The level of receivables of the enterprise is determined. Accounts receivable and company credit policy
Accounts receivable classified:
- by maturity (short-term - payments are expected within 12 months after the reporting date; long-term - payments are expected more than 12 months after the reporting date);
- according to the degree of possibility of collection (current - debt within the payment terms established by the contract; doubtful - the repayment period has already been violated, but the company is confident that the funds will be received; bad - debts that are unrealistic for collection).
Depending on the size of their operations, companies may establish their own classifications of accounts receivable.
How to prevent doubtful and bad debts
There are several ways to prevent or minimize bad debt.
1. Prepayment
If there is a risk of problems with the buyer, it is better to conclude an agreement with him on an advance payment basis. Moreover, the prepayment in this case must be 100%. Then you, as a supplier, will not have problems with debts.
2. Security in the form of collateral, surety, bank guarantee
3. Counter debt (accounts payable)
When there is a counter-debt, you can relatively safely ship products without prepayment, without collateral or other safety net options. If there is accounts payable and receivables arise, it is always possible to cover them by offset.
4. Letter of credit
This is a rather exotic option, although undeservedly forgotten. A letter of credit is one of the forms of non-cash payments, the meaning of which is as follows: when both parties to a contract (for example, for supply) do not trust each other (that is, the supplier does not trust the buyer, because he is afraid that he will not pay, and the buyer is afraid make an advance payment because you are not sure that the supplier will ship the goods), the problem can be solved by a third independent party represented by a bank (issuing bank).
In this case, the bank opens a letter of credit: part of the funds in the buyer’s current account is transferred to a special account in this bank, and the buyer within certain period has no right to manage this money. The bank then informs the supplier that the money is “reserved” for him in a separate account and this money will be transferred to him as soon as he submits documents confirming the shipment.
Unfortunately, this service is not very popular. Probably because it's not cheap. But from a financial and civil legal point of view, this good option to prevent the accumulation of debts.
6 methods of internal control of accounts receivable
It must be said right away that there are no universal methods for controlling accounts receivable. Everything is very specific, and a lot depends on the activities of the enterprise, its scale, the amounts processed, clients, and the market in which the enterprise operates. There are too many factors to consider. However, you can focus on several important criteria.
1. Planned level of accounts receivable
The maximum allowable amount of accounts receivable is determined by calculation. It is expressed in absolute values and/or as a percentage of revenue.
We are talking about the amount of debt that a company can afford without serious damage to its financial economic activity. It is better to set this amount in a fixed amount, that is, in rubles. Additionally, you can set it as a percentage of revenue.
2. Conditions for providing deferred payment (credit) to clients
The company may have a specific deadline - 15 or 30 days, for example. But one deadline doesn't work for everyone she works with.
If we are talking about a key or regular client, then the period for him may be longer. After all, he, as a rule, makes large orders and regularly fulfills his obligations.
If a new client appears that the company is not yet sure of, then it makes sense to revise the deadline downwards. A problem client needs to set either a minimum period or even insist on prepayment.
3. Employee motivation
It is desirable to develop a system in which wages employee will depend on the maturity of the receivables.
4. Procedure for granting deferred payment to clients
The information collected about him plays a major role in deciding whether to grant a loan to a client.
You can start by analyzing information from open sources and the information requested from buyers. How long have they been on the market? Which of their counterparties can you contact for feedback? How accurately are they calculated? A lot of valuable information for analysis can be extracted from the company’s website.
It is best to visit the buyer's office in person. This will give you an idea of how risky it will be to work with him.
5. Determination of parameters for assessing information provided by the client
In this case, it is important to take into account the availability of property through which debt can be repaid, the size and dynamics of accounts payable, potential financial difficulties and problems with solvency.
6. Distribution of responsibility for managing accounts receivable between commercial, financial and legal services
It all depends on the scale of the enterprise, but even in a small enterprise it makes sense to determine who is responsible for what in dealing with accounts receivable, and how responsibility is distributed.
From a logical point of view, the commercial department should be responsible for providing deferred payment and exercise control over current accounts receivable. The area of work of the legal department is doubtful and hopeless accounts receivable (personal meetings, negotiations, correspondence, claims, statement of claim). Accounting includes accounting, control over registration and write-off of receivables.
34. Types of accounts receivable. Its level and the factors that determine it.
Accounts receivable include:
Debt of buyers to the organization for products supplied but not paid for,
Debt on claims or disputed debts in case of violation of contractual obligations and the occurrence of a lawsuit;
Debt of accountable persons when receiving funds on account for business trips and other purposes;
Debt of tax authorities to an enterprise in case of overpayment of taxes and payments to the budget and other types.
For financial management purposes, accounts receivable usually means only the debt owed by customers to the organization.
Accounts receivable is a very variable and dynamic element of working capital, significantly depending on the policy adopted by the organization in relation to product buyers (credit policy).
Since accounts receivable represents the immobilization of its own working capital, then, in principle, it is unprofitable for the enterprise - the conclusion obviously suggests itself about its maximum possible reduction. Theoretically, accounts receivable can be reduced to a minimum, but this does not happen, primarily due to the customary commercial practice of providing trade credit to buyers.
Accounts receivable can be acceptable, that is, due to the current form of payment, and unacceptable, indicating shortcomings in the management of the financial and economic activities of the enterprise and violation of payment discipline.
From the point of view of reimbursement of the cost of delivered products, the sale can be carried out using one of three methods:
1) prepayment;
2) payment in cash;
3) payment with deferred payment, carried out in the form of non-cash payments, the main forms of which are payment order, payment request, letter of credit, collection settlements and settlement check.
The last scheme is the most disadvantageous for the seller, since he has to credit the buyer, but it is the main one in the system of payments for delivered products. When paying with deferred payment, receivables for commodity transactions arise as a natural element of the generally accepted payment system.
35. Effective inventory management as a factor in profit growth.
Successful inventory management allows you to reduce the duration of the production and entire operating cycle, reduce the current costs of storing them, and release part of the financial resources from the current economic turnover, reinvesting them in other assets. The model of economically justified needs helps to calculate the optimal order level, which will give the minimum annual cost of storing inventory and the cost of order fulfillment, for a given production volume. The optimal order quantity is a reasonable compromise between the cost of storage and the cost of order fulfillment Q = where D is annual demand, Q is order volume. S – order cost It can also determine the optimal batch size of manufactured products and the optimal average stock size finished products. The A-B-C method allows you to effectively control the movement of inventory. This method classifies inventory according to a specific indicator of importance, using three classes of items: A (very important), B (items of moderate importance), C (least important). However, the actual number of categories varies from company to company, depending on the level of detail chosen and the elaboration of inventory management activities. Using three classes, class A represents 10% to 20% of the total items by volume, and 60% to 70% by price. At the other extreme of importance, class C items can account for up to 60% of storage volume and only about 10%-15% of price. Group A reserves should be most carefully controlled and their quantities maintained at a relatively low level.
The level of accounts receivable is determined by many factors: the type of product, market capacity, the degree of market saturation with this product, the payment system adopted by the enterprise, etc.
The main types of payments are sales for cash and sales on credit.
In conditions of economic instability, prepayment becomes the predominant form of payment.
Of the total amount of accounts receivable, 80-90% comes from settlements with customers. Therefore, the receivables management policy is primarily related to optimizing the amount of debt and collection of debt for sold products.
Therefore, the receivables management policy is called credit policy in relation to product buyers.
The accounts receivable management policy is part general policy management of current assets and marketing policy of the enterprise, aimed at expanding the volume of product sales and related to optimizing the size of receivables and ensuring timely collection.
The accounts receivable management policy includes a number of stages.
Analysis of receivables in the previous period in order to assess the level and composition of the company’s receivables, as well as the effectiveness of investing in it financial resources. Here we analyze the repayment terms of receivables, periods of collection, and the amount of diversion current assets into accounts receivable, the composition of accounts receivable by age groups, and identifies hopeless and doubtful accounts receivable.
Depending on the size of receivables, the number of settlement documents and debtors, the analysis of its level can be carried out using either a continuous or selective method. General scheme control and analysis includes several stages.
Stage 1. The critical level of accounts receivable is set: all settlement documents related to debt exceeding the critical level are subject to mandatory verification.
Stage 2. A control sample is made from the remaining settlement documents. Various methods are used for this.
Stage 3. The reality of the amounts of receivables in the selected settlement documents. In particular, letters may be sent to counterparties with a request to confirm the reality of the amount indicated in the document or recorded.
Stage 4. The significance of the identified errors is assessed. In this case, various criteria can be used.
Formation of certain principles and approaches of credit policy in relation to product buyers. Includes 3 directions:
1) system formation credit conditions includes:
a) the term of the loan;
b) the limit of the loan provided;
c) the cost of providing a loan, i.e., a system of price discounts when making payments for purchased products;
d) a system of penalties for late fulfillment of obligations.
For example: with a 5% discount, a 7-day payment period and a net period of 30 days. The company loses the discount from 8 to 30 days if it does not make payment within 7 days; After 30 days, a system of penalties appears.
Refusal of a discount is costly for the enterprise and is expressed as a percentage per annum by the following formula:
Refusal price % discount 360
from 100% discount - % discount max loan period - discount period
formation of standards for assessing buyers and differentiation of loan conditions. These standards are based on the creditworthiness of the enterprise;
building effective systems for monitoring the movement of timely collection of receivables.
One of the effective forms is the ABC system, where the largest and most doubtful types of receivables are allocated to category A; category B - medium-sized loans; in category C - all other types that do not have a serious impact on the results of the enterprise’s activities.
As a result of the analytical actions carried out and the development of credit conditions, the company will form a certain type of credit policy
There are three main types of credit policies towards customers.
Conservative. Aimed at minimizing credit risk,
which is a priority, therefore significantly reduces the circle according to KJ TL KJ
buyers on credit. Primarily due to groups of buyers with increased risk; by minimizing the terms of the loan and its size, tightening the terms of the loan and increasing its cost, due to a more stringent procedure for collection of receivables.
The moderate type focuses on intermediate level credit risk and, accordingly, more lenient terms for granting a commercial loan.
The aggressive (soft) type involves maximizing additional profits by expanding the volume of product sales on credit, regardless of high level credit risk.
In the process of choosing the type of credit policy, the following main factors should be taken into account:
the general state of the economy, which determines the financial capabilities of buyers and their level of solvency;
current situation commodity market, the state of demand for the enterprise’s products;
the potential ability of the enterprise to increase the volume of production while expanding the possibilities for its sale by providing credit;
legal conditions for ensuring the collection of receivables;
financial capabilities of the enterprise in terms of diversion of funds into current accounts receivable;
the financial mentality of the owners and managers of the enterprise, their attitude to the level of acceptable risk in the process of carrying out business activities.
The criterion for the optimality of the developed and implemented credit policy of any type and for any forms of credit provided, and, accordingly, the average size of the current receivables for settlements with customers for products sold by them, is the following condition:
DZ0 ^ OPdr > OZdz + PKdz, (7.15)
where DZ0 is the optimal size of the enterprise’s current accounts receivable under its normal financial condition; OPdr - additional operating profit received by the enterprise from increasing sales of products on credit; OZZ - additional operating costs of the enterprise for servicing current receivables; PKdz - the amount of capital loss invested in current receivables due to dishonesty (insolvency) of buyers.
More on topic 7.4. ACCOUNTS RECEIVABLE MANAGEMENT:
- Divisions involved in accounts receivable management.
- 16. MANAGEMENT OF ACCOUNTS RECEIVABLE AND CASH OF THE ENTERPRISE Theoretical material
- Topic 8. Accounts receivable management (credit policy)
- 2. Main aspects of accounts receivable management
- Chapter 8 Accounts receivable management (credit policy)
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The accounts receivable management policy is part of the overall policy of managing current assets and the marketing policy of the enterprise, aimed at expanding the volume of product sales and consisting in optimizing the overall size of this debt and ensuring its timely collection.
The objectives of accounts receivable management are:
- · limiting the acceptable level of accounts receivable;
- · selection of sales conditions that ensure a guaranteed receipt of funds;
- · determination of discounts or allowances for various groups buyers in terms of their compliance with payment discipline;
- · acceleration of debt collection;
- · reduction of budget debts;
- · assessment of possible costs associated with accounts receivable, that is, lost profits from non-use of funds frozen in accounts receivable.
When developing a policy for lending to buyers of its products, the organization must decide on the following key issues:
- · term of the loan (most often the organization has several standard contracts, providing for a deadline for payment for products);
- · creditworthiness standards (criteria by which the supplier determines the financial solvency of the buyer and the resulting possible options payment);
- · system for creating reserves for doubtful debts(it is assumed that, no matter how well the system for working with debtors is, there is always a risk of non-receipt of payment, at least due to force majeure; therefore, based on the principle of caution, it is necessary to create a reserve in advance for losses due to the insolvency of the buyer);
- · payment collection system (this includes procedures for interaction with customers in case of violation of payment terms, a set of indicators indicating the significance of payment violations, a system for punishing unscrupulous counterparties, etc.);
- · system of discounts provided.
No matter how effective the system for selecting buyers is, in the course of interaction with them all sorts of slips are not excluded, so the organization is forced to create some kind of system for monitoring the compliance of buyers with payment discipline.
The formation of an organization's accounts receivable management policy (or its credit policy in relation to product buyers) is carried out according to the following main stages.
- 1. Analysis of the organization’s receivables in the previous period.
- 2. Formation of principles of credit policy in relation to product buyers.
- 3. Definition possible amount working capital directed to accounts receivable for a commodity (commercial) loan.
- 4. Formation of a system of credit conditions.
- 5. Formation of standards for assessing buyers and differentiating loan conditions.
- 6. Formation of a procedure for collection of receivables.
- 7. Ensuring the use of modern forms of refinancing of receivables in the organization.
- 8. Construction of effective systems for monitoring the movement and timely collection of receivables.
Let's look at each stage in more detail.
Analysis of accounts receivable in the previous period.
The main objective of this analysis is to assess the level and composition of the organization's receivables, as well as the effectiveness of the financial resources invested in it. The analysis of accounts receivable for settlements with customers is carried out in the context of commodity (commercial) and consumer loan.
At the first stage of the analysis, the level of the organization's receivables and its dynamics in the previous period are assessed. This level is assessed on the basis of determining the coefficient of diversion of current assets into accounts receivable.
At the second stage of the analysis, the average collection period of receivables and the number of its turnover in the period under review are determined. The average period for collection of receivables characterizes its role in the actual duration of the financial and general operating cycle of the organization.
The number of receivables turnover characterizes the speed of circulation of funds invested in it during a certain period.
At the third stage of the analysis, the composition of the organization’s receivables is assessed by its individual “age groups”, i.e. according to the stipulated deadlines for its collection.
At the fourth stage of the analysis, the composition of overdue receivables is examined in detail, doubtful and bad debts are distinguished. The following indicators are used in this analysis:
- · accounts receivable overdue ratio;
- · average “age” of overdue (doubtful, bad) receivables.
At the fifth stage of the analysis, the amount of effect obtained from investing funds in receivables is determined.
The results of the analysis are used in the subsequent development of individual parameters of the organization's credit policy.
Formation of principles of credit policy in relation to product buyers.
In modern commercial and financial practice, the sale of products on credit has become widespread, both in our country and in countries with developed market economy. The formation of the principles of credit policy reflects the conditions of this practice and is aimed at increasing the efficiency of operating and financial activities organizations.
In the process of forming the principles of credit policy in relation to product buyers, two main issues are resolved:
- · in what forms to sell products on credit;
- · what type of credit policy should the organization choose.
When determining the type of credit policy, it should be borne in mind that its hard (conservative) version negatively affects the growth of the organization’s operating activities and the formation of sustainable commercial relations, while its soft (aggressive) version can cause excessive diversion of financial resources and reduce the level of solvency of the organization, subsequently cause significant costs for debt collection, and ultimately reduce the profitability of current assets and capital used.
Determining the possible amount of financial resources invested in receivables for commodity (commercial) and consumer credit.
When calculating this amount, you must take into account:
- · planned volumes of product sales on credit;
- · average period of deferred payment for certain forms of credit;
- · average period of late payments, based on the current economic practices(it is determined based on the results of the analysis of accounts receivable in the previous period);
- · ratio of the cost price to the price of products sold on credit.
If the financial capabilities of the organization do not allow investing the estimated amount of funds in full, then, if the lending conditions remain unchanged, the planned volume of product sales on credit should be adjusted accordingly.
Formation of a system of credit conditions.
These terms include the following elements:
- 1. Duration of the loan (credit period);
- 2. Amount of loan provided ( credit limit);
- 3. The cost of providing a loan (a system of price discounts when making immediate payments for purchased products);
- 4. System of penalties for late fulfillment of obligations by buyers.
The term of the loan (credit period) characterizes the maximum period for which the buyer is granted a deferred payment for sold products. Increasing the loan period stimulates the volume of product sales (other than equal conditions), however, at the same time it leads to an increase in the amount of financial resources invested in accounts receivable and an increase in the duration of the financial and entire operating cycle of the organization. Therefore, when setting the size of the credit period, it is necessary to evaluate its impact on the results of economic activity in the complex.
The size of the loan provided (credit limit) characterizes the maximum limit on the amount of the buyer's debt on the provided commodity (commercial) or consumer loan. It is established taking into account the type of credit policy being implemented (the level of acceptable risk), the planned volume of sales of products on deferred payment terms, the average volume of transactions for the sale of finished products (for consumer credit - the average cost of goods sold on credit), financial condition organization - creditor and other factors.
The cost of providing a loan is characterized by a system of price discounts when making immediate payments for purchased products.
When establishing the cost of a commodity (commercial) or consumer loan, it is necessary to keep in mind that its size should not exceed the level interest rate for a short-term financial (bank) loan. IN otherwise it will not stimulate the sale of products on credit, since it will be more profitable for the buyer to take short term loan in the bank (for a period equal to credit period, established by the seller) and pay for the purchased products upon purchase.
The system of penalties for late fulfillment of obligations by buyers, formed in the process of developing credit conditions, should provide for appropriate penalties, fines and penalties. The amount of these penalties must fully compensate for all financial losses of the creditor organization (loss of income, inflationary losses, compensation for the risk of a decrease in the level of solvency, and others).
Formation of standards for assessing buyers and differentiation of loan conditions.
The basis for establishing such standards for evaluating buyers is their creditworthiness. The buyer's creditworthiness characterizes a system of conditions that determine his ability to attract credit in various forms and fully, within the stipulated time frame, fulfill all financial obligations associated with it.
The formation of a system of customer assessment standards includes the following main elements:
- 1. Determination of a system of characteristics that evaluate the creditworthiness of individual groups of buyers;
- 2. Formation and examination of the information base for assessing the creditworthiness of buyers;
- 3. Selection of methods for assessing individual characteristics of the creditworthiness of buyers;
- 4. Grouping of product buyers by level of creditworthiness;
- 5. Differentiation of credit conditions in accordance with the level of creditworthiness of buyers.
Formation of procedures for collection of receivables.
This procedure should include the terms and forms of preliminary and subsequent reminders to buyers about the date of payments, the possibility and conditions for prolonging the debt on the granted loan, and the conditions for initiating bankruptcy proceedings against insolvent debtors.
Ensuring that the organization uses modern forms of refinancing receivables.
Development of market relations and infrastructure financial market allow the use of a number of new forms of accounts receivable management in the practice of financial management - its refinancing, i.e. accelerated transfer to other forms of the organization's current assets: cash and highly liquid short-term securities.
The main forms of refinancing receivables currently used are: factoring; accounting of bills issued by product buyers; forfaiting.
Building effective systems for monitoring the movement and timely collection of receivables.
Such control is organized within the framework of the construction common system financial control in the organization as its independent block.
One type of such systems is the ABC system in relation to an organization's receivables portfolio. Group “A” includes the largest and most doubtful types of receivables (so-called problem loans); in group “B” - medium-sized loans; in group “C” - other types of receivables that do not have a serious impact on the financial results of the organization.