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CORPORATE MANAGEMENT OF FINANCIAL AND ECONOMIC ACTIVITIES
Systematic approach to receivables management
N. F. Mormul, S. A. Enikeeva
National Research University "MIET"
The main approaches to the definition of the terms "accounts receivable" and "accounts receivable management" are considered, a systematic approach to the management of receivables as an integral part of the management of current assets of an enterprise through the implementation of the main management functions (planning, control and evaluation, regulation and motivation), the relationship of which presented as a feedback system. In addition, the content of each control function is briefly outlined.
Key words: accounts receivable; receivables management; credit policy; systems approach.
In modern economic conditions, most enterprises are experiencing a shortage of financial resources, which actualizes issues related to their formation, optimal placement and effective use.
The current state of mutual settlements of enterprises is characterized by a high share of receivables in the structure of their current assets. This may cause a decrease in financial stability and solvency, an increase in the cost of debt collection and, as a result, a decrease in the profitability of the capital used. In this regard, the improvement of accounts receivable management becomes one of the main tasks of financial management.
In domestic and foreign literature, different definitions of the essence of receivables are accepted. Some authors think that it
© Mormul N. F., Enikeeva S. A.
represents a debt to the organization of various legal entities and individuals arising in the course of economic activity. Others mean by it the obligations to this enterprise arising from other organizations and (or) individuals in connection with the provision of products, performance of work and provision of services. The definition of an obligation is given in Article 307 of the Civil Code of the Russian Federation: “By virtue of an obligation, one person (debtor) is obliged to perform a certain action in favor of another person (creditor), such as: transfer property, perform work, pay money, etc., or abstain from a certain action, and the creditor has the right to demand from the debtor the performance of his obligation.
In accounting, receivables, as a rule, are understood as property rights, which are one of the objects of civil rights. Article 128 of the Civil Code of the Russian Federation
states: “Objects of civil rights include things, including cash and documentary securities, other property, including non-cash funds, book-entry securities, property rights; results of work and provision of services; protected results of intellectual activity and equivalent means of individualization (intellectual property); intangible goods". Consequently, the right to receive receivables is property, it itself is part of the assets of the enterprise, which means that as an asset it must meet the following conditions: bring economic benefits in the future; be at the disposal of an economic entity, which could freely use it at its own discretion or sell it; be the result of past transactions.
A number of authors consider receivables from the standpoint of marketing: as a tool to stimulate demand. Under the influence of market competition, enterprises seek to attract as many buyers as possible by providing them with a deferral (installment plan) of payment for purchased goods, which benefits in the form of increased sales. At the same time, receivables are expected and planned within the framework of the credit policy of the enterprise. However, the evaluation of the effectiveness of the use of receivables as a marketing lever that increases the demand for products (works, services) and sales remains one of the unresolved methodological problems.
Within the framework of another approach, receivables are treated as a commodity credit provided by the enterprise to its debtors. The amount of accounts receivable shows
the amount of funds diverted from the turnover of the enterprise and in circulation with the debtor. Article 823 of the Civil Code of the Russian Federation states: “Contracts, the execution of which is associated with the transfer of money or other things determined by generic characteristics to the ownership of the other party, may provide for the provision of a loan, including in the form of an advance payment, prepayment, deferment and installment payment for goods, works or services (commercial credit), unless otherwise provided by law.
Accounts receivable, in accordance with IAS 32 "Financial Instruments: Presentation", is a financial asset that represents financial claims that give their owner the right to receive payment, i.e. the contractual right to demand cash or another financial asset from another company .
There is also a well-known interpretation of receivables as a form of investment: enterprises, providing a deferment (installment plan) of payment for sold products (works, services), lend to their counterparties, counting on additional revenue, and thereby form a risky environment for non-performing commodity loans with long settlement periods.
A number of domestic and foreign economists attribute receivables to the tools for managing the working capital of an enterprise. From these positions, it represents an investment of funds and the expansion of sales on credit in order to increase the volume of sales. This approach rather describes the properties of receivables, rather than reveals its essence.
The variety of approaches to the definition of receivables indicates its impact on various aspects of the enterprise.
In the scientific literature there is no unambiguous interpretation of the concept of "receivables management". Modern authors agree in understanding the purpose of this process: optimization of the level of receivables is recognized as such. However, its growth is not always a problem for the enterprise. If it expands its activities, increases the volume of sales, then the number of buyers increases and, accordingly, receivables may increase. In this case, the presence and growth of only overdue receivables will be undesirable, since this increases the financial risks of the enterprise associated with non-payment of the principal debt, as well as with the diversion and freezing of working capital. Representatives of the American school of economics Y. Brigham and L. Gapensky believe that the optimization of the amount of receivables should ensure the achievement of a balance between the desire of the enterprise to maximize its net cash receipts for a certain period and minimize the costs associated with maintaining the amount of receivables at a certain level. They also offer mechanisms to influence its value through credit policy.
Despite a common understanding of the goal of receivables management, in the scientific literature there is no unity of views on how to achieve it.
So, E. S. Stoyanova considers receivables management as part of the working capital management system and offers two approaches to this process:
1) comparison of the additional profit associated with a particular scheme of spontaneous financing, with the costs and losses arising from a change in the policy of product sales;
2) comparison and optimization of the terms of receivables and payables.
According to P. Khitrov, the main stages of receivables management include planning its size, managing credit limits for buyers, controlling receivables and motivating employees.
The most complete list of management activities is presented by G. M. Kolpakova: it includes a financial analysis of the activities of the supplier enterprise, the development of a credit policy for the enterprise, the decision to grant a loan, insurance of receivables, control of the shipment of products, control over the financial condition of debtors and collection measures accounts receivable.
Professor V. V. Kovalev focuses on such a component of the receivables management process as the development of an enterprise's credit policy.
Analysis of the above approaches to the management of receivables indicates the lack of consistency in their implementation. In our opinion, receivables management, like any process of managing any object, involves the implementation of basic management functions (planning, control and evaluation, regulation and motivation). The implementation of each of them requires the implementation of calculation and analytical procedures, i.e., the analysis function, one might say, permeates the entire management process.
The receivables management process can be implemented as a feedback system. This approach is based on the principles of automatic control theory, when it is necessary to set (formulate)
the required state of the system, then ensure control over its observance (monitoring), analyze and evaluate the emerging deviations from the specified state and, if necessary, implement regulatory actions in order to timely eliminate the deviations that occur or correct the required state level.
In this case, the main task of the planning function will be to determine the required state of the system, i.e., the calculation of the expected amount of receivables (ARac):
DZras, "= LG ^ ™" - S / C ■ +: 360,
where -LT is the planned volume of re-
product leasing on credit; C / C - the ratio of the cost and price of a unit of production;
about - the average period of provision
credit to buyers, in days; -
average period of delay in payments on the granted loan, in days.
If the financial capabilities of the enterprise do not allow investing the estimated amount of funds in receivables, it is necessary to adjust the credit conditions or the planned volume of sales of products on credit, therefore, the calculation of the expected amount of receivables (DZrasch) should be preceded by a set of works called the formation of the credit policy of the enterprise. It includes:
Development of debtor creditworthiness standards;
Establishment of terms for granting loans;
Determining the conditions and amounts of discounts and penalties (markups) charged;
Creation of a payment collection system;
Creation of a system of reserves for doubtful debts.
The credit policy can be conservative, moderate or aggressive, depending on the operating conditions of the enterprise, and requires periodic adjustments.
When determining the type of credit policy, it should be borne in mind that the conservative type has a negative effect on the growth of sales volumes and the formation of stable commercial relations, while the aggressive type can cause excessive diversion of financial resources from the enterprise's turnover, increase debt collection costs and, as a result, reduce profitability his assets.
The implementation of the control function requires monitoring and analysis of the state of receivables based on maintaining a payment calendar and comparing it with the schedule of expected cash receipts from debtors in order to prevent the formation of problem debts.
Comparison of the data of the schedule and the payment calendar makes it possible to assess the state of the parameters of receivables and choose methods of influencing them, i.e., to implement the regulation function.
In most cases, the implementation of the motivation function is associated with the stimulation of employees of the commercial divisions of the creditor enterprise and is based on the possibility of redistributing credit limits. The departments that provided the enterprise with the highest amount of margins with the minimum delay in payment and thereby increased sales volume receive a reward in the form of a fixed percentage of this volume. At the same time, if the credit limits allocated to departments are exceeded, managers are subject to a fine in the amount of the product of the amount of exceeding the credit limit by the percentage of the enterprise's profitability. However, this can be influenced
only on the motivation of employees of creditor enterprises, while in the implementation of the motivational function it is necessary to take into account the motivation of debtors to fulfill contractual requirements for timely payment for delivered products.
Thus, the proposed approach is systematic, since all management functions are interconnected, which provides a holistic view of the issues of receivables management.
Literature
1. Civil Code of the Russian Federation (Civil Code of the Russian Federation) // Codes and laws of the Russian Federation: legal navigation system [Electronic resource]. URL: http://www.zakonrf.info/gk/ (date of access: 04/02/2015).
2. International Financial Reporting Standard (IAS) 32 “Financial Instruments:
presentation of information” // IFRS FM [Electronic resource]. URL: http://msfofm.ru/ifrs?id=333 (date of access: 04/02/2015).
3. Brigham Yu, Gapensky L. Financial management: in 2 volumes. St. Petersburg: School of Economics; M.: Higher School of Economics, 1997. T. 1. 497 p.; T. 2. 669 p. (Open book - open mind - open society).
4. Financial management: theory and practice / Ed. E. S. Stoyanova. 6th ed. M.: Prospect, 2006. 656 p.
5. Khitrov P. Accounts receivable management // Financial director. 2005. No. 12. S. 22-30.
6. Kolpakova G. M. Accounts receivable management. M.: MIET, 2000. 72 p.
7. Kovalev VV Managing the company's assets. M.: Prospekt, 2007. 388 p.
Mormul Nina Fedorovna - Candidate of Economic Sciences, Associate Professor, Professor of the Department of Economics and Management (E&M) of MIET. Email: [email protected]
Enikeeva Stella Anatolyevna - Candidate of Economic Sciences, Associate Professor of the Department of E&M MIET. Email: [email protected]
Erofeeva V.A.,
e. PhD, Professor of the Department of Accounting
Smolyakova N.O.,
Competitor of the Department of Accounting
St. Petersburg Institute of Trade and Economics,
In modern economic conditions, characterized by a crisis of non-payments and the growth of mutual debts, the problem of managing accounts receivable is of particular importance. The reason for this was the financial crisis, which gave rise to a number of factors: the disruption of existing economic ties, the decline in production, the bankruptcy of enterprises, which led to failures in settlement and payment transactions between economic entities, an unreasonable and uncontrolled increase in accounts receivable and, as a result, a significant increase in risks in case of sales of products with deferred payment.
As you know, in the formation of accounts receivable, which is a kind of debt obligations and determined by the presence of a temporary gap between the sale of goods and / or the provision of a service and its payment, there are two reasons: the first is associated with the provision of a deferral (installment plan) of payment for shipped products to buyers, and the second - with the implementation of advance payments by the organization itself.
Naturally, any enterprise is interested in selling its products with immediate payment, but fierce competition forces it to respond to changes in the external environment, build a flexible policy for lending to customers, providing a deferred payment. At the same time, the enterprise itself, fulfilling the terms of contracts with its counterparties, makes advance payments against future deliveries, which also leads to the formation of receivables.
Accounts receivable not repaid on time leads to the diversion of funds from the economic turnover of the enterprise, giving rise to such problems as a shortage of monetary assets, an increase in the risk of non-payment of obligations, the need to attract external forms of financing current activities in the form of bank lending and interest payments, which in turn ultimately leads to a decrease in the profitability of the business, and in some cases to a threat to the existence of the company.
Since receivables have a significant impact on the size and structure of current assets, liquidity and solvency indicators, as well as on the financial condition of the organization as a whole, an important task of its viability is to increase the efficiency of receivables management.
In modern economic conditions, the organization's accounts receivable management should be carried out on the basis of a systematic approach, which consists in the complex application of interrelated and interdependent procedures aimed at:
- for a comprehensive analysis of receivables;
- synchronization of cash receipts and payments;
- determination of the amount of funds allocated for investment in receivables;
- formation of a credit policy in relation to buyers;
- development of a procedure for collection of receivables;
- expansion of the practice of using alternative methods of repayment of receivables;
- creation of a motivation system for personnel involved in the process of receivables management;
- formation of an effective system of control over the movement and timely collection of receivables.
At the first stage of managing the accounts receivable of the organization, it is necessary to analyze it for the period preceding the reporting period.
First of all, the legal validity of the transaction is subject to verification, and only then are the level, composition and dynamics of receivables, as well as the effectiveness of the financial resources invested in it, analyzed. The initial information is accounting data on debts of counterparties, containing information about the amount of debt and the timing of its occurrence. To obtain information on the maturity of debt, an analysis of contracts with counterparties is carried out; based on the information received, a register of "aging" accounts of debtors is compiled with the identification of overdue, doubtful and bad debts.
Determining the real state of receivables allows you to assess the likelihood of bad debts, taking into account the timing of the debt.
An important condition is the determination of the receivables turnover ratio, which characterizes the efficiency of collecting payments for shipped products, work performed and services rendered, defined as the ratio of the company's turnover to the average annual value of receivables.
Another important indicator of the organization's work is the efficiency of investing in receivables, which is determined by comparing the amount of additional profit from the sale of products through the provision of a commodity (commercial) loan with the amount
additional costs for its execution, as well as financial losses associated with writing off bad debts.
An important step in the management of receivables is the synchronization of cash receipts and payments. Drawing up a payment calendar, in which daily payments and receipts are planned based on the terms of contracts and the experience of previous settlement operations, will reduce the balance of funds on the current account, reduce the amount of borrowed funds and debt servicing costs, as well as optimize the repayment of own accounts payable.
Based on the data obtained, it is possible to determine the amount of funds planned for investment in receivables under a commodity (commercial) loan. When determining this amount, one should take into account the planned volume of sales of products on the terms of deferred payment, the average credit period, as well as the average period of delay in payment, focusing on the experience of economic practice.
If the financial capabilities of the organization do not allow investing in full the estimated amount in receivables, then with the unchanged lending conditions, the volume of sales of products sold on credit should be adjusted.
Since the emergence and repayment of receivables are a direct consequence of the organization's credit policy, covering the entire range of commercial lending issues, including a system of credit conditions and assessing the financial situation of buyers, a necessary condition for improving the financial efficiency of sales operations is the preparation of a science-based commercial lending policy.
The system of credit relations adopted by the organization should determine the term for granting a loan (credit period), the amount of credit provided (credit limit), the system of discounts provided for early payment, as well as the policy of penalties applied for delay in the performance of obligations by buyers.
The key link in the formation of the organization's credit policy is the development of standards for evaluating buyers based on creditworthiness, which characterizes the financial and economic condition of the buyer, his ability to effectively use borrowed funds and fulfill all
related financial obligations in full and within the terms stipulated by the contract.
An important stage in the implementation of a systematic approach to managing receivables is the formation of a debt collection procedure, which should define the forms of preliminary and subsequent reminders to buyers about payment terms, conditions for extending the loan term and initiating bankruptcy proceedings for insolvent debtors.
In conditions of an acute shortage of funds, organizations can use alternative (non-monetary) methods of repaying debt obligations, which are:
- transfer of debt;
- offset of mutual requirements;
- assignment of the right to claim;
- retreat;
- innovation;
- commodity exchange operations.
Modern economic conditions allow the use of a new form of receivables management, which is refinancing. The main types of refinancing of receivables used in the practice of organizations are:
- factoring;
- bills of exchange issued by buyers of products;
- forfaiting.
Obviously, the effectiveness of receivables management is largely determined by the professionalism of the personnel involved in this process. The professional level of employees, the measure of responsibility assigned to them by job descriptions, as well as the remuneration system for personnel working with receivables to a large extent
determine the effectiveness of sales and the timeliness of receiving payments.
An important direction in improving management efficiency is to improve the mechanism for controlling the movement of receivables, including:
- determination of the period of repayment of receivables as close as possible to the average market indicators;
- comparison of indicators of cash receipts with the volume of receivables;
- formation and implementation of the credit policy of the organization;
- insurance of receivables;
- immediate issuance of invoices to the buyer with control over the shipment of products;
- focus on a large number of buyers in order to reduce the risk of non-payment of debt by one of the clients;
- selectivity of sales, which determines which groups of goods and in what periods are not sold on credit;
- drawing up a file of debtors with constant monitoring of their financial condition with the identification of negative facts and the development of measures to work with debts.
The implementation of these areas involves the creation of accounting and information support for a receivables management system that meets modern management requirements. Given the new conditions, information must undergo serious qualitative changes, especially in terms of its necessary analyticity and promptness of presentation. In this regard, of particular importance is the formation of such an accounting system that will allow obtaining operational data with a sufficient degree of detail for managers to perform functions aimed at improving the efficiency of receivables management.
From the standpoint of an analytical approach, information should primarily reflect the state of accounts receivable and the possibility of its repayment in the context of various characteristics.
The grouping of receivables according to various criteria is possible due to the development in the organization of a working chart of accounts that provides for accounting using sub-accounts of the second, third and subsequent orders. To do this, it is proposed to present the classification of receivables in the context of six levels (Table 1).
At the 1st level, grouping is carried out depending on the type of settlements and the basis for the occurrence of receivables, which will allow generating information for the preparation of financial statements. At the 2nd level, structuring of receivables is carried out depending on the currency of settlements used.
Depending on the nature of the debt, an analytical section of receivables is provided for the implementation of control, with the allocation of current and overdue debts.
In order to specify the repayment terms of receivables, it is advisable to classify them by repayment periods: up to 30 days, 31-45 days, 46-60 days, 61-90 days, 91-120 days, over 120 days.
At the same time, it is important to note that information on the maturity of debts is formed on the basis of the terms of contracts with counterparties and accounting data on shipments of products. Based on the information received, the due date for payment of invoices is calculated, which is defined as the date no later than which payment must be made on the granted commercial loan. To control the payment term in accordance with the contract, the duration of the payment deferral, as well as the date the receivables arise, should be taken into account. For the purposes of operational management of receivables, it is advisable to apply the methodology for calculating the payment term, which is determined by adding the number of days of deferred payment established by the contract to the date of occurrence of receivables. An example of calculating the payment term for products shipped to customers in the analytical context of primary documents is presented in Table. 2.
It seems appropriate to organize the accounting of advances issued in the context of counterparties and contracts, reflecting the timing of the fulfillment of contractual conditions for the supply of goods, works, services. The recommended form of the report on receivables in the context of counterparties for advances issued on a certain date is presented in Table 3.
Structuring receivables by maturity will allow you to see the status of settlements with buyers and suppliers, identify overdue debts, evaluate the dynamics of its repayment by individual representatives of debtors and assess possible non-payments.
Accounts receivable should be accounted for depending on the type of collateral: in the form of collateral, bank guarantee, guarantee or unsecured debt. This separation is aimed at obtaining qualitative information about the degree of debt reliability in the context of individual debtors and can be used to analyze the state of receivables.
An important direction is the accounting of receivables of buyers in the context of the types of shipped products, which thereby provides the ability to monitor the effectiveness of sales and make prompt changes to the assortment policy of the organization.
Ultimately, reports on the status of receivables generated by levels of management will make it possible to assess its dynamics and structure, to carry out ongoing monitoring of the quality of settlement operations and control over the implementation of payment discipline, contributing to a more efficient use of free cash and preventing the emergence of bad debts.
The proposed system of analytical accounting of accounts receivable will make it possible to identify its impact on taxable profit, especially in the period of formation of the amount of the reserve for doubtful debts, as well as to ensure control over overdue and uncollectible debts, while reducing the taxable profit of the enterprise.
It should be noted that the need for information on the state of receivables is determined by the tasks that are solved in the process of managing this object in relation to a specific level so that each of the links in the overall management system successfully performs its functions. Thus, information on the state of receivables for the purposes of managing it by middle managers should be more analytic, and information for the highest level of management represented by owners and founders should be transformed by aggregating indicators.
Information intended for any level of management must meet the requirement of efficiency, however, the interval for its compilation and presentation is determined by the needs of management. So, if information about deviations from the given parameters for the top management echelon is sufficient for a quarter, then at the middle level, the intervals of its circulation, depending on the tasks being solved, should be shorter: weekly, ten-day, and in some cases - daily.
Slowdown or failure to provide the necessary information on time can reduce or nullify previously taken actions, and in some cases disrupt the established rhythm of the functioning of the entire system as a whole.
The proposed system for organizing analytical accounting of receivables serves the purpose of generating information for the administrative apparatus at different levels of management in the required degree of detail and generalization based on a systematic selection according to selected criteria. Various groupings of receivables make it possible to differentiate accounting information in an analytical context and, therefore, make it more efficient and flexible.
The modern competitive environment has a significant impact on the formation and adoption of economically sound management decisions. The use of the proposed methodology for accounting for receivables will help improve the quality and efficiency of information, thereby ensuring effective control over the status of settlements with debtors and reducing the risk of overdue debts, contribute to the formation of a rational policy for granting loans, strengthening the financial condition of an enterprise in rapidly changing market conditions, reducing labor intensity accounting and reporting procedures and increase the efficiency of the use of funds by business entities. Only a systematic approach to managing the organization's accounts receivable, which consists in the complex application of all the listed measures to optimize the size of this debt, will have an effective impact on increasing the financial stability of the enterprise and will be the key to its successful development.
Literature
1. Bakhrushina N. Creation of a receivables management system // Financial director. - 2005. - No. 5.
2. Van Horn J.K. Fundamentals of financial management: Per. from English. - M. : Finance and statistics, 2003.
3. Financial management: textbook / ed. e. n., prof. A.M. Kovaleva. - 2nd ed., revised. and additional - M. : Infra-M, 2009.
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