Trade Receivables 應(yīng)收賬款

The total value of trade receivables for a business at any one time represents the amount of sales which have not yet been paid for by customers. The trade receivables figure will depend on the following:

1 The value of credit sales. The greater the value of credit sales then, other things being equal, the greater the total of trade receivables.

2 The period of credit given. The longer the period of credit given to customers then, other things being equal, the greater the total of trade receivables.

3 The efficiency with which the business administers its trade receivables. The more inefficient the business is in billing its customers and collecting overdue accounts then, other things being equal, the greater the total of trade receivables.

The debit balance is also a current asset because it meets the criteria in IAS 1, Presentation of Financial Statements. This states that an entity should classify an asset as current when any one of the following applies:

(a) The entity expects to realize the asset, or intends to sell or consume it, in its normal operating cycle.

(b) The entity holds the asset primarily for the purpose of trading.

(c) The entity expects to realize the asset within 12 months after the reporting period.

(d) The asset is cash or a cash equivalent (as defined in IAS 7) unless the asset is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period.

Credit Control

In fact, good credit control should start much earlier. The following considerations are the foundations of good credit control:

• Who gets credit?

The initial screening of potential credit customers is important. A credit sale is essentially a free gift to the customer until the invoice is paid.

It is no use making a credit sale to a questionable customer just to achieve the sale. The profit is more than wiped out if the customer defaults. On the other hand, over enthusiastic vetting at this stage could result in lost sales to potentially good customers.

•Terms of credit

These should be set up and agreed in advance. They will include the credit limit (the maximum amount the customer can owe at any point in time), the credit period, whether discount can be claimed for quick payment, if interest is chargeable if the payment terms are not met, and so on. The terms of credit need not be the same for each customer.

•Administration of billing and collection

Efficiency here will be important. Invoices should be issued quickly and should be accurate. Customers generally will not pay unless, and until, they receive the invoice, so delays in invoicing will result in delays in payment. Errors in invoices also hold things up. The payment patterns of customers should be known, if possible, and invoices issued to take advantage of these.

Businesses should also review their procedures for issuing statements and reminders.

Collection of overdue accounts

As mentioned earlier, procedures here need to be systematic, fair, reasonable and within the law. Avoiding the issue of non-payment, or just hopefully sending out computer generated reminders every few months, are unlikely to be effective.

On the other hand, threatening a customer might be effective but will most likely land the business in court.