MANAGING ACCOUNTS RECEIVABLE Presented by Shaheil Hussein Rejieli

MANAGING ACCOUNTS RECEIVABLE Presented by: Shaheil Hussein & Rejieli Rokosalu.

Objective Ø Understand debt behavior and models Ø Dispute Management Ø Reporting leverage indicators to management.

RE-CAP • 1. 2. 3. Types of Accounts Receivables - short term credits - 30 -60 days Note Receivable - Longer term - May be 1 year or more - Government Bonds Other Receivables - Income Tax Refund - Vat Refund

WHY DO CUSTOMERS SELL ON CREDIT? • • • Create sale Keep the business flowing Competition Cash control Most people or clients do not have cash at the same time.

RECEIVABLE WRITE- OFFS • Direct write-off ( not allowed by GAAP) - bad debt expense recorded when account determined to be worthless. - Sufficient evidence that the company will not pay - accounts is more than 7 years - owner dead - company liquidates - ghost debtors - no records. - it affects financial statements

• Allowance Method - bad debt expense estimated at the end of accounting period. - method allows time for debtors clerk to recover bad debts. • Affects income statement. Bad debt expense is estimated by taking a percentage of overdue accounts.

3 steps for managing receivables 1. Screening customers 2. Determining credit terms (30 days) 3. Monitoring Collections

ACCOUNT RECEIVABLE TURNOVER • AR TURNOVER= Net Sales/ Average Accounts Receivable • Measures how frequently accounts receivable are collected. • Based upon collection improvement – how many times or faster collections are made.

DAYS IN SALES • Estimates the length of time accounts receivable have been outstanding on average. • Days in Sales= Avg AR/ Avg Daily Sales. • Comparability • Indicates weaknesses and Strengths • Lesser the days the more effective the company is.

INTERNAL CONTROL • • • Existence and Occurrence. Completeness Accuracy Valuation Separation of duties Rights

COLLECTION PROCEDURES 1. Initial contact within 7 days of delinquency. 2. Reminder letter followed by phone call 3. Sales force notified 4. Propose for suspension. 5. Last resort reference to collection agency - Data Bureau

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