Chapter 12


Accounts receivable are an important item in the balance sheets of most business concerns and must be carefully controlled to avoid excessive working capital requirements. Proper procedures and adequate safeguards on these accounts are essential not only to the continued success of the enterprise but also to satisfactory customer relationships. Control of accounts receivable begins before the agreement to ship the merchandise, continues through the preparation and issuance of the billing, and ends with the collection of all sums due. The procedure is closely related to cash receipts control and inventory control, acting as the link between the two. This chapter introduces ways to measure, manage, and control the receivables function.

Functions of the Credit Department

The credit manager should assist in stimulating business through a wise extension of credit and also keep bad debt losses at a reasonably low level. The credit manager is also responsible for collecting receivables. In detail, the credit department's tasks are to:

  • Establish credit policies. This involves such questions as the class of risk to accept, rigidity of credit term enforcement, and adjustment policies to be followed. These policies require constant adjustment, to reflect the impact of changing economic conditions on customers.
  • Investigate credit. This requires a continuous procedure for securing and analyzing information concerning the responsibility of present and prospective customers. ...

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