
Receivables Management
Meaning: Is the process of making decisions relating to investment in trade debtors. Objective: To take a sound decision as regards investment in debtors. Receivables represent amounts owed to the firm as a result of sale of goods or services in the ordinary course of business. The purpose of receivables is to meet competition, increase sales and profit.
Factors influencing
Size of Credit sales. Credit policies. Terms of trade. Expansion plan. Relation with profits. Credit collection efforts. Habits of customers.
Important Considerations
Forming credit policy.
Factoring
The relationship created by an agreement between the seller and a financial institution called factor, whereby the later purchases the receivables of the former and also controls and administers the receivables of the former. Functions of factor: Bill discounting facilities offered by commercial banks to take over of administration of credit sales including maintenance of sales ledger. Collection of accounts receivables. Credit control. Protection from bad debts. Provision of finance and rendering of advisory services to their clients.
Forfaiting
It is a form of financing of exportreceivables. Means the forfeiting of the right to future payments through discounting future cash flows. It provides 100 percent finance in advance against receivables. Is purely financing arrangement.
Inventory management
Meaning of Inventory mean stock of finished goods only. include raw materials, work in process and stores. Includes raw material, WIP, consumables, Finished goods and spares. It involves capital costs, storage and handling costs, risk of price decline, risk of obsolescence and risk of deterioration in quality. Inventory management includes proper planning of purchasing, handling, storing and accounting.
Where to store?
Objectives
The materials and spares should be available in sufficient quantity so that work is not disrupted for want of inventory. Investments in inventories should not remain idle and minimum working capital should be locked in it. To design proper organisation for inventory management. To ensure perpetual inventory control so that materials shown in stock ledgers should be actually lying in the stores. To ensure right quality goods at reasonable prices. To facilitate furnishing of data for short- term and long- term planning and control of inventory.
Meanings
Ordering costs. These are the costs which are associated with the purchasing or ordering of materials. Costs of staff posted for ordering of goods. Expenses incurred on transportation of goods purchased. Inspection costs of incoming materials. Cost of stationery, typing, postage, telephone charges. These costs are also known as buying costs. Arise only when some purchases are made. These costs are totaled up for the year and then divided by the number of orders placed each year.
Meanings
Carrying Costs: These are the costs for holding the inventories. These costs will not be incurred if inventories are not carried. Cost of capital invested in inventories. Cost of storage. The loss of materials due to deterioration and obsolescence. Insurance cost. Cost of spoilage in handling materials. The ordering and carrying costs have a inverse relationship.
Assumptions
The supply of goods is satisfactory. The quantity to be purchased by the concern is certain. The prices of goods are stable thereby stable carrying costs. EOQ = 2CO/I Where C = Annual consumption in rupees. O = Ordering cost I = Inventory carrying costs per unit
A-B-C analysis. Vital, Essential and Desirable analysis. Perpetual Inventory System. Quick calculation of closing stock. Helpful in formulating purchase policies. Check on stores personnel. Helpful in production planning. Investments under check. Errors and shortages easily detected. Increasing efficiency of organization.
Objectives
Minimum inventory and its associated costs. Elimination of non-value added activities and all wastes. Minimum batch / lot size. Zero breakdowns and continuous flow of production. Ensure timely delivery schedules. Manufacturing the right product at right time.
Advantages
The right quantities of materials are produced / purchased at right time. Investment in inventory is reduced. Wastes are eliminated. Carrying or holding costs of inventory is also reduced. Reduction in costs such as inspection, processing, delay in delivery, early delivery etc. resulting in the overall reduction in cost.