Introduction to Receivable Management

Receivables, also termed as trade credit or debtors are component of current assets. When a firm sells its
product in credit, account receivables are created. Account receivables are the money receivable in some
future date for the credit sale of goods and services at present. Generally, when a concern does not
receive cash payment in respect of ordinary sale of its products or services immediately they allow them a
reasonable period of time to pay for the goods they have sale. The firm is said to have granted trade credit
also known as credit period. Trade credit thus, gives rise to certain receivables or book debts expected to
be collected by the firm in the near future. In other words, sale of goods on credit converts finished goods
of a selling firm into receivables or book debts, on their maturity these receivables are realized and cash is
generated.
The customer who represent the firm's claim or assets, from whom receivables or book-debts are to be
collected in the near future, are known as debtors or trade debtors. A receivable originally comes into
existence at the very instance when the sale is affected. But the funds generated as a result of these sales
can be of no use until the receivables are actually collected in the normal course of the business
These days, most business transactions are in credit. Most companies, when they face competition, use
credit sales as an important tool for sales promotion. As a sales promotion tool, credit sale
enhances firm's sales revenue and ultimately pushes up the profitability. But after the credit sale has been
made, the actual collection of cash may be delayed for months. As these late payments stretch out over
time, they may cause substantial drop in a company's profit margin. Since the extension of credit involves
both cost and benefits, the firm's management must be able to measure them to determine the ultimate
effect of credits sales. In this prospective, the receivable management can be defined as the aspect of a
firm's current assets management, which is concerned with determining optimum credit policy associated
to a firm, such that the benefit from extension of credit is greater than the cost of maintaining investment
in accounts receivables.
Significance and Purpose of Receivable Management
The basic purpose of firm's receivable management is to determine effective credit policy that increases
the efficiency of firm's credit and collection department and contributes to the maximization of value of
the firm. The specific purposes of receivable management are as follows:

1. To evaluate the creditworthiness of customers before granting or extending the credit.

2. To minimize the cost of investment in receivables.
3. To minimize the possible bad debt losses.
4. To formulate the credit terms in such a way that results into maximization of sales revenue and still
maintaining minimum investment in receivables.
5. To minimize the cost of running credit and collection department.
6. To maintain a tradeoff between costs and benefits associated to credit policy.

Receivable management of ONGC:

Receivable management of ONGC Assam Asset is handle by its sales accounting section. It keeps records
of every trade credit or credit sale. Management of receivables of ONGC is not complicated as ONGC
sales a very few number of products and all its customers are public sector units. So ONGC does not have
any different section for handling its receivables. Sales accounts section looks after, the sales that has
taken place, whether the debtors are making payment on or before the due date of payment or after the
expected date of payment. If the debtors make delayed payment then it is duty of sales section to charge
0.5% above SBI lending charges for the cash credit .They also prepare sales invoice and credit notes as
early as possible, side by side they also ensure that they are dispatched at specified regular intervals for
effective control of receivables. Separate ledger for the accounts of bad and doubtful debtors is
maintained. Such segregation helps in easy assessment of the position of bad and doubtful debtors in
relation to the total debtor's position.

1) Receivable management of Natural Gas:

Party Billing Billing Invoice Billed Expected Actual Remark

period date number amount date of date of
receipt receipt
AGC 01/04/2015 07/04/2015 3110201509 356,450 10/04/2015 15/04/2015 Delayed
Khoraghat to by 5
07/04/2015 days
AGC 16/05/2015 22/05/2015 3110201529 1,855,410 25/05/2015 25/05/2015 Payment
Khoraghat to on time
22/05/2015
GAIL 01/04/2015 15/04/2015 3110201520 335,720.32 22/04/2015
Borsilla TE to
15/04/2015
AGC SBS 01/04/2015 30/04/2015 3150000699 1,164,782 31/05/2015
& NZR to
30/04/2015

2) Receivable management of Crude oil:

Party Billing Billing Invoice Billed Expected Actual Remark

period date number amount date of date of
receipt receipt
IOCL G 01/04/2015 07/04/2015 3110101448 130,541,089
to
07/04/2015
IOCL B 16/05/2015 22/05/2015 3110101455 167,162,477
to
22/05/2015
NRL 23/04/2015 30/04/2015 3110101459 159,714,025
to
30/04/2015