Short-term debt - an indispensable attribute of the business.Quite often, clients have problems with the presence of liquid funds, and are forced to sell goods on credit.In addition, the loan is usually a kind of bonus, allowing to attract buyers.
Thus, the existence of receivables for the company is quite commonplace.However, it should be at a manageable level, otherwise the company will simply provide free loans to their customers, as well as experience a shortage in their own cash.That is why a large enough value is an indicator such as the accounts receivable turnover.His analysis reveals, if the company does not abuse the issuance of commercial loans, as well as how effective it is to the credit policy.
Receivables turnover is determined simply.To calculate the sales should be divided by the average receivables of your company for a year.This indicator will show you what percentage of the money that should have come to you to account for goods delivered or services rendered, was issued in the form of trade credit to customers of the enterprise.
too low receivables turnover is dangerous for two reasons.In the first place, so you broke up with their own capital, which could be used for other purposes.Do not forget the time value of money.The funds do not bring profit, as is the case with trade credit, evidence of loss of profits, especially if the amount of the receivable is great.You could use them for the development of the company or just put in the bank at interest.
In addition, funds frozen because of the receivables could be used by companies for their own needs.Instead of the same company sometimes has to borrow, which means that financial institutions pay the appropriate fee that is direct evidence that the accounts receivable the company bears losses.
In addition, the sale of goods on credit is fraught with the loss of money due to debt write-offs.The reasons can range from bankruptcy to an elementary failure to pay.Such distressed debt unites article "doubtful receivables", on which occur regularly written off.Of course, the more credit you give and how a longer period, the greater the risk that you are not check your customer and provide questionable loan companies.
Thus, it is obvious that the accounts receivable turnover should be maximized.If you do not want to lose customers unsatisfied obligation to pay for goods or services directly, you can enter the minimum purchase amount below which the loan is issued.Besides the fact that you reduce the total number of debtors, you also create an additional incentive for your customer for bulk purchases.Also, do not forget that it is the buyers who buy small amounts, usually overstay charges.
Reduced receivables can also be accomplished by reducing the maximum period for which issued the commodity credit.Typically, customers pay on the last day, so it makes no sense to specify the maturity from 1 to 6 months.Two months will look much better.And do not forget that you need to carefully monitor each debtor and to work with each individually - only then will you be able to maintain the condition of your receivables at an optimal level.
