Receivables Management in a Public Limited Company - A Case Study

Abstract

No business can be successfully run without adequate amount of working capital which is concerned with two factors namely, current assets to be held and the type of assets and the methods by which these assets are financed. This occupies much of the finance managers’ time in taking decisions. Investment in current assets represents a very significant portion of the total investment in assets. The finance managers have to be very careful, while making any investment decisions especially short term i.e. working capital. Empirical results show that ineffective management of working capital is one of the important factors causing industrial sickness. There is a direct relationship between a firm’s growth and its working capital needs. As sales grow, the firm needs to invest more in inventories and debtors. The finance manager should determine levels and composition of current assets, which will help to run the business smoothly. Account receivables are one of the major components of working capital. Receivables are a direct result of credit sales. The sale of goods on credit is an essential part of the modern competitive economic system. The objective of credit sales is to promote sales and thereby achieving more profits. At the same time, credit sales result in blockage of funds in accounts receivable. Moreover, increase in receivables will increase the investments and also increases chances of bad debts. Hence, if the receivables is managed effectively, monitored efficiently, planned properly and reviewed periodically at regular intervals to remove bottle necks if any, the company cannot earn maximum profits and increase its turnover. With this as the primary objective of the study, the study made an effort to assess the receivables management. This study concludes that the efficiency of the receivables management of this company was satisfactory.