Page 157 - F3 -FA Integrated Workbook STUDENT 2018-19

Receivables

1.2 Aged receivables analysis

When credit facilities are offered to customers, it is normal for an entity to maintain an
aged receivables analysis. Analysis is usually by a list, ordered in account name,
showing the total owed by each receivable and analysed according to age.

 The credit control function of an entity uses the analysis to keep track of
outstanding debts and follow up any that are overdue.

 Timely collection of debts improves cash flow and reduces the risk of
receivables becoming irrecoverable.

1.3 Credit limits

It is also normal for an entity to set a credit limit for each customer. This is the
maximum amount of credit that the entity is willing to provide to the customer.

The use of credit limits may:

 reduce risk of irrecoverable debts to the entity by limiting the amount sold on
credit

 help build up the trust of a new customer

 be part of the credit control strategy of the entity.

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