Question

Establishing an effective account receivable management strategy is a crucial part of running a successful business. Do you agree that business owners should make the policy related to accounts receivables dynamic rather than fixed? Discuss.

Answer 1

Accounts receivable means the amount of money on which the company has the right to receive after certain period of time for goods and services sold on credit.

The word receivable stands for payment not received.It represents the credit facility extended by organisation. Generally , the credit period is short ranging from a month or two in a year.

Accounts receivable are important for the organisation as they are assets for the companies similar to cash in hand which are part of working capital required for smooth functioning of business.

Accounts receivable management.
It is the process that ensures that customer make payment of their dues in time.

Management is not only about reminding and collecting amount from customers, but it also helps in analyses and to identify the reason for delay and their solution are provided to the organisation.

Accounts receivable management is helpful to organisation in various ways like:

• It prevents overdue or non payment of pending amount from customers.
• It help the organisation from running out of working capital at any point of time.
• A good system developed increases the profitability for business by reducing the risk of bad debts.
• It also helps in building financial and liquidity position of business.

  
In today's business environment, where there is a competition among sellers to attract maximum number of buyers for the products and services it is better to have a flexible accounts receivable management system.
And also to form policies that are dynamic in nature.

The dynamic policy should involve following points :

1. Credit rating: the credit period of customer should be based on their credit rating rather than the amount of purchase they are making.
2. Continuous monitoring : the customers financial position should be regularly monitor to ensure that his ability to pay the amount is solid.
3. Customer relations : the organisation should always be in communication with customers and their problem should be resolved timely.