CIMA F1 Syllabus D. Management Of Working Capital And Cash - Managing Receivables in Practice - Notes ^{1 / 12}

This is concerned with establishing the framework within which management of accounts receivable in an individual company takes place.

establishing terms of trade, such as period of credit offered and early settlement discounts:
deciding whether to charge interest on overdue accounts
determining procedures to be followed when granting credit to new customers
establishing procedures to be followed when accounts become overdue.

Assessment of creditworthiness depends on the analysis of information relating to the new customer.
This information is often generated by a third party and includes bank references, trade references and credit reference agency reports.
The depth of credit analysis depends on the amount of credit being granted, as well as the possibility of repeat business.

Once credit has been granted, it is important to review outstanding accounts on a regular basis so overdue accounts can be identified.
This can be done, for example, by an aged receivables analysis.
It is also important to ensure that administrative procedures are timely and robust.
For example sending out invoices and statements of account, communicating with customers by telephone or e-mail, and maintaining account records should utilise the ‘Credit Policy’ to receive, record, maintain, and most importantly, control credit sales.

Ideally, all customers will settle within the agreed terms of trade. I
f this does not happen, a company needs to have in place agreed procedures for dealing with overdue accounts.
These could cover logged telephone calls, personal visits, charging interest on outstanding amounts, refusing to grant further credit and, as a last resort, legal action.
With any action, potential benefit should always exceed expected cost.