Credit Controls and Accounts Receivable Management

“Any fool can lend , but it takes a lot of skill to get it back”

Introduction

Please give:• Your name• Your job & Company name• Your commercial experience• What specific expectations do you have?

Learning Objectives• The objectives of credit and accounts receivable

management• How credit and account receivable management fit

into corporate finance and treasury operations• How companies develop credit policies• How companies calculate the costs and benefits of

credit policies• The forms of credit extension

• The commonly used terms of sale, including credit terms

• How companies make customer credit decisions• How companies measure and monitor accounts

receivable• How companies finance accounts receivable• How the cash application process works• Auditing the Receivables Cycle.

Learning Objectives Cont…

• Learn how to calculate the following:•  Annualized cost of trade credit•  Days’ sales outstanding (DSO)•  An aging schedule

Learning Objectives Cont…

What are receivables?

•Receivables are sales made on credit basis.

Why do we need receivables?

Understanding Receivables

•As a part of the operating cycle

•Time lag b/w sales and

receivables creates need for working capital

Receivables

Inventory

Cash

Operating Cycle

Receivables Cycle

The Customer to Cash Process

Credit Risk Management

PO to Shipment to

invoice Reconciliation

Billing & Invoicing

Deductions & Dispute

Management

Payment Processing

Collections Management

Credit Debit Adjustments

Forecasting & Reporting

Customer

Cash

Order Order Sale Cash Placed Received Received Accounts Collection < Inventory > < Receivable > < Float >

Time ==> Accounts Disbursement

< Payable > < Float > Invoice Payment Cash Received Sent Paid

Order Order Sale Cash Placed Received Received Accounts Collection < Inventory > < Receivable > < Float >

Time ==> Accounts Disbursement

< Payable > < Float > Invoice Payment Cash Received Sent Paid

Credit Policy and Collections

Credit Terms or Payment Terms• It is the length of time a buyer has to repay the

amount of debt owed on an obligation. This includes:

1- The maximum time allowed for repayment.2- Discount for cash or early payment 3- And the amount or rate of late payment

penalty

• Centralized / Decentralized collection system

• Post – dated check

• Pay Orders / Bank drafts

• Bills of Exchange

• Lock – box System

• Drop – box System

• Factoring

• Collection staff/ agents

• Debt collector

• Del Credere agent

• Concentration banking

Collection Methods

Audit Program for Receivables and RevenueSubstantive Procedures

Substantive Tests Audit Objectives

Obtain aged listing of receivables and reconcile to G/LObtain analyses of N/R and related interest

Clerical accuracy

Inspect notes on hand and confirm those not on hand

Existence, occurrence, and rights

Confirm receivables with debtors

Existence, occurrence, and rightsValuation

Flowchart of the Confirmation Process A

Prepare and Mail the Requests

Send 2nd requests for positiveconfirmations

Perform alternative proceduresFor non-respondents

Resolve exceptions

Document the procedures and results

Develop Audit Objectives

Choose Appropriate Confirmation Form

Determine the timing and extent

Identify the information to beconfirmed

A

Select the accounts for confirmation

Thank You For Coming Today!

Tel: +961 1 385 825 / website: www.bsf-lb.comEmail: info@bsf-lb.com

Facilitator: Antoine Tabbakh

/BestSolutionFinance Company/bsf #bsfbeirut