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PROJECT REPORT ON
“RECEIVABLES MANAGEMENT AND POSSIBLE USE OF
INFORMATION TECHNOLOGY IN IT”

Submitted to

B.G.P.S.
RAJARSHI SHAHU INSTITUTE OF MANAGEMENT
CHHATRAPATI SAMBHAJINAGAR

Submitted by
“Yuvraj Gurunath Parsekar”
MBA IV Semester (Finance)

Under Guidance of
Dr. Adnan Zaidi

Dr. Babasaheb Ambedkar Marathwada University,

Chhatrapati Sambhajinagar – 431210
2022-2023
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B.G.P.S.
Rajarshi Shahu Institute of Management
Chhatrapati Sambhajinagar

Department of
Master of Business Administration (MBA)

Certificate
This is to certify that Mr./Miss Yuvraj Gurunath Parsekar is our student of MBA/MCA – IV
Semester having a Roll no: 2884 and has submitted his/ her Project report / Implant training
report / Mini project report on the topic of “ Receivables Management and Possible use of
Information Technologies in it” in the academic year 2022-23, as per the requirement of Dr.
Babasaheb Ambedkar Marathwada University, Chhatrapati Sambhajinagar”

Dr. Adnan Zaidi Mr. Anil Wagh Dr. Ejaz Qureshi

Project Guide Head of Department Director
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DECLARATION

This is to declare that I, Mr.Yuvraj Gurunath Parsekar, a student of Business Management

(2022-23), Rajarshi Shahu Institute of Management, Aurangabad have given the original data
and information to the best of my knowledge in the Project Report entitled “Receivables
Management and possible uses of Information Technology in it” under the guidance of Dr.
Adnan Zaidi and that no part of the information has been used for any other assignment but
for the partial fulfilment towards the completion of the course.

I have prepared this report independently and I have gathered all the relevant information
personally. I have prepared this project for the partial fulfilment of MBA Post Graduate
course.

I agree in principle not to share the vital information with any other person outside the
organization and submit the project to any other University.

Mr. Yuvraj Gurunath Parsekar

Class : MBA (IIyr)
Roll no : 2884 /F-34

Signature and name of the student

Yuvraj Gurunath Parsekar
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ACKNOWLEDGEMENT

Constant inspiration and encouragement given by a member of individuals served as the

driving force that enabled me to submit this project in the present form. This is an expression
of my gratitude towards all such people.

First of all, I thank Almighty for His mercy on me always and with the invaluable asset of
habit of hard work and perseverance which has proven to be the key factor behind this
success.

I would like to express my sincere thanks to Dr. Ejaz Ahmad Qureshi, Director, Rajarshi
Shahu Institute of Management, Chhatrapati Sambhajinagar. Without his invaluable guidance
and persistent encouragement, this project work would not have been possible.

I would like to extend my gratitude and deeply indebted towards Mr. Anil Wagh, Assistant
Professor and Head of MBA/MCA Department, Rajarshi Shahu Institute of Management,
Chhatrapati Sambhajinagar, for all his precious suggestions, advices and valuable time which
have made my Project work experience productive and stimulating.

This Project work would not have been possible without the constant assistance and
mentoring of my respected project guide Dr. Adnan Zaidi. I owe and respectfully offer my
deepest gratitude to him.

I am also thankful to Shri J.K. Jadhav, Chairman of B.G.P.S. Rajarshi Shahu Institute of
Management, Chhatrapati Sambhajinagar, all staff members for their constant motivation and
support throughout my research work.

Name of Student : Yuvraj G. Parsekar

Class : M.B.A. 4th Semester
Roll no : 2884 /F-34
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INDEX

SR.NO TOPIC PAGE NO

1 Executive Summary 6

2 Objective 7

3 Scope 8

4 Introduction of the topic 9

5 Review of Literature 13

6 Research Methodology 14

7 Data Analysis and Interpretation 17

8 Limitations of the Study 24

9 Suggestions 27

10 Conclusion 29

11 Reference 30

12 Annexure 31
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EXECUTIVE SUMMARY
It is focused on receivables management and possibilities on how to use available
information technologies in it. The use of information technologies should make receivables
management easier on one hand and on the other hand it makes the processes more efficient.
Finally it decreases additional costs and losses connected with enforcing receivables when
defaulting debts occur. The situation of use of information technologies is different if the
subject is financial or non-financial institution. In the case of financial institution loans
providing is core business and the processes and their technical support are more
sophisticated than in the case of non-financial institutions whose loan providing as invoices is
just a supplement to their core business activities. It also shows use of information
technologies in individual cases but it also emphasizes the use of general results for further
decision-making process.
Basically, the entire process of defining the credit policy, setting payment terms, sending
payment follow ups and timely collection of the due payments can be defined as receivables
management. Management of Receivables is also known as:

• Payment Collection
• Collection Management
• Accounts Receivables

Receivables management creates a credit policy. The policy determines the criteria for
credibility and terms of payment and determines the cause of action for defaulting customers.
Companies are encouraged to have a lenient credit policy where creditworthiness is not the
only consideration made.

Debts in an organization can be harmful and can even lead to heavier losses. Receivables
management takes the necessary steps to ensure a company does not suffer losses. It designs
and implements schedules for the timely collection of outstanding amounts. It also informs
the department of collection on these due dates. Customers are informed of the time of
payment and the amount to be paid. They are also informed of the charges that may attract
delayed payments.

Effective receivables management helps avoid disputes arising with customers. Any dispute
in an organization impacts the relationship between them and the customers. Having a
complete and fair record of the transactions made plays a crucial role in ensuring there is no
confusion and any dispute arising can be resolved amicably.

Organizations establish receivables management policy in order to ensure optimal investment

in receivables so as to achieve sound financial position and profitable operations
(Kakuru Julius, 2000). For example - Despite the efforts by Ikongo enterprise to achieve
sound receivables management and profitable operations, the enterprise has continued to
register accumulated debt balances and bad debt write offs, which lower down its profits
(Debtors valuations records, 2008). This put into question the relationship between
receivables management policy and the profit levels of Ikongo enterprise.
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OBJECTIVES

• Monitor And Improve Cash Flow

Receivable management monitors and controls all cash movements of organisations. It
maintains a systematic record of all sales transactions. Receivable management helps
business in deciding appropriate investment in trade debtors. It aims that a sufficient amount
of cash needed for day-to-day activities is maintained at business. Credit facilities are
extended by doing proper analysis and planning to ensure optimum cash flow in a business
organisation.

• Minimises Bad Debt Losses

Bad debts are harmful to organisations and may lead to heavy losses. Receivable
management takes all necessary steps to avoid bad debts in business transactions. It designs
and implement schedules for collection of outstanding amount timely and informs the
collection department on due dates. Customers are notified for amount standing against them
and charges interest on delay in payments.

• Avoids Invoice Disputes

Receivable management has an efficient role in avoiding any disputes arising in business.
Disputes adversely affect the relationship between customers and business organisations.
Complete and fair record of all transactions with customers are maintained on a daily basis.
There is no chance of confusion and dispute arising as all sales transactions are accurately
maintained. Automated receivable management systems present full evidence in a short time
in case of dispute arising for resolving them.

• Boost Up Sales Volume

Receivable management increase the sales and the profitability of the organisation. By
extending the credit facilities to their customers business are able to boost up their sales
volume. More and more customers are able to do transactions with the business by
purchasing products on a credit basis. Receivable management helps business in managing
and deciding their investment in credit sales. This leads to increase in the number of sales and
profit level.

• Improve Customer Satisfaction

Customer satisfaction and retention are key goals of every business. By lending credit, it
supports financially weaken customers who can’t purchase business products fully on a cash
basis. This strengthens the relationship between customer and organisation. Customers are
happy with the services of their business partners. Receivable management help in organising
better credit facilities for their customers.
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• Helps In Facing Competition

Receivable management helps in facing stiff competition in the market. Several competitors
existing in market offers different credit options to attract more and more customers.
Receivable management process analyse all information about market and helps the business
in framing its credit lending policies. Customers are provided better services by extending
credit at convenient rates. Appropriate amount and rates of credit transactions can be easily
decided through receivable management process. All credit and payment terms are decided
for every customer as per their needs.

SCOPE

• Formulation Of Credit Policy

Receivable management is the one which formulates and implements an effective
credit policy in an organization. Credit policies are decided as per the capabilities of
an organization. A company may either follow a liberal policy or stringent credit
policy for providing credit facilities to its customers.

• Credit Evaluation
Credit evaluation involves examining the credit worthiness of customer before
approving any credit amount. Proper investigation of customer’s information lowers
the risk of bad debts. Receivable management acquire all credentials of client for
determining their borrowing capacity and repaying ability.

• Credit Control
Receivable management implement a proper structure for monitoring all credit
functions of business. It records credit sales with proper documents on a daily basis.
Invoices are raised immediately after goods get dispatch and amount are collected
soon as they become due for payment.

• Maximize Profit
It plays an efficient role in maximizing the profit of organizations. Receivable
management helps in boosting the sales volume by providing credit facilities to
customers. More and more people are able to purchase goods on credit which
maximizes the overall profit level.

• Better Competition
Efficient account receivable management helps business in facing the strong
competition in market. It enables in providing credit facilities to customers as per their
needs and capabilities. Receivable management analyses the credit strategies adopted
by competitors and according frame policy for an organization. It attracts more and
more customers by offering them credit facilities at convenient rates.
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INTRODUCTION OF THE TOPIC

Receivables are one kind of enterprise's assets displayed in a balance sheet which are
generated through enterprise's sales activities. Receivables are legally enforceable claims for
payment. A customer does not pay directly because of using invoices but the payment is done
within an agreed time frame. According to International Financial Reporting Standard
(IFRS), receivables are obviously a part of portfolio of financial assets measured at amortized
costs . Receivables have on one side their advantages, on the other hand they are also
connected with many disadvantages. Their advantages are based on the competitive
environment when payment conditions create one part of a competitive advantage and they
enable another financial source for the customer. The disadvantages are connected with risk
of non-payment, late payment which has to be financed by other financial links. There are
many researches done in the field of enforcing of receivables which can exist in two main
kinds - individual and collective enforcing. These researches focus especially on the level of
satisfaction, recovery rate of receivables because forfeiture proceedings in the case of the
individual enforcing and insolvency
proceedings in the case of the collective enforcing are enforcing of the last instance. The
recovery rate of receivables is very low in these special cases. When a creditor is not secured
then the recovery rate is only in percents. During recent years our research team have taken
attention especially to a theme connected with insolvency register and its efficiency leading
to data processing and enforcing of receivables. The main aim of these activities is to
improve the environment and achieve higher recovery rates of receivables for creditors. Due
to problematic receivables the affected creditors do not have revenues from their business
activities. It could have a significant impact on their following running
a business when they have to find additional resources for financing the problematic
receivables. This problem is much broader than only the last instance as forfeiture
proceedings and insolvency proceedings. The task for management does not start with
insolvency proceeding but it starts with signing a contract itself. On one side there is an
enterprise which plays a role of a creditor. This enterprise is holding the receivables in its
assets' structure. On other side there is a subject which plays a role of debtor who is holding
payables in its capital structure. Further characteristics depend on the kind of the contract
between these two parties. An object of the contract can be strictly financial as a loan,
mortgage or leasing or based on non-financial business activities as selling services or
products. Financial institutions use other approaches leading to signing the contracts than
classical enterprises whose business model is based on the selling of products. The debtor can
be natural as well as legal person, non-entrepreneur as well as entrepreneur etc. It will discuss
further the role of information technologies in receivables management for different business
parties and it will provide good suggestions and recommendations for better receivables
management.
Receivables management does not stand alone because it is a part of turnover cycle and
working capital management which involves management of inventories, receivables, cash
management as well as payable management. It is proved that enterprises managing working
capital cycle would have had a higher chance to overcome the last global crisis which was
caused by external economic conditions. The general receivables management can be
described by four steps, especially for non-financial enterprises.
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• The first step is deciding the length of the payment period or discounts for clients
paying in advance, on the time of delivery or before the end of classical payment
period.

• The second step is a decision about the contract itself because the classical contract
can be accompanied by a guarantee as a bank guarantee, warrantor or securitization
by tangible assets.

• The third step is an assessing client's creditworthiness which can be done by the
enterprise itself or passing that to special parties as credit or rating agencies.

• The step four is establishing credit limits leading to minimization of problematic

receivables but nonaffecting flows from customers. When the payment has a delay or
the customer does not want to pay or is not able to pay then the process of enforcing
receivables will start.

These general four steps provide a basis for a decision making process in the
case of each client. For each client the four step process should be done originally
respecting the general limits decided for a whole enterprise. For small clients the
beginning of the process can be done automatically and interventions come only in
the case of troubles. For large clients the full process should be done carefully and not
automatically because it is a decision problem which is not well structured. The use of
the information technologies can be applied in each step but a range depends on the
specifics of the contract and the product.

Business firms generally sell goods on credit. Credit is granted to facilitate sales. It is
valuable to customers as it augments their resources. It is particularly appealing to
those customers who cannot borrow from other sources, or find it very expensive or
cumbersome to do so. (Prasanna Chandra, 1984) In view of this an attempt is made to
evaluate the receivables of the public Enterprises as to whether or not these have
helped them to increase their sales whether the receivables have accumulated causing
financial strains or bad debts, and in general, the management of them, in this chapter.
When the firm sells its products or services and does not receive cash for it
immediately the firm is said to have granted the trade credit to customers. The trade
credit, thus, creates receivables or book debts which the firm is expected to collect in
the near future. The receivable is defined by D. M. Joy as "debt owed to the firm by
customers arising from sale of goods or services in the ordinary course of business. It
has also been defined by Robert N. Anthony as. "Accounts receivable are amounts
owed to the business enterprise, usually by its customers. Sometimes this is broken
down into trade accounts receivable and other accounts receivable; the former refers
to amounts owed by customers, and the latter refers to amounts owed/ by employees
and others. (Anthony Robert, 1968) The book debts or receivables arising out of
credit three characteristics. (Ram Moorthy V. E., 1976) Firstly it involves an element
of risk which should be carefully analysed. Cash sales are totally riskless, but not the
credit sale, as the cash payment has yet to be received. Secondly, it is based on
economic value. To the buyer the economic value in goods or services passes
immediately at the time of sale while the seller expects an equivalent value to be
received latter on. Thirdly it implies futurity. The cash payment for goods or services
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received by the buyer will be made by him in a future period. The customers from
whom receivables or book debts have to be collected in future are called trade
debtors. Receivables constitute a substantial portion of current assets of several firms.
In India it represents an important component of current assets next only to the
inventory. They form about one third part of current assets in India. (Pandey I. M.,
1983)

Receivable Management Sundry (i.e., miscellaneous) debtor accounts require

particular attention in all phases of the management function because they represent a
large number of transactions that arise from all types of activities throughout the
manufacturing sector. The bulk of the transactions may involve relatively high
amounts that become significant when taken as a whole. The potential for bad debts is
high because most debtors do not do business with regularly. Each sector should
pattern its receivables management program after that used for sundry debtor
transactions. Those standards then can be applied satisfactorily to most other
receivables. Trade Receivable Management Co face has succeeded in considerably
reducing its claims expenses by setting up efficient receivables management
processes, developing excellent knowledge of local payment and collection
regulations and practices, accurately predicting the commercial and financial
behaviour of buyers throughout the world and closely monitoring changes in their
behaviour. According to Joseph, Credit policy The credit policy of a company can be
regarded as a kind of trade-off between increased credit sales leading to increased in
profit and the cost of having larger amount of cash locked up in the form of
receivables and the loss due to the incidence of bad debts. In competitive market, the
credit policy adopted by a company is considerably influenced by the practices
followed by the industry. A change in the credit policy of a company, say, by
extending credit policy of a company, say, by extending credit period to 30 days,
when the other companies are following a credit period of 15 days can result in such a
high demand for the company's product that it cannot cope with. Further, other
companies also may have to fall in line in the long run. It is assumed generally that
such factors have already been taken into consideration before making changes in the
credit policy of a company. The term credit policy encompasses the policy of a
company in respect of the credit standards adopted, the period over which credit is
extended to customers, any incentive in the form of cash discount offered, as also the
period over which credit is extended to customers, any incentive in the form of cash
discount offered, as also the period over which the discount can be utilized by the
customers and the collection effort made by the company. According to David
Federhen, The accounts receivable is an important component of corporate liquid
assets, with the increasing business competition, accounts receivable critical to the
survival of enterprises. Especially SMEs, in order not to be eliminated in the
competition to maintain our competitiveness, we must strengthen the accounts
receivable management, improve capital utilization, reduce business risk. Small and
medium enterprises through the analysis of the current accounts receivable
management problems and their causes, propose appropriate management of policy
recommendations. Trade Credit arises when a firm sells its products or services on
credit and does not receive cash immediately. It is an essential marketing too, acting
as a bridge for the movement of goods through production and distribution stages to
customers. A Ann grants Trade Credit to protect its sales from the competitors and to
attract the potential customers to buy its products at favourable terms. Trade credit
creates accounts receivable or trade debtors that the firm is expected to collect in the
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near future. The customers from whom receivable or book debts have to be collected
in the future is called trade debtors or simply as debtors and represent the firms claim
or asset. (Varsbney J.C. 2009)

The Possibilities of Use of Information Technologies

The quality of receivables management and the level of the use of information technologies
also depend on the situation if the creditor is systematic or non-systematic. In the case of
systematic creditor, the process would be more sophisticated and compliant. A specific case
of systematic creditors are financial institutions which can play a role of banking or non-
banking institution. The objects of their contracts are different kinds of loans as mortgage,
consumer credit, credit cards, banking account overdraft or leasing etc. The financial
institutions have the most sophisticated process of receivables management and the highest
possible level of the use of information technologies in this process as well. Financial
institutions. The information technologies play their irreplaceable role in the assessing client's
creditworthiness. The financial institution collects information about the client. First it is
always the size of the asked loan. In the case of natural persons it would be age, marriage
status, number of dependents, size of regular income, value of assets used for a guarantee etc.
In the case of legal persons, it is the length of history existence, field of economic activity,
value of assets used for a guarantee etc. Worthy variable is a client's history. It is more
profitable to enter into a contract with a party with which you have already had a common
history. The client has had some kind of account or the client paid off the previous loan etc.
Unfortunately, there are many financial institutions on the market and the common history
would lead to impossibility to get new customers. The customers would be 100% loyal to
their financial institutions. The real situation in the market economy is different because the
customers can choose or switch their financial institutions almost without limitations. It
would lead without monitoring the personal situation that the customers have too many loans
at several financial institutions. The financial institutions would not know the real situation of
their clients and they would be exposed to a higher risk of late payments or even non-
repayment of the loans. The core business would be affected and financial institutions would
have to ask higher interest rates to cover costs connected with enforcement of receivables or
bad loans which have to be written off at the end.
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REVIEW OF LITERATURE
This section investigates prior studies on accounts receivable management motivations
practices.

• Saha & Ahmed (2010) focused on the non-financial measure for organizational
sustainability through the employment of balanced scorecard, they emphasised on the
measures apart from mere financial profit. One of such techniques might be efficient
management of accounts receivable, which is vital for ensuring organizational
performance. The organizational management places a very high weight on
managing its receivables efficiently. Many studies focused on working capital
management. Accounts receivable is the major element in working capital. Thus,
studies on working capital can be used as the proxy for studies on accounts
receivables.
• Quayyum (2012) studies the relationship between the corporate profitability and
working capital management. She finds a positive relationship between the two
variables for all industries included in her study except for the food and allies
industries in the Dhaka Stock Exchanges in Bangladesh.
• Anand and Malhotra (2007) analyzed the firm's inventory, receivables and payables
in order to achieve a balance between risk and return and thereby contribute
positively to the creation of a firm value. The present
empirical survey has been designed to identify some quantitative working capital
benchmarks in order to help Corporate India to manage its working capital more
efficiently.
• Afeef (2011) examined the relationship between corporate profitability and working
capital management. The study used a sample of 131 companies listed in the Athens
Stock. The study showed that there were significant returns between profitability,
measured through gross operating profit, and the cash conversion cycle. It is
found that the manager should be efficient enough in handling the cash conversion
cycle and keeping optimum level of account Receivables, account
payables and inventory.
• García-Teruel and Martínez-Solano (2007) examined the effects of working capital
management on the profitability of a sample of small and medium-sized Spanish
firms. The study pointed out that the SME firms have efficiently managed their
accounts receivable and inventories. However, the study suggested that the manager
can only add more value to the company by reducing the cash conversion cycle.
• Padachi (2006) examined profitability and the relation between
working capital Management and corporate profitability. The regression
results show that high investment in inventories and receivables is
associated with lower profitability. An analysis of the liquidity, profitability and
operational efficiency of the five industries showed significant changes and how best
practices in the paper industry have contributed to the performance. The study also
revealed an Increasing trend in the short-term component of working capital
financing.
• Jain and Kumar (2006) analyzed the impact of working capital in listed
companies of S&P CNX Nifty index. The result of the study revealed that the sample
Nifty companies.
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RESEARCH METHODOLOGY

1.Use electronic billing and online payments

Ditch paper, snail-mail billing, and paper checks. Those are easy to lose and time-consuming
to track. Instead, switch to an electronic invoicing system that lets clients make payments
easily online. Integrate your billing and payments. This automates your record-keeping, so
there’s less for you to keep track of, and decreases the chances of human error (Use invoicing
software with integrated payment processing)

2. Use right KPI’s

• Days Sales Outstanding (DSO): This is the top metric you want to optimize your
processes to reduce. DSO is the average amount of time it takes to collect payment.
Aim to keep your DSO below 30 days.

• Average days delinquent (ADD): This is how many days on average client payments
are overdue. This is another number you want to keep as low as possible. If it rises,
check your processes to ensure billing is going smoothly and AR is adequately staffed
to accommodate collections.

• Turnover ratio (TR): This number shows how quickly you’re collecting revenue from
clients (i.e. turning accounts into cash) and indicates your cash flow. Keep this
number low. A high ratio means you have a lot of open accounts with uncollected
revenue — which should prompt you to revisit your billing and collections processes.

• Cost Effectiveness Index (CEI) : This is the percentage of accounts you turn over, or
collect revenue on. You want this to be as close to 100 as possible, indicating you’re
collecting payment from all of your clients.

• Revised Invoices (RI) : You want to avoid the need to revise customer invoices if you
can. If you see a rise in your number of revised invoices over time, or during a certain
period, look at your billing policies and possibly consider staffing needs to ensure
efficiency and avoid errors that delay payment.

3. Outline clear billing procedure:

Approach your billing process with clarity and consistency. Document the process, so
everyone in the company follows the same procedure:

Your billing process should include the following:

• Billing periods and invoicing dates

• What information to include on each invoice (eg : P.O. number, addresses etc.)
• Recordkeeping procedures
• Periodic AR process assessment and follow up
• Collection procedure for overdue payments.
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4. Set Credit and collection policies – and stick to them

You may or may not be interested in making credit available to some clients. If you do, set
clear credit policies ahead of time to avoid extending too much credit to some clients. Make it
easy for anyone in your business to determine whether to extend credit when a client requests
it.
Similarly, clear AR collection policies ensures you can take a proactive approach to
addressing overdue accounts.

This ‘soft touch’ approach keeps communication open between you and your customer and
ensures that they are aware of any upcoming payments.

5. Collect payments proactively

With clear procedures in place, you can be proactive about collecting payments. Create a
process where you’re prompted to contact a client on the first day a payment is late, so
they’re aware of their payment terms and any overdue balances immediately. Make sure to
clearly outline the steps on how they can make a payment.
Electronic billing and payment systems can help centralize and resolve invoicing and
payment matters with your clients. For example, you can set automatic follow ups with
clients the first day a payment is late, then once each week until the account is settled.

6. Set up automations
Save yourself time and add consistency to your process by automating accounting
communications with your clients and reducing manual processes when possible. An account
receivable management software will take care of this for you.

7. Make payments easy for customers

Most payment issues you will encounter are because clients have trouble receiving, viewing,
or understanding your invoices, or because they don’t have access to quick and convenient
payment methods.
Did you know that 70% of payment reminders are technical and not Commercial? So, the real
issue here is not about the actual transaction but the mothod of payment. If you want to get
paid, it needs to be a straightforward thing to do. Remove any roadblocks in the customer
payment experience and streamline the process. The solution? Set up a system that partially
automates your AR process and makes it easy for customers to pay you. Consider adopting a
payment portal that allows you to structurally communicate all the information your
customers need in one go (amount due and method of payment).
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8. Involve all teams in the process

A recent survey asked if sales teams should be involved in cash collection. The results? 90%
of respondents answered no. This is surprising as this indicates that there exists a faulty
misconception about cash collection. The sales team should be an integral part of the cash
collection strategy as they need to ensure that the deals they close actually turn into cash and
working capital for the company. This doesn't mean that they are involved in the entire
collection process. Rather, the advantage is that they are in direct contact with customers at
critical collection touchpoints and this needs to be leveraged.
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DATA ANALYSIS AND INTERPRETATION

Financial analysts use several methods to analyze the quality of the accounts receivables of a
company.

• Receivable-to-Sales Ratio
• Accounts Receivable Turnover Ratio
• Days Sales Outstanding (DSO)

• Receivable-to-Sales Ratio

One simple method of measuring the quality of accounts receivables is with the accounts
receivable-to-sales ratio. The ratio is calculated as accounts receivable at a given point in
time divided by its sales over a period of time. It indicates the percentage of a company’s
sales that are still unpaid.

A high accounts receivable-to-sales ratio can indicate a risker company with a low quality
of accounts receivable since it is not expected that all the accounts receivable will be
collected.

• Accounts Receivable Turnover Ratio

Another method for assessing the quality of accounts receivables is to analyze a company’s
accounts receivables turnover ratio. Essentially, it is the inverse of the accounts receivable-to-
sales ratio, but with a slight adjustment. It is calculated as the sales over a period of time
divided by the average accounts receivables balance throughout that time.

The accounts receivable turnover ratio measures how quickly a company can turn its
accounts receivable into cash. A high ratio usually means a higher quality of accounts
receivables since it indicates that a company is turning receivables to cash faster.

• Days Sales Outstanding (DSO)

Lastly, a third method to measure the quality of accounts receivables is with the days sales
outstanding (DSO) ratio. It is calculated as average accounts receivables divided by sales,
multiplied by 365. The DSO ratio gives insight into the average number of days it takes a
company to convert its receivables into cash. Since it is in an understandable unit of measure
(days), it is sometimes easier to use, as opposed to accounts receivable-to-sales ratio and the
accounts receivable turnover ratio.

A shorter DSO means that the accounts receivables quality is higher since it means that a
company can receive cash from its accounts receivables quicker. While a DSO ratio that is
high – longer than 90 days – can be a sign that the receivables are becoming “stale” and may
not be collected, which reflects the poor quality of corporate earnings.
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• How data analytics and business intelligence helps in receivable management?

To increase working capital and revenue portions in the activities, a large number of firms
take credit to carry out their businesses as today’s business environment is framed like that.
Firms need to take care of their account receivables are safeguarded through periodic
monitoring and management of credit transactions. In efforts to generate credit, firms
exhaust all their resources generated by account receivables. A proper balance needs to be
established between the risk taken and the situation which may result in non-payment or
associated risk. Hence there is a dire need for good AR or account Receivable
Management.

Leveraging Analytics for AR

An effective AR management strategy allows the firm to take the most feasible aggressive
position for credit allocation, with non-payment risk constraints in check. This helps firms
in growing rapidly with low risk and provides them with a technical advantage in a similar
product and services market. A good strategy emphasizes on post billing factors with lesser
pre-billing factors, as they can be controlled by the AR department. It also helps in
providing solutions to questions like whom to follow up with at what time, mode of follow-
up, and escalation know-how.

Benefits of DA and BI integrated AR strategy:

• In-depth analysis: Using the modified AR strategy, historical trends, and response of
receivables after accounting, can be observed, making shifts in performance visible to
the front. Demography based analysis is also feasible revealing the percentage of
invoices paid on time and suggestions for better management of currencies, geography,
invoicing units, offerings, or simply sales reports. Defaulting clients can also be
segregated from the loyal ones.

• Cash Flow: Through Data Analytics and Business intelligence tools integrated into
the AR strategy, the Order to cash chain can be inspected, thorough which flaws or
objections could be identified. This helps in identifying overdue payments and reduces
AR balance. The major takeaway is awareness of customer-specific payment patterns
along with the implementation of a customized collection strategy. Through easily
implementable measures, the collections can be improved roughly 10-15% in a short
span.
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• DSO Prediction and minimization: Using complex statistical modeling of multiple

variables, DSO can be effectively predicted or forecasted. The outcome is a proactive
collection of funds, in place of a conventional reactive collection based on the aging of
AR balance. Through proper implementation of the strategy, DSO can be reduced in a
very short span, by reducing AR balance and resolve unauthorized deduction disputes.

• Credit risk: BI integrated Account Receivable Management, helps to assess the risk
profile of the customer and empowers the system to provide actionable intelligence
required for advanced warning and management. Through DA integrated AR strategy,
customers at risk of breaching credit limit thresholds can be identified along with
updates on the risk profile of clients turning worse in recent time along with suggested
solutions. Using both, active monitoring and upgrading risk profiles to make that
updated could be done.

• Predictive Analysis: Through Data Analytics and Business intelligence, firms can
identify whether their payments are at risk by leveraging predictive analytics
capabilities. The probability of recovery of long-overdue accounts receivables can also
be calculated, along with implications of changes in policy and the process.

• Bucket Analysis: Through research carried by DA and BI tools positions of

receivables along with their composition can be identified, along with crucial
parametric information such as risk exposure, particularly in events when receivables
will be attained beyond a threshold. Prediction on the requirement of writing-off or
transact to the collection in the future can be made through bucket analysis, along with
the list of top clients based on outstanding receivables.

1. Graphical Data on Receivables Summary :

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2. Graphical data on AR and Top 10 customers

3. Graphical data on Receivables by Top 100 customers

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4. Graphical Data on Bucket Analysis over time

5. Graphical Data on Credit risk management

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6. Graphical Data on AR, DSO and Cash realization

7. Graphical Data on AR for a Geography

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8. Graphical data on receivables by entity

9. Graphical data on Company Summary

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LIMITATIONS OF THE STUDY

Overdue invoices can impede cash flow and growth opportunities. Common challenges
include high DSO, ledger disorganization, poor communication, and inadequate
policies. Streamlining processes, offering multiple payment options, going paperless,
updating customer information, and automating AR can overcome these. A structured
credit policy can help identify suitable customers.

Most companies have an accounts receivable policy for when and how much to bill and
collect. But not all businesses execute that policy effectively. The average US business has up
to 24% of its monthly revenue in overdue invoices.

Outstanding accounts receivable bottleneck cash flow and drain the capital for growth
opportunities, buying equipment, and hiring staff. And that's just the tip of the iceberg.

A weak accounts receivable management process can cause several other unintended
consequences, including:

• Missed follow-ups on overdue invoices

• Writing off outstanding receivables as bad debt

• Errors on bills and invoices

• Incorrect payment allocation

This leads to less cash flow, meaning your operations and production may need to slow
down. Consequently, the organization may miss revenue targets while competitors continue
to grow.

The good news is that if you can identify accounts receivable management problems, you can
overcome them.

This guide will address four common accounts receivable challenges and offer actionable
solutions. We'll also share a few activities you can do within AR to free up cash and
strengthen your working capital.

What Are the Primary Accounts Receivable Challenges?

Credit is sometimes employed to gain loyalty and grow your customer base. But offering
these payment options without a proper plan can lead to cash-flow deficiencies and even
jeopardize operations. In particular, the Accounts Receivable team might face the following:

1. Above average Days Sales Outstanding (DSO)

DSO is the average time for credit sales to turn into cash. A high DSO means your clients
take too long to complete their debts, ignoring the agreed payment terms. If this KPI runs
higher than the industry's average, ensure the credit plans you offer are at most you can
afford. Getting a new protocol and financial planning in place is also wise.

While your customer relationship is essential — so is getting paid. There are other payment
option strategies you can use to keep customers happy.
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Ways to reduce your DSO:

1. Streamline your strategy. Set up a proper debt collection strategy to ensure every
invoice gets sent promptly, with clear payment terms. We recommend delivering
invoices digitally rather than by mail. Electronic invoicing speeds up billing and
collections. You can save more time by having customers set up autopay or recurring
payments.

2. Offer your customers multiple payment options. Research shows you're more likely to
get paid on time if you offer more ways to pay a bill. You'll get paid timely, increasing
the likelihood of the client becoming a repeat customer.

3. Encourage early or on-time payments. Offer incentives to encourage customers to pay

early and impose penalties for paying late. For example, offer a discount for paying
within ten days when your usual payment terms run up to 30 days.

2. Ledger disorganization
Keeping invoices organized is critical to know how much money you're owed, by who, and
when they're expected to pay. Poor AR management causes cash-flow deficiency, so having a
system that gives you complete visibility is crucial.

Ways to improve ledger management:

1. Go paperless. If you still need an ERP, invest in one. If you already have one, cut out
paper checks and put time into accounts receivable automation. Digitizing and
simplifying your accounts receivable process is vital to improving your ledger.
2. Keep your information centralized. At the same time, it's easy to fragment your
accounts receivable process. Using too many ERPs, invoicing, reporting, and payment
tools can cause more problems. It's hard for AR teams to match data from one system
to another, and reporting becomes a nightmare. Opting for end-to-end tools that help
the entire accounts receivable process is better.
3. Audit your AR process. Regular audits of master data help identify customers with
abnormal credit limits, payment terms, and discount rates.
4. Analyze your company spending. You want to know if any category isn't creating
value. Grouping certain expenses can help to understand how they benefit your
business.

3. Poor Customer Communication

Effective communication channels and points of contact are essential for timely payments,
especially at the beginning of any business relationship. Keep track of all the times you have
communicated with your customer and through what channels to maintain a healthy
information flow.

Ways to improve AR communications:

1. Update information regularly. Not updating records can lead to mailing invoices to the
wrong address, contributing to late payments. Businesses need to update their
customer data to avoid these problems.
2. Send invoices after signing the contract, payment terms, and due date. Then send
regular billing reminders tied to milestones like shipping dates, completion status, or
next due date.
3. Automate your AR process. Take advantage of accounts receivable automation tools
to set up an invoicing schedule. This way, you'll know when a customer will be
contacted.
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4. Lack of proper policies

The worst thing to do is undercut the business through impractical AR management policies.
It usually starts with someone suggesting credit incentives or adding new payment options
without considering its effect on the AR process.

But the hard truth is that not everyone may be the right fit for your product or service. A well-
structured credit policy can help you discern between those who would make great customers
and those who not. Revisiting and simplifying your AR policies is often worth it.

How Do You Solve Accounts Receivable Problems?

Finance teams can use many methods to strengthen customer relationships without
bottlenecking cash flow. Some examples are:

• Offering "Zero-Fee" payment options for preferred methods.

• Using a convenience fee to discourage unwanted payment methods.

• Automate sending invoices, reconciliation, and follow-ups.

• Accept only electronic payments.

• Use flat-rate payment processing plans to reduce costs.

• Enable customers to save their payment options securely.

• Provide automated, certified receipts to customers.

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SUGGESTIONS:

Follow these tips to improve accounts receivable collections in your business.

1. Systemize Invoicing and payment

Before you take action to collect a late payment, you have to be able to confirm the customer
received your invoice and give them a clear and easy way to pay.

Electronic billing and payment options (credit card, ACH, etc.) streamline this process in
real-time and prevent errors and complications that would keep your customers from paying.

2. Develop a new collection strategy

If you’re using a reactionary or ad hoc collections strategy, take some time to review and
systematize it. Consistent collection procedures will improve internal and external
communications, and help you respond more quickly to past due accounts.

We recommend you take an approach that combines automation with customization :

• Process reminders based on client balances, not invoices, so clients with multiple
invoices have a consolidated view of what they owe you at any time and aren’t
overwhelmed by due dates and reminders.

• Automate the first late-payment reminder with a personalized email that goes to the
customer the first day payment is late.

• Send later reminders more frequently with individuals, manual emails that addresses a
customer’s unique circumstances.

3. Ensure a Quality customer experience

Over-automation is a quick way to annoy your customers and turn them away. Avoid setting
up multiple automated payment reminders with form emails.

Instead of unpersonalized automation, use a receivable management tool that systematizes

your process to save you time internally, but personalizes workflows to give customers a one-
on-one experience.

Personalizing communications gives you the opportunity to communicate directly with your
customers, so you can determine what’s causing the non-payment and keep a good customer
relationship. That should drive how you proceed with collections, not a rigid, automated
process.

For example :

• If the problem is with the billing process, like sending the invoice to the wrong
contact or missing required information, you can quickly correct the issue and update
your systems to the correct process in the future.

• If the problem is technical, like the customer isn’t able to pay through your payment
processor, you can give them a new method to pay and ensure that’s included with
their bill in the future.
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• If they are delaying payment because of poor service or issues with the product,
communicate with your sales and customer service (or business development) teams
to more clearly understand the client’s experience and how you can remedy the
problem.

• If they are delaying payment because of cash flow problems, offer a payment plan and
adjust their payment terms and billing process in the future to accommodate their
business concerns.

4. Prioritize your collection efforts:

In your new collections process, prioritize accounts based on client balances, not
individual invoices. Look at your key AR performance metrics by client to segment them
based on easiest and most difficult to collect. This will help you get paid in a timely manner.

These metrics can help you prioritize clients in collection:

Aging report: Just like your DSO (days sales outstanding) can tell you the average amount of
time your company takes to collect payment overall (in number of days), you can use
individual client balances to spot delinquent accounts to focus on in your collection efforts.
This metric can help you determine which actions might be most effective with which clients.
The longer a balance remains overdue, the harder it’ll be to collect, so you might use this
metric to determine when to send debts to a collection agency. It can also help you prioritize
quick follow up with the least delinquent clients.

Average payment delay: At the client level, this metric can help you spot repeated problem
clients. Clients with a higher Average Payment Delay take longer to pay overdue balances.
Spotting these early can help you customize the client experience to reduce late payment in
the future. Through upfront billing, payment plans, or sending reminders when invoices are
still outstanding, you can set a more proactive collections plan for that account.

• Aging reports per account manager: Look at aging client balances segmented by
account manager to help you identify any issues elsewhere in the pipeline. For
example, if there’s an issue in the sales process with a particular AM, you can catch it
and fix it before you build up several delinquent accounts under that report.
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CONCLUSION :

In conclusion, “receivables management is the diligent tracking and methodical practice of

following up on and collecting payments” (Wertz, n.d). A company can properly manage its
accounts receivable if it knows what the accounts receivable turnover rate is and the average
collection period. By using this information, a company can evaluate its credit policy and
make changes to ensure a higher rate of accounts receivable turnover and increase its cash
flow.

From the finding it can be concluded that Ikongo enterprise uses a stringent receivables
management policy. The way receivables are managed profoundly affects profitability.
The researcher emphasizes that receivables constitute a significant portion of the firm’s
current assets and thus should be managed properly
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REFERENCES :

• Brigham, E. F. – Daves, P. R.:

• Intermediate Financial Management, Eighth Edition,
• Thomson South-Western, Ohio, 2004.
• Chambers, D. R. - Lacey, N.L.:
• Modern Corporate Finance, Hayden McNeil Publishing, Michigan, 2011,
• Maness, T. S. - Zietlow, J. T.: Short-Term Financial Management, Third Edition,
• Thomson South-Western, Ohio, 2005. Pinches, G.:
• Financial Management, Harper Collins College Publishers, New York, 1994.
• Shim, J. K. - Siegel, J. G.: Financial Management, Third Edition,
• Mc Graw Hill, New York, 2007.
• Hamilton, B. (2014, September 17).
• Harbour, S. (n.d). How to increase accounts receivable turnover.
• Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2016).
• Financial accounting: tools for business decision making (Vol. 8). Hoboken, New Jer
sey:
• John Wiley and Sons, Inc. Retrieved from Peavler, R. (2016, June 21).
• Wertz, D. M. (n.d).
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ANNEXURE
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