Managing Companies Payable & Receivables On Business World - Finance Effectiveness And Finance Implementation Services

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Managing Companies Payable Receivables On
Business World - Finance Effectiveness And
Finance Implementation Services
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"As one to view the strife of elephants who takes
his stand, On hill he's climbed, is he who works
with money in his hand" - Thiruvalluvar.The above
are words of greatest wisdom. In any task,
positioning occupies chief importance. When we
apply the same logic, successful companies
followed the simple theory i.e., ensure cash flow.
How a person positioned himself atop a hillock
watches an elephants fight with no worries
inside, in the same way companies that rest on
good cash balances carry on their business with
absolute comfort. Let us think through, in the
following paragraphs, how a business can plan its
funds management for optimal output.
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Receivables We often come across good business
houses with fat profit and loss account having
gone through tailspin. Is not the irony
conspicuous? If we had a microscopic view, the
reason shall become obvious 'poor cash
management'. It is not without reasons that our
management guru shave asserted, "Cash is king".
Future will never be a 'present' if in present we
don't realize that the realization (of
receivables) is the key to success.
There are 8 basic principles I would like to lay
down for effective receivable management
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1. Rupee 1 in hand is worth rupee 2 yet to
receive! 2. If a reasonable discount needs to be
offered to get collection now, never mind, please
do. Booking discount is always better than
accounting for bad debts 3. Don't chase the
customers through collection agents unless you
are willing to sacrifice the relationship 4.
Have a clear credit policy and make it public in
your portal that both the sales force of your
company and the customer are well aware of that
so early payers get motivated to pay it in
advance.
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5. Though the clauses of the sale agreements have
to clearly mention the penal implications, I
would not recommend the strict enforcement of the
same as the legal route generally takes a longer
time and takes away the productive time of the
company 6. Always look at the risk rating of the
customer. 7. Ensure that your sales marketing,
finance and relevant stakeholders teams are
apprised of the health/behavior of the
customers 8. Move out from cheque collections
and move on to electronic mode
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Payables
It is the other side of the same coin. As we
expect our customers to pay our dues on time it
is equally our responsibility to settle the
creditors as agreed in purchase terms. Vendors
are the first pillar of any business to thrive
on. Following detail the effective payable
management system
1. You can use the full credit period but don't
go beyond it as relationship with the vendor
matters. If negative signals are sent to the
market by delaying the payments, it shall spread
and impact the supply 2. Move onto online
banking as it saves a lot of time in by pruning
process time 3. Be proactive in informing the
suppliers in case of delay in payments. Also, it
is advisable to pay along with interest, if the
agreement stipulates the same, which would
generate immense amount of goodwill 4. If
discounts can be had on early payment it is
always advisable to avail that
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5. Have strict controls on Vendor Master updates
and verify the vendor details viz., name, bank
account no., IFSC code etc., at regular intervals
that the payments reach the intended recipient. I
have come across in one of my earlier assignments
where the person who used to process the
payments, mapped his relatives bank details
against one of the vendors. This surfaced only
when the vendor brought this to the notice of the
company after 2 years. Incidentally, the vendor
happened to be a body of a government
department. 6. Hedge foreign currency exposure,
so the fluctuations in currency don't impact the
finance positions 7. If it is a large
organization, consolidation and centralization
shall prove to of great fillip in terms of the
overall picture and effective management 8.
Ensure to recover for the damages for any breach
in performance as provided in the agreement.
Running behind the vendors for recovery after
full settlement shall not help either.
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Epilogue
There is nothing exhaustive in any topic.
Whatever I have written above are only high level
guidelines which can further be broken down to
granular levels. I have not dwelled on
customer/vendor selection processes, PO
management etc., as those are a separate topic
altogether. This article is to outline on how to
manage the funds once accrue. The crux of entire
cash management is to ensure circulation of cash.
In human organism blood needs to circulate in a
business organism, it is cash. That said, the
following become the basic tenets to retain
association in a business viz., Relationship,
Energy, Trust, Attitude, Integrity and Neutrality
(RETAIN)and nothing can replace
them. Circumambulation ensures health
circulation results in wealth.
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