Fundamentals of Financial Management, Third Edition

10

Management of Accounts Receivable

OBJECTIVES

To assess the benefits and costs of maintaining accounts receivable

To show how the credit policy of a firm is designed

To show how customers are selected to whom credit facilities are to be granted

To explain how the credit level is monitored and controlled

A large part of the goods produced by a firm are sold on credit. As a result, accounts receivable emerge. They exist until they are converted into cash, that is, until the supplier of the goods receives payment for them. In accounting terms, accounts receivable are known as sundry debtors. However, the two terms are not entirely the same. Accounts receivable come into existence even when a firm makes advance payments to the supplier of the ...