Working Capital Management

CHAPTER 6 Accounts Receivable and Working Capital Issues

This chapter covers these topics:

• Consideration of appropriate policies for receivables management.
• Evaluation of the impact of float on receivables.
• Understanding of how to use ratios and aging schedules in managing receivables.
• Learning about specific receivables issues, including sales financing and credit reporting.
• Evaluations of terms of sale, invoicing practices, and factoring in receivables decisions.

OUR DISCUSSION SO FAR has focused on cash as the first issue to address in managing working capital. This chapter discusses accounts receivable while Chapter 7 reviews inventory, the two significant current asset accounts besides cash. Finally, in Chapter 8 we review accounts payable, the significant working capital current liability.

Managing receivables would appear to be a relatively simple matter: Send out a bill and get paid. If payment is not made, plead, threaten, or—when all else fails—sue! However, the float consequences of poor receivables management are potentially so devastating that this should be a high priority for a company. With cash, we measured float improvement in days. With receivables, it is often measured in weeks.

ELEMENTS OF RECEIVABLES MANAGEMENT

There are various important elements in establishing a program to manage accounts receivables, including establishing policies and organizing a business for the implementation of these policies, both of which are discussed in this section. We ...