Page 65 - DBP5043
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RECEIVABLES MANAGEMENT
CONCEPT AND CREDIT POLICY
Many firms sell on credit in order to get more customers and
expand the market. When goods are sold, the stock will decline
and account receivables will increase. Increase in account
receivables causes the company not to have cash surplus due to sales
are made on credit.
Cash can only be obtained when payment has been made by the
debtors.
The relationship between account receivables and cash is inverse.
Cash will be used to buy stock and then it will be sold on credit.
Due to that, cash will be reduced because of high credit sales.
Account receivables is dependent on 2
factors:
1 2
Average
collection Level of
period credit sales
