–          Companies usually find it necessary to hold accounts receivable and inventory stocks.


–          Inventories are handled similarly to cash (but with the cost of shortages considered).

–          A higher level of receivables promises more credit sales and thus more customers willing to purchase, but also portends to longer waits until the actual receipt of cash from a sale and a higher likelihood of never being paid (bad debt).

–          One issue in the investment in receivables is the deterioration in the quality of customer credit accompanying an increase in the amounts owed to the company. Ways of discerning who should receive credit:

  1. Credit-reporting agencies supply information to a company at a cost.
  2. A company’s own records of customer payment histories can yield useful information about the likelihood of a customer paying.
  3. Sophisticated statistical analysis (i.e. discriminant analysis).

–          At some point rejecting the marginal customer ceases to be worthwhile. This is the point where incremental expenditure for search and evaluation exceeds the expected gain from discriminating.

  1. If company accepts everybody – Expected Profit = (# of good customers x profit per customer) + (#of bad customers x loss per customer).
  2. If company performs a credit analysis – Add (- the cost of the credit analysis).

–          Caution: a company who accepts everybody must keep it private or else the ratio of bad to good customers will rise.

–          One other approach to the management of receivables is to calculate the NPV associated with a proposed change in credit terms for a company, or; NPV = Change in PV of sales receipts – change in the variable costs – change in working capital management.


The following two tabs change content below.
We, at BMS.co.in, believe in sharing knowledge and giving quality information to our BMS students. We are here to provide and update you with every details required by you BMSites! If you want to join us, please mail to [email protected]
  1. https://shop-net.pl/ 2 months ago

    … [Trackback]

    […] Read More Info here to that Topic: bms.co.in/what-is-management-of-receivables/ […]

  2. https://nowawrozka.pl/ 2 months ago

    … [Trackback]

    […] Read More Information here to that Topic: bms.co.in/what-is-management-of-receivables/ […]

  3. … [Trackback]

    […] Information on that Topic: bms.co.in/what-is-management-of-receivables/ […]

  4. togel singapura 3 weeks ago

    … [Trackback]

    […] There you will find 50054 additional Info on that Topic: bms.co.in/what-is-management-of-receivables/ […]

Leave a reply

Your email address will not be published. Required fields are marked *



BMS.co.in is aimed at revolutionising Bachelors in Management Studies education, also known as BMS for students appearing for BMS exams across all states of India. We provide free study material, 100s of tutorials with worked examples, past papers, tips, tricks for BMS exams, we are creating a digital learning library.

Disclaimer: We are not affiliated with any university or government body in anyway.

©2020 BMS - Bachelor of Management Studies Community 

A Management Paradise Venture

Ask Us On WhatsApp

Log in with your credentials


Forgot your details?


Create Account