Critical Theory: Psychological Concept Of Account Receivable Management
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4. THEORITICAL BACKGROUND
THEORETICAL BACKGROUND
4.1 ACCOUNTS RECEIVABLES MANAGEMENT
Account receivable is the money owed to the company by the customer for the products and services purchased on credit. This is usually treated as current assets of accounts receivables after the customer is sent invoice. Accounts receivable are known by various names such as accounts receivable aging, accounts payable, days receivable, accounts receivable turnover and invoice factoring.
According to expert’s accounts receivable or invoice factoring is a series of accounting transactions. These accounting transactions deal with the billing of customers who owe money to person, company or organisation for goods and services purchased. If you are…show more content… Help in maximizing interventions on sales, service and market share.
Help to cut and maintain average delay.
Hiring the best accounts receivable management will clear up the common misconception that the selling of accounts receivable is a loan. Accounts receivable are the amounts that customers owe a business.
Some also call accounts receivable trade receivables and try to classify them as current assets. Accounts receivable management’s main goal is to take a care of all the debts and to record sales of accounts. One must debit receivable and credit revenue account. Accounts receivable management also looks into the issues such as recognizing accounts receivable, valuing accounts receivable, and disposing of accounts receivable.
There are two aspects of Receivable Management
Cost
Benefits
Cost
It includes four major categories which are explained below collection cost. There are the administrative costs incurred in collection cost of receivable from the debtors. These include additional expenses on the creation and maintenance of the credit department with staff, accounting records, stationary, postage and others. It also includes the additional expenses incurred for obtaining the credit information from agencies and other…show more content… Credit Policy: Nature and goals:
A firm investment in accounts receivables depends on:
The volume of credit sales.
The collection period.
There is only one way in which the financial management can affect the volume of credit sales and collection period, consequently invest in accounts receivables, that is through the change in credit policy is sure refer to the combination of decision variables.
Credit Standards:
Credit standards which have criteria to decide the types of customers to whom the goods are to be sold on credit. If a firm has more slow playing customers its investment in account receivables will increase. The firm will also be exposed to higher risk of default.
Credit terms:
Credit terms specify duration of credit payment by customers. Investment in account receivables will be high if the customers are allowed to extend the time period for making the payments.
Collection efforts:
Collection efforts determine the actual collection period. The lower the collection period is, the lower the investment in account receivables and vice versa
Goals of credit