Accounts Receivable and Inventory Management

ACCOUTS
RECEIVABLE AND
INVENTORY
MANAGEMENT
Report By: Manuelito David
Professor: Mrs.Teung
Account receivable amount of money owed to
a film by customer who have bought goods or

service on credit. A current assets, the
account receivable account is also called
receivables.
Credit and Collection Policies

Economic conditions, product pricing, product
quality, and the firms credit policies are the

chief influences on the level of firms accounts
receivable.
These influences are largely beyond the control of
the financial manager.

Credit policy can have a significant influence on
sales.
Credit Standards
The minimum quality of creditworthiness of a
credit applicant that is acceptable to the firm.
Credit Terms
Credit Period specify the length of time over which
credits is extended to a customer and the discounts,

if any, given for early payment.
Cash Discount Period the period of time during
which a cash discount can be taken for early
payment.
Cash Discounts a percent (%) reduction in sales or
purchase price allowed for early payment of invoices.
Seasonal Dating credit terms that encourage the
buyer of seasonal products to take delivery before the
peak sales period and to defer payment until after the
peak sales period
Collection Policy and Procedures

The firm determines its overall collection
policy by the combination of collection

procedures it undertakes.
These procedures include such things as
letters, faxes, phone calls, personal visits, and

legal action.
One of the principal policy variables is the
amount of money spent on collection

procedures.
Credit and Collection Policies

*SUMMARY*
We see that the credit and collection policies of firm involve
several decisions:
1) The quality of the account accepted;
2) The length of the credit period;
3) The size of the cash discount given;
4) Any special terms, such as seasonal datings;
5) The level of collection expenditures.
Business Finance
The company implemented the following
initiatives:
A redesigned, rigorous collection process with

increased customer contract to enforce agreed payment
terms.
A formal, documented, dispute-management process to
replace the ad hoc process.
Redesigned reports to enable management to monitor
progress of receivables management and identify serious
risks.
An incentive plan for collection staff to spur
performance.
Technological enhancements to automate the collection
Analyzing the Credit Applicant

1) Obtaining information on the applicant.
2) Analyzing this information to determine the
applicants creditworthiness.
3) Making the credit decision.
Sources of Information
A number of services supply credit
information on business, but for some

accounts, especially small ones, the cost of
collecting this information may outweigh the
potential profitability of the account.
Sequential Investigation Process the
amount of information collected should be

determined in relation to the expected profit
from an order and the cost of investigation.
Credit-Scoring Systems a system used to
decide whether to grant credit by assigning

numerical scores to various characteristics
related to creditworthiness.
Credit Decision and Line Credit a decision
must be reach about the disposition of the

account. A limit to the amount of credit
extended to an account. Purchaser can buy on
a credit up to that limit.
Outsourcing Credit and Collections the
entire credit/collection function can be
outsourced. Ledger accounts are maintained,
payments are processed, and collection
efforts on tardy accounts are initiated.
Classification: What to Control?

ABC method of Inventory control method
that controls expensive inventory items more

closely than less expensive items.
Economic Order Quantity: How much to

Order?
Economic Order Quantity (EOQ) the
quantity of an inventory item to order so that

total inventory costs are minimized over the
firms planning period.
Optical Order Quantity steady demand no
safety stock.
Order Point: When to Order?

The quantity to which inventory must fall in
order to signal a reorder of the EOQ amount.

Lead Time the length of time between the
placement of an order for an inventory item is
received in inventory.
Order Point the quantity to which inventory
must fall in order to signal that an order must
be placed to replenish an item.
END

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ACCOUTS

Account receivable amount of money owed to

a film by customer who have bought goods or

Credit and Collection Policies

quality, and the firms credit policies are the

These influences are largely beyond the control of

the financial manager.

credit applicant that is acceptable to the firm.

credits is extended to a customer and the discounts,

Collection Policy and Procedures

policy by the combination of collection

letters, faxes, phone calls, personal visits, and

amount of money spent on collection

Credit and Collection Policies

A redesigned, rigorous collection process with

Analyzing the Credit Applicant

information on business, but for some

Sequential Investigation Process the

amount of information collected should be

Credit-Scoring Systems a system used to

decide whether to grant credit by assigning

Credit Decision and Line Credit a decision

must be reach about the disposition of the

Classification: What to Control?

that controls expensive inventory items more

Economic Order Quantity: How much to

quantity of an inventory item to order so that

Optical Order Quantity steady demand no

Order Point: When to Order?

order to signal a reorder of the EOQ amount.

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