INDEX

ACKNOWLEDGEMENT

PREFACE

CHOICE OF THE ORGANIZATION

COMPANY PROFILE

• Minda History
• Group Companies
• Vision & Mission
• Major Clients
• International Business

INTRODUCTION OF TOPIC – (RECEIVABLE

MANAGEMENT)

OBJECTIVES OF REPORT MAKING

THEORIES & REVIEW

• Account Receivable Policy Formulation

• Analysis of Information’s
• Strategies of Account Receivable Management
• Debtor Management Advantages
• Handling Receivables
• Factoring – the new concept

RESEARCH METHODOLOGY
ANALYSIS

• Debtors Value Account Chart

• Debtors more than 90 Days Chart
• Dispute Account Chart
• Overdue Debtors Account Chart
• Debtors No of Days Chart
 • Debtors Ageing Analysis

INTERPRETATION

CONCLUSION

BIBLIOGRAPHY

ACKNOWLEDGEMENT

It is impossible to acknowledge the contribution of all those who

came across and therefore, I take this opportunity to acknowledge the
major contributors of this project.
I am deeply indebted to Mr. Sachin Sharma (Asst. Mgr), my industry
guide, for their valuable information’s and inputs which added
dimensions and meaning to my project. Without his guidance, the
report couldn’t have been possible. It has a great learning experience
working under him.

I would also like to thanks to Mrs. Ashu Khanna and other

distinguished faculty of Department of Management Studies for their
moral support, guidance and willing cooperation during the making of
my project.

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 Last but not the least, I would like to thank my parents, friends and
all other people who helped me directly or indirectly in the completion
of this project report.

BHAWNA MAMGAIN

3
 PREFACE

Receivables are direct results of the credit sales. Credit sales are
resorted to by a firm to push up its sales, which ultimately results in
pushing up the profit earned by the firm. At the same time, selling
goods on credit results in blocking of funds in account receivable.
Addition funds are required for the operation needs of the business,
which involves extra cost in term of the interest. Moreover increases in
receivable also increases chance of bad debts. Thus the creation of the
account receivable is beneficial as well as dangerous. The finance
manager has to follow a policy, which uses cash funds as economics as
possible in extending receivable without adversely affecting the
chance of increasing sales and making profit. Management of Account
Receivable may be therefore be define as the process of making
decision relating to the investment of funds in this assets which will
result in maximization of the overall return on the investment of the
firm.

Thus “the objective of the Receivable Management is to promote

sales and profit until that point is reached where the return investment
in further funding of receivable is less than cost of funds raised to
finance that additional credit (i.e. cost of capital)”.

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 CHOICE OF THE ORGANIZATION

Minda Industries Ltd. has been selected as the target group to know
the receivable management process. The organization mainly supplies
the product to the industrial customer or the major clients (customer)
of the Minda Industries are the big automobile industries. The industry
supplies the material to the customer on the credit or the mostly sales
is credit. Due to this reason Minda Industries Ltd. is found to be the
best organization to the present study.

COMPANY PROFILE
(MINDA – THE GROUP ON THE MOVE)
NK Minda Group is India’s foremost manufacturer of a range of
automotive components. The Group has an annual turnover of Rs. 5.45
billion (USD $ 121 million) and is a leading supplier to global Original
Equipment Manufacturers.

HISTORY

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Chairman, Mr. S.L. Minda, founded the Minda Group in 1958. He began
with a small team of five people and the vision of becoming a leading
player in the automotive components industry. His pioneering efforts
have culminated into the Minda Group becoming a diversified,
customer oriented, multi-product, and multi-location organization.
Under the dynamic leadership of Mr. Nirmal K. Minda, who took over as
the Managing Director in the year 1995, the Minda group has grown
manifold.
Today, it has an annual turnover of Rs. 5.45 billion (USD 121 million)
and employs around 4000 people in 18 manufacturing facilities spread
across India and 1 in Indonesia. Over the years, Minda Group has
acquired a customer base that includes the who’s who of the
automotive sector in India and around the world.

Philosophy about Manpower :

People work best when there is a sense of ownership and the

feeling that it is a collaborative effort. Our philosophy is to empower
each individual to take his own decisions in his defined field, so that he
can add to the growth. Minda Group has a number of companies, each
of which takes pride in being professionally driven. The organization is
divided into different companies or Strategic Business Units (SBUs),
and each SBU head has the overall responsibility for his operations.
A special committee called the Minda Management Committee has
been setup which works in a consultative capacity and includes all SBU
heads, besides corporate and human resource representation. With a
clearly defined value proposition, which is all about respect to people
and customer orientation, the Minda Group is a unique example of
succeeding by empowering people.

The Minda group product profile comprises of :

⇒ Switches-2 wheelers
⇒ Switches-4 wheelers
⇒ Lighting
⇒ Batteries
⇒ Horns-2/3 wheelers
⇒ Horns-4 wheelers
⇒ Alternate fuel kits – LPG /CNG fuel kits

Group foreign joint-venture :

⇒ Tokai Rika Co. Ltd., Japan

⇒ TYC Brother Ind. Company ltd., Taiwan

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 ⇒ Fiamm S.P.A, Italy
⇒ Impco Technologies Inc., USA

Corporate outline :

Established : 1958
Chairman : S L Minda
Managing Director : Nirmal K Minda
Director : Ashok Minda
Director : B R Agarwal
Director : Raja Ram Gupta
GROUP COMPANIES

Minda Group is a specialized automotive components manufacturer

that provides products and solutions to automobile companies across
the globe. The Group comprises of the following companies :

1.Minda Industries Limited –

Minda Industries Limited is the flagship company of the Minda
Group. It designs, develops and manufactures switches for 2/3
wheelers and off-road vehicles. In addition, Minda Industries Limited
manufactures batteries for 2/3/4 wheelers and off-road vehicles. Minda
Industries already enjoys more than 70% market share in the 2/3
wheeler segment in India and is amongst the top few globally.
Today, Minda Industries is over Rs. 3.04 billion (USD 67.5 million)
company and is on a rapid expansion spree. It is geared to take on
global competition and has already made inroads into the ASEAN
market. Minda Industries is on its way to becoming the favored vendor
for 2/3 wheeler switches globally.
Minda Industries Limited has established 8 state of the art facilities
spread across the length & breadth of India and one in the ASEAN
region and employs more than 2800 people.

The various product offerings include :

 Lever and Holder Assembly

 Grips Handle Bar Switch
 Brake Handle Bar System Assembly
 Switch
The company also designs different types of switches like
Rotary Switch, Handle Bar Switch, Plunger Type Switch, Rocker
Switch, Grip, Lever Holder Assembly, Panel Switch and

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 Modular Switch. On an average, Minda Industries develops
140 distinct products across categories each year and puts in
place 25 new assembly lines to manufacture them.

CORPORATE OFFICE :

Minda Industries Limited,

Vill. Nawada Fatehpur,
P.O. Sikanderpur Badda,
Manesar,
Distt. Gurgaon,
Haryana - 122004

VISION :

To be a world-class organization by :
 Business expansion
 Manufacturing excellence
 Creating world-class products
 Cost management
 People excellent

MISSION :

To be the global leader (No. 1) in 2/3 wheeler and off-road

vehicles’ switches by volume and revenue.

Minda Industries believes in collaborative designing with

the vehicle manufacturers. Minda Industries has the capability
to improvise existing products as well as offer cost-effective
solutions for products already available in the market.

2.Mindarika Pvt. ltd. -

Mindarika Pvt. Ltd. is a Joint Venture between Minda Industries
Limited, Tokai Rika Company Limited, Japan and Sumitomo
Corporation, Japan to produce automotive switches for four-wheeler
vehicles. With Rs. 1.1 billion (USD 24.7 million) in revenue, it is India’s
largest four wheeler automotive switch manufacturer. The company
has a manufacturing facility at Gurgaon and employs 400 people.
Mindarika is consistently winning accolades across categories of
products in the automotive switches segment. The core strengths at

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Mindarika are skilled manpower, adherence to the highest quality
standards and providing cost effective solutions.

3. Minda TYC Automotive Limited –

Minda TYC Automotive Limited is a Joint Venture between Minda
Industries Limited and TYC Brother Industrial Company Limited, Taiwan
to produce automotive lighting. The company has manufacturing
facilities in Sonepat, Gurgaon and Pune and employs around 400
people.
Minda TYC produces a variety of world-class lighting products for
the 2/3 wheelers and off-road vehicles, as for four-wheeler vehicles.

4. Minda Fiamm Acoustic Limited –

Minda Fiamm Acoustic Limited is a Joint Venture between Minda
Industries Limited and Fiamm S.p.A, Italy to produce 2/3 wheeler
automotive horns. The Rs. 350 million (USD 8 million) company has
manufacturing facilities in Delhi, Gurgaon and Pantnagar and employs
over 300 people.
Today, Minda Fiamm is the leader player in the Indian automotive
horn industry. It offers customized products and solutions for a range of
automotive acoustic problems. Minda Fiamm utilizes the experience of
its joint venture partner, FIAMM S.p.A. of Italy, to offer R&D expertise
and capabilities to the Indian customer.
5. Minda Auto Gas Limited –

Minda Autogas Limited began as Minda Impco Limited - a Joint

Venture between NK Minda Group and Impco Technologies Inc, USA. In
April 2006, Impco, as part of their global strategy, decided to exit all
Joint ventures including the one in India. Today, Minda Autogas Limited
and is a fully owned company of the NK Minda Group. Minda Autogas
provides CNG / LPG kits and other alternative fuel solutions to various
OEMs and the replacement market.
Company Vision:
 To be a Rs. 1 billion company by 2008-2009.
 To be the preferred supplier of alternate fuel kits to the
Indian market.

6. PT Minda ASEAN Automotive –

Recognizing the importance of the ASEAN market, the Minda Group
has set up a Greenfield manufacturing facility in Indonesia through a
company named PT Minda ASEAN Automotive. The project that was

9
conceptualized in October 2004 began its production in Indonesia in
December 2005. In a short span, the ASEAN venture started to acquire
renowned ASEAN OEM customers and is today exporting to Malaysia,
Vietnam, Philippines & Thailand. The product range comprises of
switches and locks for two wheelers and is going to start
manufacturing other Group product lines.

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 MAJOR CLIENTS

• TVS MOTORS CORPORATION

• TAFE TRACTOR
• HERO HONDA
• LML MOTORCYCLES & SCOOTERS
• BAJAJ
• ROYAL ENFIELD
• HONDA
• KINETIC
• SUZUKI
• MAHINDRA & MAHINDRA
• CUMMINS INDIA
• NEW HOLAND
• PIAGIO GREAVES
• EICHER

MAJOR OVERSEAS COUNTRIES FOR EXPORTS :

• GERMANY
• ITALY
• THAILAND
• SRI LANKA
• MALAYSIA
• FRENCH
• INDONESIA

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 INTRODUCTION OF TOPIC

(Receivable management):
For most companies, Account Receivables are very important
investment, often dominating fixed asset investment. With the concern
for return on assets expressed by many companies in recent years,
there has come ever-increasing focus on the funds committed to
receivable. Whether this current asset is managed efficiently influences
very strongly the amount of funds invested. The optimum is
determined by comparing benefits to be derived from a particular level
investment with the cost of maintaining the level.

Effective Management of Account Receivable presents important

opportunities for companies to achieve strategic advantage through
improvements in customer service, cash management and reductions
in costs. The primary objective of Accounts Receivable in the
commonwealth public sector is to collect monies due and to assist in
meeting cash flow requirements. An effective accounts receivable
function can assist in achieving the desired cash flow outcome through
the timely collection of outstanding debts.

Receivable are very important cash inflow for the organization and
managing cash flow is a critical aspect of managing any business.
Many companies go out of business because they have not paid
enough attention to managing their debtors effectively.

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OBJECTIVES OF REPORT MAKING

1.) To gain maximum knowledge about the practical work.

2.) To know about the debtor (receivable) management of the

Minda Industries Ltd. (switch division).

3.) To seek the financial process of the company.

4.) To identify the areas of improvement.

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 THEORIES & REVIEW

ACCOUNT RECEIVABLE POLICIES -

An account receivable is generated when an enterprise, having
granted credit, aspects, in lieu of cash, a written or implied promise to
pay in the future for delivery of its goods or services. In today’s
business environment, competitive pressures, customer preferences,
and promotional selling opportunities lead the management of most
enterprises to offer credit. Account receivable often constitutes a
significant portion of assets and are, therefore, a major business
investment. Successful control of the account receivable process
demands development of appropriate credit, collection, and financing
policies compatible with the enterprises profit, liquidity and market
share.

Account receivable policy development is subject to internal and

external business constraints and requires careful evaluation of the
policies potential impact on :
• Sales volume,
• Cash management objectives and procedures,
• Direct and indirect costs of receivable management, and
• Customer relations.

Once an account receivable policy is implemented, it should be

reassessed at least annually, since policy changes could be required to
adjust for changing internal and external conditions, such as changing
business objectives, varying competitive industry standards,
fluctuating interest and foreign exchange rates, inflation, rapidly
increasing credit volume, technological advances, and global trade
pattern trends.

This guideline highlights the generally accepted industry principles

and processes used to achieve effective management of an enterprises
accounts receivable. It also addresses important issues arising from
receivable transactions. Emphasis is placed on the development of
appropriate credit, collection, and financing policies, and the
evaluation and control techniques needed to ensure effective
management of the accounts receivable process. The guideline
provides prescriptive recommendations to assist managers to make
rational decisions and choose effective implementation techniques.

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 ACCOUNT RECEIVABLE POLICY
FORMULATION
The account receivable cycle begins with the enterprises decision to
extend credit and ends when settlement is received in payment for the
goods or services provided. It is critical that accounts receivable credit,
collection, and financing policies complement marketing, sales, and
production policies and, therefore, be compatible with enterprises
overall objectives. To achieve this goal, the chief executive officer
should :
• Involve senior managers from all appropriate departments in
developing account receivable policy, since the various
departments within an enterprise could have vested interests
and, possibly, conflicting objectives,
• Assign one senior manager to be responsible for the groups
policy determination, and
• Review and approve the policies that the group has formulated.

CREDIT POLICY –
An enterprise’s Credit policy is a major, controllable element that
has a significant influence on sales, demand and profits. The factors
that comprise credit policy should be analyzed before the decision is
made whether or not to offer credit or to make changes to current
policy.
Factors that could constrain or influence credit policy include :

• Ability to finance the credit policy. Costs of financing

receivables by means of internal or external credit facilities
should be estimated to determine which approach is feasible
for the enterprise.
• Industry credit terms. Terms tend to be alike throughout an
industry. However if an enterprise has a superior product or
service, it could consider applying more restrictive credit
terms than those offered by the industry in general.
• Competitive issues. The initial credit policy and any
subsequent changes made to it are often limited by
competitors and customer reactions to competitive credit
benefits, to payment convenience, and to pricing discount
and financing efficiency.
• The size of the customer base and relative risk profile of
major customers. Credit policy should take into account major

15
 high-risk customers and the weighting that should be given to
them in relation to total customer base.
• Sales volume. If a new or changing credit policy is expected
to increase sales volume, the ability to meet customer
demand should be considered.
• Late payments and defaults. As a firm credit policy is
eased, late payment and default risk usually increases.
• Promotional activities. The implementation of a
promotional program may require a target market base,
which is provided by record of credit customers.
• Sovereign risk and credit policy on export sales. Export
sales credit policy should consider political, economic, and
local practices as well as specific banking requirements.

The development of the enterprise credit policy requires that

specific decisions be made regarding several variables that establish
the terms of sales and the acceptable level of credit risk. The key
variables are :
A. Credit quality standards
B. Credit period
C. Credit terms
D. Cash discounts and surcharges
E. Credit limits
F. Credit instruments

When implementing or varying the credit policy by changing

anyone, or all, of the above variables, management must assess the
impact on net income, calculate the probability of achieving the
planned results, and determine the additional levels of risk assumed. In
particular, any relaxation of credit policy should be considered only
after very careful evaluation of the impact of the change by top
management, because it is extremely difficult to revert to more
stringent policies without experiencing adverse effects on customer
relations and sales.

A. Credit quality standards :

Credit quality standards should be established to control the

receivables risk by determining the likelihood that a given customer
will pay slowly or not at all. The standard should define the minimum
financial strength required for a customer to be an acceptable credit
client. Some factors included in determining customer credit
acceptability can be quantified to derive a probability of default.
Management should establish quality standards with care in order
to minimize the number of instances when a customer with an

16
acceptable credit rating is rejected or a customer with an unacceptable
rating is accepted.
To evaluate overall credit quality, the five C’s of credit should be
considered. Each is weighted relative to its importance to the
enterprise and the availability of information for constructing
probability estimates.
i.) Character refers to the buyer’s integrity, as perceived by
the seller, and is essentially a subjective assessment. Many
credit officers consider character to be a very important
predictor of payment patterns.
ii.) Capacity measures the customer’s ability to pay the
obligation when it is due, and is assessed on the basis of the
buyer historical payment records and business reputation.
Ability to pay may be quantified by calculating the current,
quick, and working capital turnover ratios. If the buyer is an
individual or a newly formed business, capacity measures
may have to be based on credit rating information available
from external sources.
iii.) Capital represents the long-term financial resources
available if additional liquidity is required. It is measured by
the customer’s general long-term financial strength as
indicated by the financial ratio analysis, particularly the
debt/asset ratio, the times-interest-earned ratio, and the
lambda liquidity ratio.
iv.) Collateral represents the assets available to satisfy the
purchaser’s obligation if cash flow is insufficient to pay for
the purchase. Customers may offer, or the supplier may
demand, an asset or assets as security to obtain credit.
v.) Conditions refer to general economic trends and forecast
and specific industry, political and technological factors that
may affect the customers ability to pay and the seller’s
willingness to grant credit.

Information concerning a customers credit worthiness can be

obtained from many sources : previous credit sales experience with the
customer, external credit information available from public reports
such as newspaper business reports or databases, credit association
reports, credit reporting agencies such as Credited, Credit Bureau, or
Dun & Bradstreet other major vendors, and financial institutions such
as the customers bank or trust company.
Whilst the materiality of the amount will dictate the degree of
analysis involved, the major sources of information available to
companies in assessing customer’s credit worthiness are :

• Bank references. These may be provided by the customer’s

bank to indicate their financial standing. However, the law

17
 and practice of banking secrecy determines the way in which
banks respond to credit enquiries which can render such
references uninformative, particularly when the customer is
encountering financial difficulties.
• Trade references. Companies already trading with the
customer may be willing to provide a reference for the
customer. This can be extremely useful, providing approached
are a representative sample of all the client’s suppliers. Such
references can be misleading, as they are usually based on
direct credit experience and contain no knowledge of the
underlying financial strength of the customer.
• Financial accounts. The most recent accounts of the
customer can be obtained either direct from the business, or
for limited companies, from companies house. While subject
to credit limitations past accounts can be useful in vetting
customers. Where the credit risk appears high or where
substantial levels of credit are required, the supplier may ask
to see evidence of the ability to pay on time. This demands
access to internal future budget data.
• Personal contact. Through visiting the premises and
interviewing senior management, staff should gain an
impression of the efficiency and financial resources of
customers and integrity of its management.
• Credit agencies. Obtaining information from a range of
sources such as financial accounts, bank and newspaper
reports, court judgments payment records with other
suppliers, in return for a fee, credit agencies can approve a
mine of information. They will provide a credit rating for
different companies. The use of such agencies has grown
dramatically in recent years.
• Past experience. For existing customers, the supplier will
have access to their past payment record. However, credit
managers should be aware that many failing companies
preserve solid payment records with key suppliers in order to
maintain supplier, but they only do so at the expense of other
creditors. Indeed, many companies go into liquidation with
flawless payment records with key suppliers.
• General sources of information. Credit managers should
scout trade journals, business magazines and the columns of
the business press to keep abreast of the key factors
influencing customer’s businesses and their sector generally.
Sales staffs that have their ears to the ground can also prove
an invaluable source of information.

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Analysis of the information :

Collection of the information in respect of any customer is not going

to serve any purpose in itself. Once all the available credit information
about a potential customer has been gathered, it must be analyzed to
reach at some conclusion regarding the credit worthiness of customer.
The 5 well-known C’s of the credit provide a framework for the
evaluation of a customer has been presented in the following figure :

Payment History

Based on
Financial
Statement

Good No Information Bad

Accept Detailed Analysis of Reject

Risk Based on
Detailed
Application

Low Medium High

Accept Credit Agency Reject

Investigation
Based on
External
Credit
Analysis
Accept Satisfaction Doubtful Reject

The enterprise that is assessing credit quality should

:

 Determine the information required to investigate credit approval

requests and review customer credit worthiness status,

19
  Analyze the type, quality and cost of the information available,
and
 Establish standard information sources and develop appropriate
financial ratios required to produce customer credit reports.

Based on the information gathered, the customer’s credit quality

can be assessed. The appropriate manager should then make a
decision about gathering credit and defining the credit terms, limits,
due dates, and acceptable credit forms. Although the final credit
assessment involves subjective management judgment, giving
numerical values to critical measures can statically assess the
probability that the customer will pay on time that the selling
enterprise has determined to be significant. Critical measures could
include the customer’s statements, interest rate levels, and pertinent
economic and industry figures or trends. A statistical method is
especially advantageous for enterprises evaluating many customers on
a consistent basis. As a further refinement the process can be
computerized.
Customer’s credit quality ratings should be reassessed on a regular
basis, particularly major customers whose default could have serious
financial consequences for the seller.

B. Credit period :

The credit period is the length of time credit is granted (for

example, from invoice date to due date), and is normally established
according to an industry standard. The credit period has a direct
impact on the cost of financing receivables and on collection risk. An
enterprise may elect to deviate from the industry standard for one or
more reasons :
 To obtain a competitive advantage.
 To reflect the enterprises classification of customer quality
 Or to adjust to longer-term economic or business changes.
The date when payment is deemed to be received should be
defined. It may be based on the envelope postmark date, the
remittance processing date, or the date funds are received. Customer
should be clearly advised of the payment receipt date.

C. Credit Terms :

Credit terms are normally specified on the contractual documents,

or on the customer invoice or statement. Frequently used payment
terms include the following :
 Cash before delivery (CBD) or Cash on delivery (COD) may be
required when the buyer has been classified as a poor credit risk.

20
 In case of an unknown or one-time customer, a certified cheque
may be required when the order is placed, or before the goods or
services are delivered.
 Cash term permit the buyer a payment period of about five to 10
days and may be used for high-turnover or perishable goods.
 Invoice terms often stipulate a net due date and a discount date
that may be calculated from various starting dates such as the
invoice, delivery, or client acceptance dates. The terms may be
quoted, for example as 2/10 net meaning a payment discount of
2% is given if the invoice is paid within 10 days. Full payment is
required after 10 days but within 30 days.
 Periodic statements are normally issued monthly. The statement
terms may be similar to invoice terms and include discounts and
interest charges for late payment. All invoice transactions are
listed up to a cut-off date and payment is due by a specified date
in the following period.

D. Cash Discounts and Surcharges :

Cash discount policies may be established for a number of reasons :

 To conform to the industry norm to stimulate sales
 Or to expedite receipt of cash.
To be an effective collection tool, the discount rate must be
established at a rate of interest higher than that at which the customer
is able to borrow. Consideration should be given to the implications of
customers taking a discount to which they are not entitled.
A surcharge, or late payment charge, can be used to encourage
prompt payment and to equalize treatment for customers who pay on
time versus those who delay payment.

E. Credit limits :

Credit limit categories should be established to codify the total

credit that may be granted to customers in each credit quality
classification. To ensure that credit limits remain appropriate, given
business or other major changes, they should be regularly reviewed.
Periodic credit worthiness reassessments can be simplified by
automatically reassigning customers to a higher credit limit level after
a specified period of satisfactory payment experience.
Credit factors, assigned by the credit grantor and weighted by
relative importance, can be used to calculate a single numerical value
that could be used to assign distinctive credit limits and payment
periods to different customers. The credit score must always be
tempered by informed management judgment because the accept-
reject decision implicitly includes economic trade-offs : to minimize

21
rejection of an acceptable credit customer (with loss of future
business) versus to accept a poor credit risk.

F. Credit Instruments :

Credit Instruments are written payment contracts agreed to by the

enterprise and its customers. Instruments range from simple invoices
to formal credit arrangements that are selected to reduce credit risk.
When selecting an instrument to be used, the enterprise should
consider industry standards, market norms, and buyer risk. The
enterprise may choose different instruments at different times
depending on the product or service sold, the customers geographical
location, or customer quality classification. The quality to use different
instruments provides flexibility when dealing with significant or
sensitive customers and orders. Compliance with relevant consumer
protection legislation may require detailed disclosure to the buyer of
credit instrument terms.

COLLECTION POLICY –

One senior individual in the enterprise should be made responsible

for the implementation and control of the collection policy. The
collection policy should specify :
 The employees directly responsible for maintaining the policy;
 Cash management techniques to be used to optimize cash inflow
(including prompt invoicing);
 A statement routine and payment processing method;
 Responsibilities of sales staff and other employees who could
have a negative or positive impact on collections;
 The consistency with which standard procedures are to be
enforced;
 Alternative methods to reduce risk of no collection and the
circumstances in which those methods should be applied; and
 A detailed procedure for handling past-due accounts.

CREDIT INSURANCE –

Collection risk can be reduced by purchasing credit insurance, thus

shifting some of the risk of bad debt losses to a third party. The risk
level has to be high enough to warrant the insurance premium. For
example, if a few customers make up a significant percentage of the
accounts receivable and default by one of them would threaten the
viability of the enterprise, credit insurance should be seriously
considered. Credit insurance terms are negotiable but will normally

22
incorporate a deductible amount and a coinsurance provision so the
insurer and the seller share a percentage of the loss above the
deductible amount.

OVERDUE ACCOUNTS –

The process for collecting overdue accounts may vary depending on

the monetary value of the account, the type of sale (goods or service),
and past experience with the customer. Some situations will require
special treatment. For example, a customer with an overdue account
may request further credit and a decision must be made concerning
the steps to be followed until that customer has been reestablished as
a normal credit risk.
The following policy actions could be applied in such situations :
 Request prompt payment of the account,
 Withhold approval or refuse to ship further goods (or provide
service) until all past due payments are made,
 Withhold approval until a partial payment is made, or
 Refuse further credit.

When partial payments are required, the policy should specify

whether the payments would be applied to the oldest amounts
outstanding to the smallest outstanding invoices (a process called
shorting), or to the largest overdue amount. Payments should be made
against specific invoices where possible.
If ongoing service is provided (for example, utilities such as hydro,
gas, or telephone), the enterprise may also initiate action to cut off or
disconnect service to the extent permitted under relevant consumer
legislation.

STRATEGIES OF ACCOUNT
RECEIVABLE MANAGEMENT
Debtors (Accounts Receivable) are customers who have not yet
made payment for goods or services, which the department has
provided. The objective of debtor management is to minimize the time-
lapse between completion of sales and receipt of payment. The costs
of having debtors are :
 Opportunity Costs (cash is not available for other purposes);
 Bad Debts.

23
Debtor management includes both pre-sale and debt collection
strategies.

Pre-sale strategies include:

o Offering cash discounts for early payment and /or imposing

penalties for late payment
o Agreeing payment terms in advance
o Requiring cash before delivery
o Setting credit limits
o Setting criteria for obtaining credit

Post-sale strategies include:

o Placing the responsibilities for collecting the debt upon the

center that made the sale
o Identifying long overdue balances and doubtful debts by regular
analytical reviews
o Having an established procedures for late collections, such as
 A reminder
 A letter

24
 HANDLING RECEIVABLES
(DEBTORS)

Cash flow can be significantly enhanced if the amounts owing to a

business are collected faster. Every business needs to know…who owes
them money… how much is owed…how long it is owing…for what it is
owed.

Late payments erode profits and can lead to bad

debts.
Slow payment has a crippling effect on business, in particular on
small businesses that can least afford it. If you don’t manage
debtors, they will begin to manage your business, as you will
gradually lose control due to reduced cash flow and, of course, you
could experience an increased incidence of bad debts. The following
measures will help manage your debtors :

1) Have the right mental attitude to the control of credit and make
sure that it gets the priority it deserves.
2) Establish clear credit practices as a matter of company policy.
3) Make sure that these practices are clearly understood by staff,
suppliers and customers.
4) Be professional when accepting new accounts, and especially
larger ones.
5) Check out each customer thoroughly before you offer credit. Use
credit agencies, bank references, industry sources, etc.
6) Establish credit limits for each customer…and stick to them.
7) Continuously review these limits when you suspect tough times
are coming or if operating in a volatile sector.
8) Keep very close to your larger customers.
9) Invoice promptly and clearly.
10)Consider charging penalties on overdue accounts.
Recognize that the longer someone owes you, the greater the
chance you will never get paid. If the average age of your debtor is
getting longer, or is already very long, you may need to look for the
following possible defects :
 weak credit judgment
 poor collection procedures
 lax enforcement of credit terms
 slow issue of invoices or statements
 errors in invoices or statements
 Customer dissatisfaction.

25
 Debtor due over 90 days (unless within agreed credit terms) should
generally demand immediate attention. Look for the warning signs of a
future bad debt. For example,
 Longer credit terms taken with approval, particularly for
smaller orders
 Use of post-dated checks by debtors who normally settle
within agreed terms
 Evidence of customers switching to additional suppliers for
the same goods
 New customers who are reluctant to give credit references

Profits only come from paid

sales.
The act of collecting money is one which most people dislike
for many reasons and therefore put on the long finger because
they convince themselves there is something more urgent or
important that demands their attention now. There is nothing
more important than getting paid for your product or service. A
customer who does not pay is not a customer. Here are a few ideas
that may help in collecting money from debtors :
 Develop appropriate procedures for handling late payments.
 Track and pursue late payers.
 Get external help if your own efforts fail.
 Don’t feel guilty asking for money…its’ yours and you are
entitled to it.
 Make that call now. And keep asking until you get some
satisfaction.
 In difficult circumstances, take what you can now and agree
terms for the remainder. It lessens the problem.
 When asking for your money, be hard on the issue-but soft on
the person. Don’t give the debtor any excuses for not paying.
 Make it your objective is to get the money – not to score points
or get even.

Accounts receivable is an important part of any company’s financial

management. Reducing accounts receivable risk is always a top
priority. There are a variety of tools and services available to help
assist companies in managing their accounts receivable.
Examples include : accounts receivable software tools, collection
services, and even factoring services to allow companies to sell their
accounts receivable, and minimize their risk.

26
 DEBTOR MANAGEMENT
ADVANTAGES

 Payment arrears and open accounts can place the financial

health of your company at risk.
 Reduce your Outstanding Payments.
 You reduce personnel costs and debit interest, and convert fixed
costs into variable ones.
 You increase your cash flow by improving liquidity, success ratios
and credit interest.
 You can make optimum use of the credit limits issued.
 You increase capacity for your own business activity.

Significant advances in accounts receivable performance and

process efficiency through the following five complementary
key management initiatives :
 Re-engineering accounts receivable
 Risk assessment
 Use of advanced technology
 Debt collection processes
 Performance measurement
These matters are addressed following :–

• RE-ENGINEERING ACCOUNTS RECEIVABLE –

Some large private sector organizations have achieved real
cost reductions and performance improvements by reengineering
the accounts receivable process. Re-engineering is a
fundamental rethink and re-design of business processes, which
incorporates modern business approaches.
The nature of accounts receivable is such that decisions made
elsewhere in the organization are likely to affect the level of
resources that are expended on the management of accounts
receivable. An illustration of this point is the extra effort that
must be put into debt collection where credit policy is poorly
administered or too freely given. The strong linkages between
different processes means that true improvements cannot be
achieved without focusing on all aspects of the management of
accounts receivable.

27
 The following better practices present opportunities to improve
the accounts receivable function :

1) Centralized Processing
A better practice for the delivery of finance services is the
adoption of centralized processing for finance functions such as
accounts payable and accounts receivable. Centralized
Processing groups are typically high volume transactions
processing centers servicing multiple operating groups. Their
establishment achieves a number of benefits for the
organization. These include the achievement of a high degree of
specialist expertise in the function supported, the establishment
of centers of excellence that develop and enforce common
practices and standards and the achievement of cost efficiencies
through the co-locating of systems and staff. The establishment
of these centers also frees up other staff for more value adding
work. One private sector firm reduced its total finance staff
numbers by 12% through centralized processing.

2) Standing Payments
Research into better practice indicates that providing
customers and debtors with alternative payment approaches
significantly enhances repayment rates. In addition to there
being alternative payment methods there are also alternatives to
issuing invoices in the traditional accounts receivable processing
approach. These alternative payment strategies result in
efficiencies in the management of accounts receivable.

3) Alternative Payment options

Private sector organizations and public authorities are finding
that payment of account outstanding is likely to be quicker where
a number of payment methods are a marketing tool that is to
benefit in attracting and retaining customers.
The following modern payment methods are available and
provide the benefits of added customer service, reducing
remittance processing costs and improving cash flow through
faster debtor turnover :

• Direct debit - involves authorization for the transfer of

funds from the purchaser’s bank account; this approach
has the advantage of reduced processing costs, however
it can present security exposures.

28
 • Integrated Voice Response - a system which combines
use of human operators and a computer based system to
allow customers to make payments over the phone,
generally by credit cards; this system has been proved
highly successful in organizations which process a large
number of payments regularly.

• Outsourced Agency Collection – payments are collected

by an external agency under a contractual arrangement.
The payment method under this approach can be cash,
cheque, and credit card. This method increases flexibility
and convenience to the customer, which may lead to
improvements in the rate of payment. A variant on this
approach is BPAY, a system whereby banks act as
outsourcing partners by collecting payments from
supplier’s customers and directly crediting supplier
accounts.

• Lock Box Processing – an outsourced partner captures

cheque and invoice data and transmits the file to the
client agency for processing in that agency’s systems.
This approach transfers the cost of data collection to
service provider.

Other payment methods such as use of data kiosks by

customers in public use areas and payment for goods and
services via the Internet are likely to become readily available in
the near future.
Each of the above payment types has advantages and
disadvantages, which are likely to be peculiar to the environment
that particular agencies operate in. agencies need to balance the
benefits in both the payment and receipting processes against
the costs that some payment options may present to the
agencies themselves. Customers should be aware of their liability
at all times. A practical way of achieving this objective is the
issue of monthly customer statements.

4) Use of Payment Incentives

Private sector practice has been to, over time, reduce the
level of reliance on discounting as an incentive for prompt
payment. The agencies, which have problems with debtor
turnover Discounting cab be used as an incentive for customers
to pay upon receipt of services, thereby, avoiding the use of
credit terms.

29
 Whilst discounting has the advantage of potentially
shortening the average collection period it also reduces net
revenue. Before deciding to offer discounts agencies should
conduct an analysis of the effect that the utilization of
discounting will have on net revenue. This estimate should be
balanced against the costs of continuing to hold receivables at
their existing levels, which is effectively the market interest rate
applied to the annual carrying cost of receivables. Another issue
for consideration is the alternative uses to which the funds tied
up in receivables could be put. In addition to developing a range
of incentives for early payment agencies should consider the
imposition of penalties on late payment. In designing penalties,
agencies should be aware of legislative and policy
considerations, which may reduce the potential for major
penalties such as removal of service.

5) Case Management Approach

Where individual customers have strategic importance to the
company a case management approach may be adapted to the
management of the company-customer relationship. Under this
approach all aspects of the relationship are drawn together
including debt management. The increased knowledge of the
customer that derives from the adoption of a case management
approach can assist in the design of strategies for the prompt
repayment of debt.

• RISK ASSESSMENT –
Risk assessment is a major component in the establishment
of an effective control structure. Once risks have been properly
identified, controls can be introduced to either reduce risks to an
acceptable level or to eliminate them entirely. A proper risk
assessment also creates opportunities for freeing processes from
inefficient practices. In managing accounts receivable the key
areas that management should focus on for the purpose of
conducting a risk assessment are :

1) Debt Management Processes –

The risk analysis involves a re-think of processes and
questioning the way that tasks are performed. A risk
assessment opens the way for efficiency and effectiveness
benefits in the management of accounts receivable. In
particular, processes can be re-designed to achieve the
following benefits :

30
 • The establishment of clear and concise policies for issuing
credit and for recovery of debt;
• The removal of non value adding tasks and clarification of
roles and responsibilities;
• By, for example, streamlining delegations;
• The establishment of controls where exposures are noted;
• Allowing staff to apply more initiative and ingenuity to
every day tasks; and
• The identification of new and more effective ways of
delivering services.

2) Outstanding Debts and Debtors –

The application of a credit policy will not be fully effective
unless there has been a comprehensive risk analysis of the
customer population performed. This can be achieved by
having detailed information on the characteristics of customers
(and potential customers) and through the establishment of
criteria against which to assess the credit worthiness of
individual customers.

• USE OF ADVANCED TECHNOLOGY –

Advances in technology present an opportunity for

improvement in accounts receivables processes. The principal
innovations available are the integration of systems used in the
management of accounts receivable, the automation of debt
collection processes and the use of electronic commerce.

System Integration –
Improvements are available from the integration of
the revenue and accounts receivable systems. This
integration results in remittances being automatically
credited against a customer account with a simultaneous
update of the general ledger. This process avoids the
downloading of data and re keying.

Electronic Commerce –
Electronic commerce is a term applied to the use of
computer and telecommunications technologies,
particularly on an inter-organizational basis, to support
trading in goods and services. It uses technologies such
as electronic data interchange (EDI), electronic mail,
electronic funds transfer (EFT) and electronic catalogue
systems to allow the buyer and supplier to transact

31
 business by exchanging information between computer
applications systems. This achieves cost savings by
removing the need for direct negotiation between the
parties.

“There is, in addition, an unrealized potential for the

wider application of other electronic commerce
technologies.”

The statement indicated that individual departments

should : “take account of the opportunities offered by
electronic commerce in their business planning
processes, and include in their information technology
and telecommunications strategic plans relevant
provisions covering the use or intended use of electronic
data interchange both for core functions and in support
applications.”

• DEBT COLLECTION PROCESSES –

Debt collection processes should be undertaken with the

objective of reducing outstanding accounts while keeping sight of
the need to maintain customer goodwill, in an environment of
cost restraint. Better practice in debt collection includes the
following :

Assessment of debt against a financial threshold before

proceeding with recovery actions;
Review of the accuracy of invoices following failure by
debtors to respond to a letter of demand;
Categorize debtors in accordance with their ability and
willingness to pay. Tailor debt collection processes in
accordance with results of this analysis;
Prioritize debt on the basis of risk indicators. The
indicators could include the payment history of the
customer, debt level, demographics, etc;
Communicate directly with debtors most probably by
phone and obtain personal commitment as to repayment
schedule;

32
 Staff have the authority to negotiate payment options
within guidelines, without further approval from
management;

Of vital importance in the design of debt collection procedures

is the need to be proactive about the recovery process. Credit
industry advice is that the more a debt ages, the greater is the
risk of non-recovery. Estimates are that allowing a debt to age
more than 90 days increases the risk of non-recovery by at least
20 %.

• PERFORMANCE MEASUREMENT –

An integral part of the re-engineering of any finance function

is to develop a suite of indicators, which will measure progress
over time. Following is an outline of the possible users of some of
the measures of effectiveness in Accounts Receivable
Management :

o Debtor’s turnover – This ratio measures the average period

for which sales revenue will be held in accounts receivable.
This measures the efficiency and effectiveness of
receivables collection.
o Accounts Receivable to Revenue Ratio – This ratio can be
used to highlight trends in the level of investment in
accounts receivable. Where accounts receivable as a
proportion of monthly revenue exceeds an established
benchmark, thereby indicating the possibility of interest
foregone, the matter can be highlighted for management
attention.

33
 FACTORING AN EVALUATION
(Factoring the new concept)

It already has seen that maintaining the receivables by a firm

require funds to be invested in receivable. The firms have to be
raise funds from various sources in order to finance the
receivables. While maintaining receivable, a firm may face two
type of problem. First, of problem of rising funds to finance to
receivable and second, the problem relating to collection, delays
and defaults of the receivables. Since the receivable
management is a specialized type of activity involving a lot of
time and effort, a firm, not having many receivable, may be in a
position to give a direct attention to each and every customer on
a regular basis. However, in a big firm the receivable
management may not be so direct and the firm may be exposed
to more and more defaults from customers. In such case, a firm
can avail the services of specialist organization engaged in
receivable management. These specialists firms are known as
factoring firm.

Factoring may be defined as the relationship between the

seller of goods and a financial firm, the factor, whereby the latter
purchase the receivable of the former and also administer the
receivable of the former. Factoring involves sale of the
receivables of a firm to another firm under and already exiting
agreement between the firm and the factor. So the factoring is a
tool to release the working capital tied up in credit extended to
the customer, for more profitable uses and thereby relieving the
management from sales collection chores so that they can
concentrate on other important activities. In a way, the factor
firm works as the collection department of the selling firm.

The procedure of factoring can be explained as follows :

1) Under an agreement between the selling firm and the

factor firm, the latter makes an appraisal of the credit
worthiness of the potential customer and may also set the
credit limits and terms of credit for different customer.
2) The sales documents will contain the instruction to make
the payment directly to the factor, which is responsible for
the collection.

34
 3) When the payment received by the factor on the due date,
the factor shall deduct its fess charge and credit the
balance to the firm amounts.
4) In some cases, if agreed, the factor firm may also provide
advance finance to the selling firm. In a way this
tantamount to the bill discounting by the factor firm.
However the factoring is something more than mere bill
discounting as the former includes analysis of the credit
worthiness of the customer also.
The factor may pay whole or a substantial portion of the sales
value to the selling firm immediately on sales being effected the
balance if any may be paid on the normal due date.

The mechanism of factoring has been presented in following

figure:

35
TYPES OF FACTORING :

There are two types of factoring service :-

1. Non-recourse factoring - It is where the factoring

company purchases the debts without recourse to the
client. This means that if the client’s debtors do not pay
what they owe, the factor will not ask for his money back
from the client.

2. Recourse factoring – On the other hand, it is where the

business takes the bad debt risk. With 80% of the value of
debtors paid up front (usually electronically into the client’s
bank account, by the next working day), the remaining
20% is paid over when either the debtors pay the factor (in
case of recourse factoring), or, when the debt becomes
due (non- recourse factoring). Factors usually charge for
their services in two ways : administration fees and finance
charges. For the finance made available, factors levy a
separate charge, similar to that of a bank overdraft.

ADVANTAGES :

36
 ⇒ Provides faster and more predictable cash flows.
⇒ Finance provided is linked to sales, in contrast to overdraft
limits, which tend to be determined by historical balance
sheets.
⇒ Growth can be financed through sales, rather than having
to resort to external funds.
⇒ The business can pay its suppliers promptly (perhaps
benefiting from discounts) and because they have
sufficient cash to pay for stocks, the firm can maintain
optimal stock levels.
⇒ Management can concentrate on managing, rather than
chasing debts.
⇒ The cost of running a sales ledger department is saved and
the company benefits from the expertise (and economies
of scale) of the factor in credit control.

DISADVANTAGES :

⇒ The interest charge usually costs more than other form of

short-term debt.
⇒ The administration fee can be quite high depending on the
number of debtors, the volume of business and the
complexity of the accounts.
⇒ By paying the factor directly, customers will lose some
contact with the supplier. Moreover, where disputes over
an invoice arise, having the factor in the middle can lead to
a confused three-way communication system, which
hinders the debt collection process.
⇒ Traditionally the involvement of a factor was perceived in a
negative light (indicating that a company was in financial
difficulties), though attitudes are rapidly changing.

FACTORING IN INDIA :

Factoring in India is recent origin. In order to study the

feasibility of the factoring services in India, the Reserve Bank of
India constituted a study group for examining the introduction of
the factoring services, which submitted its report in 1988. On the
basis of the recommendation of this study group, the RBI has

37
come out with specific guidelines permitting bank to start
factoring in India through their subsidiaries. For this purpose, the
country has been divided into 4 zones.
In India the factoring is still not very common and only few
commercial banks have established the factoring agencies. The
first factor, i.e., the SBI factor and Commercial Services Limited
started working in April 1991 in western India. The Canara Bank
Factoring Ltd. has also started operation since September 1991
in Southern India. The Punjab National Bank and Allahabad Bank
have also established subsidiary companies to take up factoring
business in the Northern India and Eastern India, respectively.

38
 RESEARCH METHODOLOGY

The objective of Research is the systematic and in-depth study or

search for any particular topic, subject or area of investigation, backed
by the collection, compilation, presentation and interpretation of
relevant details or data.

Types of research:
• Exploratory Research
• Descriptive Research

Entire information and data were gathered from the annual reports and
monthly information report of Minda industries. All the figures are
taken from their internal documents, which were personally shown by
the members of company in our interest.

DATA COLLECTION METHOD

Collection of data is the first step in statistics the goal of conclusion.

The data collection process follows the formulation of research design

including the sample plan. Data can be secondary or primary or can be

collected using variety of tools.

39
 RESEARCH DESIGN

Research design includes the various type of sampling. It included

the 3 years back data and current financial year’s 2 months data.

DATA COLLECTION SOURCES

• SECONDARY SOURCES :

 Annual reports
 Monthly information reports
 Manuals
 The company’s various types of data record like dispute
statements, overdue statement of the debtor, debtor’s age
analysis statements.

40
ANALYSIS

41
 DEBTORS VALUE ACCOUNT CHART

DEBTORS (VALUE)

6000

5000 4862.57
Rs in Lakhs

4000 3847.76
3000 2842.36
2000
1720.54
1000

0
AVG. 04-05 AVG. 05-06 AVG. 06-07 TARGET 07-08
YEARS

ANALYSIS –

Debtors’ value of the company is increasing. In the FY 2004-05,

they were worth of Rs. 1720.54 Lakhs which was increase by 65.20%
and reached to the Rs. 2842.36 Lakhs in the year 2005-06. In the FY
2006-07, it is increase by 35.37% and reached to the Rs. 3847.76
Lakhs.

The company set the target of Rs. 4862.57 Lakhs debtor value for the
financial year 2007-08. The increase in the debtor value is also a sign
of increase in the sales.

42
DEBTORS MORE THAN 90 DAYS CHART

DEBTORS >90 DAYS

300
285.21
250
Rs in Lakhs

200

150 157.71

100 105.5

50

0 0
AVG. 04-05 AVG. 05-06 AVG. 06-07 TARGET 07-08
YEARS

ANALYSIS –

The company’s debtor more than 90 days were worth of Rs. 157.71
Lakhs in the year 2004-05which was increased by 81% and reached to
the Rs. 285.21 Lakhs in the year 2005-06. During the FY 2006-07 the
graph is showing a decrease of 63% and it comes at Rs. 105.5 Lakhs.
The company has set the target of zero debtors more than 90 days
for the FY 2007-08 because of the company’s policies. The company
has the policies of less than 90 days debtor credit period.

43
DISPUTE ACCOUNT CHART

DISPUTE ACCOUNT

0 0
AVG. 04-05 AVG. 05-06 AVG. 06-07 TARGET 07-08
-5

-10
Rs in Lakhs

-15

-20
-23.58
-25
-28.47
-30 -30.25
-35
YEARS

ANALYSIS –

The dispute account (bad debts) position of the company is showing

increasing and decreasing trend. The average bad debts of the
company in the financial year 2004-05 were worth of Rs. 30.25 Lakhs,
which is decreased by the 22% in the year 2005-06 and reached to Rs.
23.58 Lakhs. But during financial year 2006-07 the dispute account is
increased by 20.7% and reached to Rs. 28.47 Lakhs.
The company set the target of zero bad debts for the financial year
2007-08.

44
OVERDUE DEBTORS ACCOUNT CHART

OVERDUE DEBTORS

250

200 202.2
Rs in Lakhs

150 151.67
130.1
100

50

0 0
AVG. 04-05 AVG. 05-06 AVG. 06-07 TARGET 07-08
YEARS

ANALYSIS -

Overdue debtor account chart is showing improvement during

previous years. They were worth of Rs. 202.20 Lakhs in the year 2004-
05 which is decrease by 35.65% and reaches to Rs. 130.10 Lakhs in
the year 2005-06. During the financial year 2006-07 there is an
increase of 16.5% and it reaches up to Rs. 151.67 Lakhs.
The company set the target of zero overdue of the financial year
2007-08.

45
DEBTORS NO. OF DAYS CHART

DEBTORS (NO. OF DAYS)

60 59
58
56 55
54
DAYS

52
50 50
50
48
46
44
AVG. 04-05 AVG. 05-06 AVG. 06-07 TARGET 07-08
YEARS

ANALYSIS -

The debtor no of days or the collection period of the company in the

financial year 2004-05 was of 50 days, which increase in the year
2005-06 and reached to 59 days. But during financial year 2006-07
collection period decreases and comes at of 55 days.
The company set the target of 50 days for the financial year 2007-
08.

Debtors Age Analysis as on 28/02/08

(Rs. In Lakhs)

46
 DEBTORS AGE ANALYSIS

GROSS TOTAL
3327.59
3500
3000
RS. IN LAKHS

2500
2000 1518.15
1500 782.5
1000 311.22
500 146.46 73.25 61.06
0
OVER 0-30 31-60 61-90 91-120 121-180 >181
DUE
NO. OF DAYS

From the above interpretation, we can say that the debtor

(receivable) position of the company is good. The company’s
receivable management is performing a good job in collecting the
money from the debtors.

47
 CONCLUSION

Receivable (Debtor) Management is a very important department in

the organization. Effective receivable management of the company
provided to kind of the costs benefits these are :
 Opportunity Cost
 Bad debts Cost

Debtors (Account Receivable) are customers who have not yet

made payment for goods or services, which the department has
provided. Cash flow can be significantly enhanced if the amounts
owing to a business are collected faster. A customer who does not pay
is not a customer. The company’s working capital position depends
upon the receivable of the company. If the company is collecting the
money on the time, then the company’s working capital will be strong,
it is very easy to sell the product or services on the credit but it is very
difficult to collect the money.

If the company’s debtor collection period is increasing it means, the

company losing a high amount by not collecting the money with in the
credit limit given to the customers. Slow payment has a crippling effect
on business, in particular on small businesses that can least afford it. In
case, the company’s customer’s ageing of the debtors are increasing
so the company should take the appropriate decision to control the
receivable because we all know that the profits comes only from the
paid sale.

48
 BIBLIOGRAPHY

• Annual report, Minda Industries Ltd. 2004-05

• Annual report, Minda Industries Ltd. 2005-06
• Annual report, Minda Industries Ltd. 2006-07
• Monthly Information Report, Minda Industries of the month
of Jan, Feb.
• Chandra Prasanna, Financial Management
• Khan M.Y. and Jain P.K., Financial Management

Websites Visited :
o www.mindaweb.com
o www.google.co.in
o www.yahoo.com

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