Working Capital Management

Working Capital Management (WMC)

Collection Experience

We talkd about Credit Analysis. we talked the business magazines generally carry the detailed analysis of financial statements and inter-firm comparison of companies in the same industry. This information would be useful in assessing the market conditions of a particular industry. The company can then explore about the credit worthiness of customer through the references provided by him. Additional information may also be obtained by interviewing the customer or visiting his place of work.

In additional to setting the credit standards, credit period, and cash discount policy, it is also important for the company to design the collection policy and procedures so as to speed up the collections as and when become due. What would the company do if the customers do not pay within the set credit period? In this regard the company has to assess the chances of collecting the accounts receivable by putting some effort. If by putting small effort the chance are that the customer will pay his bill are high then the company should go ahead with that much of effort. In situations when the chances of collecting the money are considerably less than the company should explore other ways of collecting the money. Credit Cards or business credit cards collections are easier and require less effort.

The company can use number of methods to speed up the collections. Letters and telephone calls are the easiest one and least expensive. The company may design a policy of sending a letter few days before the payment becomes due. Depending upon the situation the company can call the customers on telephone just before the due date. A visit to customer may prove to be effective when the bills are overdue. Legal action should be treated as the last resort. Before that the company should try to understand the problems of the customer and if the company finds that the integrity of the customer is at doubt, they should resort to legal action. Pre-paid debit cards are better alternative for low interest credit card. On that basis the company can find out whether the particular debt should be treated as doubtful and should be writer off or not.

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August 7, 2008 - Posted by | Credit Analysis, Credit Repair, Credit Rport, Current Assets | , ,

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