A Study on Receivable Management of The Salem Co-operative Sugar Mills Limited

Accounts receivable represent sales that are made on credit – the payments for goods are made sometime after delivery or change in legal possession. The level of accounts receivable is a function of the level of sales, the credit terms, the riskiness of the individual customers given credit, and any seasonal influences. Although the total figure of accounts receivable may be constant over time, its individual component items are continually changing and these, therefore, need careful recording and monitoring. Apart from certain retailers such as supermarkets or small shops, most companies offer credit to their customers, and by doing the business providing a financial service as well as the basic goods or other services. Such credit terms are desired by customers as they may be short of ready cash at that moment in time, or they can earn a return on the cash held during the period of credit. By making the credit terms more attractive, management can increase sales turnover; granting credit also involves costs of the finance, increased administration expenses and the probabilities of bad debts occurring. The management of accounts receivable is concerned with trade-off between the profits from increased sales generated by credit policies.