CMA Study Group

My company is facing problems collecting their Accounts receivables and asked me to build a plan that assist in boosting their collections, I referred to Wiley book and browsed the Managing Current Assets topic, I found that offering a trade discount on early payments would be helpful but I need to clarify about the equation of Effective annual rate of foregoing a trade discount for example a trade credit of 2/10 net 30 will result 36.73 % shall I divide this number by 12 to get the monthly cost so I can compare it with prime interest rate offered by banks 4.5 % and compare the 2 results?

 I also want to know if you have more researches about how to increase the collection of Accounts receivables and how I can get access to them since IMA book have limited information about this field.

In general try to minimize gap between DSO/DPO insofar possible.

1. If you use formula of not availing discount, whatever you get is an annual % so you can divide it by 12 to get monthly estimated cost % of not availing discount BUT it is just a measure and how far it can be applied practically is something I am not sure of as usual ways are requesting  longer credit terms from suppliers or delaying payment when it should be.

2. Cost of funds stuck in overdue AR will be equal to:

*Or 360 days as you prefer.

 3. Plan: See some tips from Google: LMGFY (let me Google it for you):

http://www.accountsdirect.ie/How_to_improve_your_credit_control_function.pdf

http://www.msukaligwa.gov.za/msukweb/documents/policies/CREDIT%20CONTROL%20POLICY.pdf

http://laubercfos.com/Knowledge-Base/Cash-Flow/40-Ways-to-Improve-Cash-Flow.aspx

https://knowledgecenter.zuora.com/kb/How_do_I_improve_cash_collections%3F

https://www.iod.com/MainWebsite/Resources/Document/FI16CRED.pdf

And many more...

SMT

Original Message:
Sent: 04-14-2015 08:08 AM
From: Mazen Abdul Hadi
Subject: Managing A/R

This message has been cross posted to the following Discussions: CMA Study Group and Accounting Exchange for 'on-the-job Q&A' -NOTE please post 'CMA Q&A' in: "CMA Study Group" .
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My company is facing problems collecting their Accounts receivables and asked me to build a plan that assist in boosting their collections, I referred to Wiley book and browsed the Managing Current Assets topic, I found that offering a trade discount on early payments would be helpful but I need to clarify about the equation of Effective annual rate of foregoing a trade discount for example a trade credit of 2/10 net 30 will result 36.73 % shall I divide this number by 12 to get the monthly cost so I can compare it with prime interest rate offered by banks 4.5 % and compare the 2 results?

 I also want to know if you have more researches about how to increase the collection of Accounts receivables and how I can get access to them since IMA book have limited information about this field.