In the conditions of modern commercial relations between the manufacturer and the buyer, a situation may arise when the payment for the goods or services received is received on the company’s account late. Delay can be caused by various factors. Debts of customers, customers can accumulate. This leads to a slowdown in the turnover cycle, the inability of the enterprise to finance its activities.
To avoid negative consequences, the company management is obliged to accounts receivable control. This allows you to take the necessary measures to reduce it in a timely manner. How this process occurs should be known to every financial manager.
The concept of receivables
Control of receivables and payables performed by any enterprise, regardless of its scope of activity. This is necessary to ensure conditions for the normal functioning of all components of the company.
Debtors debt is part of the working capital of the organization. These are funds that are temporarily absent from the enterprise account. They are used for some time by debtors (debtors) in their activities. These are the property rights of the company, which are one of the objects of citizens.
The most typical example of accounts receivable is the debt of counterparties of a company who did not pay immediately after the shipment of goods, performance of work or services, their agreed value. Less often, a company receives such property rights in case of non-contractual obligations, for example, when causing material damage by individuals or legal entities.
The need for control
When working with clients, the issue of controlling their debt appeared naturally. It requires careful, attentive study. Accounting and control of receivables and payables relate to issues of financial stability of the organization, its security. Also, such a procedure affects the company's receipt of net profit, capital turnover and profitability of the business. Therefore, such an analysis cannot be neglected.
The control of accounts receivable allows the company management to respond in time to problems arising in this area. If counterparties do not pay their debts on time, the company cannot purchase the necessary materials for production on time, pay off its own debts for the services provided by other organizations.
The reverse cycle in this case slows down. The company's net profit is declining. All indicators of financial stability and stability are declining. As a result, the organization will fail. To prevent this, analysts and management should implement control of receivables and payables.
The consequences of a lack of control
Analysis and control of receivables must be performed at each facility. If management does not pay due attention to this issue, a number of serious problems arise.
The company is losing cash. If the buyer receives a deferment without good reason and the prospect of repayment of the debt, even in a court of law, he will not be able to repay his debt. This is serious damage to any organization.
Indicators of financial stability are also declining. The company will not be able to eventually pay off its tax obligations, pay salaries to staff, etc. The efficiency indicators of resource use are reduced.Funds that are in circulation, in fact, temporarily do not participate in production activities. They could be directed to the development of the enterprise, but at the moment this capital is absent.
With the growth of receivables, the company is gradually losing its business reputation and product competitiveness.
Control objectives
Accounting and control of receivables pursue certain goals. Counterparty debt management is necessary to limit their amount to an acceptable level. Also, control allows you to choose the terms of sales that guarantee timely receipt of payment after the sale of goods or services.
Analysis of receivables allows you to develop a specific approach to each client. For one group of buyers, a system of discounts is required, and for another, on the contrary, allowances.
Also, control allows you to quickly demand a return of debt, reduce budget debt. The manager will be able to assess the costs associated with managing debts, missed opportunities as a result of freezing funds in circulation.
Debt classification
Accounting and receivables control involve the division of debts into unexpired and overdue. The first category includes obligations of customers whose repayment period specified in the contract has not yet arrived. Also, this group includes debts whose lifetime does not exceed 1 month. They are associated with the normal process of making settlements (this is indicated in the agreement).
Overdue debt includes the amount of funds that the buyer should have already deposited into the seller’s account, but this did not happen. In this case, the company may sue its counterparty.
There is also such a thing as doubtful debt. In this case, the supplier of goods or services is not sure that the buyer will pay his debt. However, dubious and bad debts should not be confused. Accounts receivable of the latter type may be debited from the balance sheet of the enterprise, since the limitation period has already passed. Doubtful debts are accounted for by the enterprise until they become hopeless.
Control methods
Control of receivables at the enterprise made on the basis of an inventory of settlements with buyers and customers. This work is necessarily done by analysts before the preparation of the annual report.
However, an inventory of debts once a year is not enough. Problems can arise and accumulate over several months. Therefore, control measures should be carried out regularly. It is best to pay attention to this issue once a month. For some enterprises, it is recommended to inventory the debts of counterparties twice a month, due to the human factor.
Sales managers should be motivated by the principle of collecting money from customers. Financial control of receivables is also required. This allows you to return to circulation a significant amount of funds.
activity
Accounts receivable control system based on certain activities. They are conditionally divided into two groups. The first category includes organizational measures, and the second - the assessment of various debtor debt indicators.
In order to carry out organizational activities, an employee is appointed who is responsible for monitoring. Most often it can be an internal auditor or an auditor.
After that, the manager sets the key dates on which the relevant indicators will be evaluated. The conditions for granting a deferment, as well as its documentation, are being developed. The regulation is controlled by the person responsible for the audit.
The amount of receivables should be considered in the motivation of sales managers. For all counterparties, credit limits are set. For the state of receivables must be responsible commercial director.
Technical support
To perform internal control of receivables, many enterprises use special computer programs. They greatly simplify the process of data processing. The most popular at the enterprises of our country is the 1C program. With its help, you can create a register of debtors, as well as monitor aging of their debt obligations.
If managers keep records of debts in such a program, they will be able to track which buyers have accumulated debts relatively recently and which they are already significantly outdated.
For this, it is necessary to generate an appropriate report in the program. In it, receivables will be sorted by the date of its occurrence. Counterparties whose debt was formed a week, two weeks, a month and a year ago may appear in the report. Given the type of activity of the enterprise, the data obtained is classified as old or fresh debt.
Score indicators
Account receivable control is based on certain indicators. During its implementation, it is necessary to prepare a debt budget for each counterparty (using the program). At the end of each month, the collection rate is calculated. This will allow us to estimate the share of paid goods in the total volume of goods shipped.
Based on the terms of contracts with counterparties, a debt repayment plan is drawn up. The dynamics of the counterparty debt turnover ratio is monitored.
Based on the data obtained, the duration of the debt turnover of debtors is also calculated. This analysis allows you to evaluate the effectiveness of credit control, to determine the degree of reliability of counterparties.
Internal problems
Account receivable control must be run by an experienced analyst. At the same time, it is possible to find internal problems that could have caused debts. Perhaps the employees responsible for the sales do not adhere to the established standards for the provision of deferred payments. The facts of the obvious fraud of company employees also happen.
So, for example, in order to receive a bonus at the end of the month, the employee responsible for sales seeks to include more sales means in the report. Therefore, he may ask the client to buy the product fictitiously. That is, the customer does not transfer the funds, but as if he had shipped a consignment of goods. These funds are credited to the buyer. The manager receives his bonus, and the client receives the opportunity to raise additional funds in circulation. Moreover, the customer can also pay a certain premium to the sales manager for this. In this case, the company loses.
Credit limit
Account receivable control can return a significant amount of money into circulation. To prevent possible damage to the activities of the company, an approach is used that involves setting a credit limit. This is the level of receivables that will be safe for the company.
Moreover, the credit limit is set both for the organization as a whole and for each counterparty individually. A similar limit can also be set for each sales department. They are distinguished by industry principle. The credit limit is set in accordance with the amount of revenue for the last month that the unit brings. This indicator is approved by the general director of the organization.
Account receivable control necessary for every enterprise. This allows you to increase the profitability and financial stability of the organization.