Trade Management

Module 4. Learning Objectives:

Managing receivables Securing receivables Sales documentation

Trade Management

Managing Receivables.

Receivables Steps(1) Goods received by customer – Delivery note signed Invoice sent to customer with terms of payment (30 days)

Customer may have paid deposit before work was issued Sales entered to Accounts Receivable (invoice details) Accounts Receivable monitored Unpaid accounts become bad debts

Trade Management

Managing Receivables.

Receivables Steps(2) Company maintains contact with customer usually for 3 months – including sales and marketing Account passed to Collections Department or Agency (fee for service) Additional time is allowed for payment (letters) Account passed to lawyers for action If evident no money is to be received the bad debt is will be listed as an expense on the balance

sheet Bad debts will be eventually written off usually at years end

Trade Management

Managing Receivables.

Bad Debt Considerations (1) Accountants receivables consists of monies due from customers as a result of

an organizations normal business operations (sales) Considered as a Current Asset until written off “Bad Debt” term used to describe outstanding accounts receivables ie unpaid The management of accounts receivables is critical

Trade Management

Managing Receivables.

Bad Debt Considerations (2) Businesses need to have a plan for handling bad debt Collection of outstanding receivables represents the single most

important source of cash for all organizations selling goods on open account

Accounts receivables collections have impact on cash flow

Trade Management

Managing Receivables.

Proactive Credit Management 1. Monitor accounts Organization that calls first usually get paid first Prepare written collection policies and terms with

Agreement and support of : Management Sales and marketing Collections

Trade Management

Managing Receivables.

Proactive Credit Management 2. Policies and Procedures in writing eliminate:

Discrepancies in what customers are told by the collections, sales and management

Customers have less excuses for delaying payment

Trade Management

Securing Receivables.

Application of credit

When a seller provides goods or services on credit, the resultant account receivable is normally considered to be an unsecured claim against the buyers assets. This makes the seller(supplier) an unsecured creditor, meaning it does not have a lien on any of the buyer’s assets- not even the goods just delivered.

If the buyer runs into financial problems the seller may see little money as there are other “secured”creditors

Trade Management

Securing Receivables

Handling credit (1)

To avoid such risk some suppliers will not sell on credit

Goods to be paid by cash, credit card, paypal, letter of credit (LC) from a bank (full payment), bank transfer Varies with industries Varies with complexity of order Business to Consumer generally requires 100% due to low margins

Trade Management

Securing Receivables

Handling credit (2)

This usually results in loss of business to competitors, so businesses run credit checks on new customers. A credit check does not however guarantee payment.

Many businesses to limit losses will demand deposits on purchase order/ sales orders

Trade Management

Sales documents

Documents (1) Purchase order received from customer (external document) Sales order prepared by company salesman (internal) after

visiting a customer or on receipt of purchase order Work order prepared by company to authorize the start of

manufacturing, build or engineer the products the customer wants

Trade Management

Sales documents

Documents (2) Fulfillment of order methods:

Digital copy – inventory maitained on a digital master Build to stock – products built and stocked in anticipation Build to order Configure to order Engineer to order

Trade Management

Sales documents

Documents (3) Typical Information in sales order

Company Name and Address Details of product – model # etc Date of delivery Quantity Price per unit- Total cost Special instructions- credit, payment terms (30 days, 60 days, etc