The emergence of significant accounts receivable is usually associated with granting customers a deferred payment for the goods delivered, that is, suppliers credit their customers. The supplier enterprise must objectively evaluate its capabilities and lend to customers in such sizes that will not lead to a chronic shortage of funds for their own needs. It is necessary to develop a sound policy for the provision of commodity credit and collection of debts for various types of products and groups of customers.
The Necessary Support
In addition, it is necessary to rank the buyers depending on the volume of purchases, the history of credit relations and the proposed terms of payment and subsequently to timely review them taking into account the monitoring of demand for products.
Managing accounts receivable is possible, encouraging buyers to pay early bills. Usually, discounts are given from the sale price or the cost of delivery if payment is made before the contractual period. The advantage of the supplier is that, having received the proceeds earlier than the agreed term and using it in the money turnover, it will reimburse the granted discount. Surely the accounts receivable financing would be effective there.
- When determining the sales policy, a preliminary calculation and comparison of the additional costs from sales in debt and costs associated with the risk of non-payment within the period established by the contract or the transformation of a receivable into a non-recoverable one are required.
- With the established periodicity, the company’s specialists should analyze accounts receivable on a personal list of counterparties, terms of formation and size; to monitor settlements on deferred or overdue debts, to assess the reality of the existence of receivables; determine the methods and ways to accelerate the demand for debt and reduce bad debts.
- The analysis may include an assessment of the absolute and relative indicators of the condition, structure and movement of receivables. For this purpose, the shares of specific debtors, as well as each type of receivables (short-term, long-term, overdue over three months) are determined in the total debt, the dynamics of changes in each component, the growth rate of the balance, etc. are considered.
The increase in the share of long-term accounts receivable in the dynamics may lead to a decrease in the level of solvency of the organization, a decrease in the liquidity of assets.
Exceeding the growth rate of accounts receivable over the rate of increase in sales proceeds indicates a decrease in the level of receivables management, about “freezing” part of the proceeds necessary for financing current activities.
If the analytical data indicate that the final consumer demand in the crisis conditions is reduced by 30-40 percent, then it is hardly possible to consider maintaining the credit limits at the previous, pre-crisis level. Therefore, before you determine a new credit limit for the next year, you need to take a number of practical steps.