Receivable Management - Analysis of Debtor's Management Strategy

The assessment aims at analyzing the debtor’s management strategy of Sooner Pharmaceuticals to forecast the revenue of the business. It includes account receivable balance, uncollected balances, quarterly costs, and ageing schedule.

Running head: RECEIVABLE MANAGEMENT
RECEIVABLE MANAGEMENT
Name of the Student:
Name of the University:
Author’s Note

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RECEIVABLE MANAGEMENT
Table of Contents
Introduction......................................................................................................................................2
Discussion........................................................................................................................................2
Account Receivable Balance.......................................................................................................2
Uncollected Balances of Account Receivables...........................................................................4
Quarterly Costs of the Business...................................................................................................4
Ageing Schedule..........................................................................................................................5
Reference.........................................................................................................................................7

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RECEIVABLE MANAGEMENT
Introduction
The main purpose of this assessment is to analyze the business of Sooner
Pharmaceuticals which is a new company open by Kathleen Grogan. The assessment aims at
analyzing the debtor’s management strategy of the business so that the business can effectively
forecast the revenue of the business (Brooks & Mukherjee, 2013). The analysis is to be
conducted on the basis of two years period for which the estimate sales is provided. The
assessment would be stating the anticipation of the owner relating to the sales and the bad debts
of the business.
Discussion
Account Receivable Balance
The account receivable of a business represent the credit sales which is made by the
business and the analysis is conducted for a period of two years (Wu, Olson & Luo, 2014). The
analysis of account receivables shows large retail outlets, Regional Store, Small Grocery Chain.
The average receivable of the business is shown to be more in the month of March in year 1 and
the account receivable for the month of June is shown to be lower than March (Duru, Ekwe &
Okpe, 2014). This suggest that the business would be able to make more sales in the month of
March than in the month of June. As shown in the figure below, the account receivable balance
and average daily sales of the business is shown for both years.
Account Receivables For Year 1
March
Customer 0-30 days 31-60 days 61-90 days Total
Large retail chain 1 $ 56,000 $ 80,000 $ 24,000 $ 160,000
Large retail chain 2 $ 35,000 $ 7,840 $ 9,800 $ 52,640
Regional drug store $ 12,000 $ 2,940 $ 5,400 $ 20,340

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RECEIVABLE MANAGEMENT
Small grocery chain $ 12,000 $ 22,000 $ 6,000 $ 40,000
Total Account Receivables $ 272,980
Daily Collection $ 9,099.33
Average collection period(Days) 30
June
Customer 0-30 days 31-60 days 61-90 days Total
Large retail chain 1 $ 42,000 $ 60,000 $ 18,000 $ 120,000
Large retail chain 2 $ 26,250 $ 5,880 $ 7,350 $ 39,480
Regional drug store $ 9,000 $ 2,205 $ 4,050 $ 15,255
Small grocery chain $ 9,000 $ 16,500 $ 4,500 $ 30,000
Total Account Receivables $ 204,735
Daily Collection $ 6,825
Average collection period(Days) 30
Account Receivables For Year 2
March
Customer 0-30 days 31-60 days 61-90 days Total
Large retail chain 1 $ 70,000 $ 100,000 $ 30,000 $ 200,000
Large retail chain 2 $ 43,750 $ 70,000 $ 61,250 $ 175,000
Regional drug store $ 15,000 $ 26,250 $ 33,750 $ 75,000
Small grocery chain $ 15,000 $ 27,500 $ 7,500 $ 50,000
Total Account Receivables $ 500,000
Daily Collection $ 16,666.67
Average collection period(Days) 30
June
Customer 0-30 days 31-60 days 61-90 days Total
Large retail chain 1 $ 49,000 $ 70,000 $ 21,000 $ 140,000
Large retail chain 2 $ 30,625 $ 49,000 $ 42,875 $ 122,500
Regional drug store $ 10,500 $ 18,375 $ 23,625 $ 52,500
Small grocery chain $ 10,500 $ 19,250 $ 5,250 $ 35,000
Total Account Receivables $ 350,000
Daily Collection $ 11,666.67
Average collection period(Days) 30
The average collection period for both the years is considered to be 30 days for both the
month of March and June. The total debtors for the first year in the month of March is shown to

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RECEIVABLE MANAGEMENT
be $ 272,980 and for year 2 is shown to be $ 500,000 (Gill & Biger, 2013). For the Month of
June, the total debtors is shown to be $ 204,735 and $ 350,000 for year1 and year 2 respectively.
This shows that the business can expand the sales of the business more extensively in the month
of March.
Uncollected Balances of Account Receivables
The uncollected balance of account receivables represents the portion of the receivable
which have not been collected by the business. The policy of the business is shown is analyzed
on the basis of 30 days period, 60 days period and 90 days period for collection. The different
sales mix of the business are considered for different businesses as shown in the computation
(Ahmadi, Pouraghajan & Salehnezhad, 2013). The uncollected balance represents assets for the
business
Quarterly Costs of the Business
Year 1 2
March June March June
Customer 31-60
days
61-90
days
31-60
days
61-90
days
31-60
days
61-90
days
31-60
days
61-90
days
Large retail
chain 1
$
80,000.
00
$
24,000.
00
$
60,000.
00
$
18,000
.00
$
100,00
0.00
$
30,000.
00
$
70,000.
00
$
21,000.
00
Large retail
chain 2
$
7,840.0
0
$
9,800.0
0
$
5,880.0
0
$
7,350.
00
$
70,000.
00
$
61,250.
00
$
49,000.
00
$
42,875.
00
Regional
drug store
$
2,940.0
0
$
5,400.0
0
$
2,205.0
0
$
4,050.
00
$
26,250.
00
$
33,750.
00
$
18,375.
00
$
23,625.
00
Small
grocery
chain
$
22,000.
00
$
6,000.0
0
$
16,500.
00
$
4,500.
00
$
27,500.
00
$
7,500.0
0
$
19,250.
00
$
5,250.0
0
Total
$
112,78
0.00
$
45,200.
00
$
84,585.
00
$
33,900
.00
$
223,75
0.00
$
132,50
0.00
$
156,62
5.00
$
92,750.
00
Quaterly
interest
2
%

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RECEIVABLE MANAGEMENT
Quaterly
Carrying
Cost
$
370.78
$
222.90
$
278.09
$
167.18
$
735.62
$
653.42
$
514.93
$
457.40
The above table shows the quarterly costs of the business which is computed on the basis
of the quarterly sales which is incurred by the business and the same is done on an estimation
basis. The interest rate which is charged is shown to be 2% which is on quarterly basis. The
lowest quarterly carrying costs is in the month of June of year 1 under 60-90 days policy (Seifert,
Seifert & Protopappa-Sieke, 2013). The same is shown to have increased in year 2 which is
mainly to due to expansion of the operations of the business and therefore the sales of the
business have also increased significantly. The increase in the carrying costs and also the
forecasts of sales suggest that the management is planning to expand the operations of the
business in year.
Ageing Schedule
Assumed
Collection
Period
year 1 March June
Customer
0-30
days
31-60
days
61-90
days Total
0-30
days
31-60
days
61-90
days Total
Large retail
chain 1
$56,00
0.00
$80,00
0.00
$24,00
0.00
$
42,000.
00
$
60,000.
00
$
18,000
.00
Large retail
chain 2
$35,00
0.00
$7,840.
00
$9,800.
00
$
26,250.
00
$
5,880.0
0
$
7,350.
00
Regional drug
store
$12,00
0.00
$2,940.
00
$5,400.
00
$
9,000.0
0
$
2,205.0
0
$
4,050.
00
Small grocery
chain
$12,00
0.00
$22,00
0.00
$6,000.
00
$
9,000.0
0
$
16,500.
00
$
4,500.
00
TOTAL
$115,0
00.00
$112,7
80.00
$45,20
0.00
$86,25
0.00
$84,58
5.00
$33,90
0.00

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RECEIVABLE MANAGEMENT
% OF Doubtful
debts 0.00% 2.00% 3.00% 0% 2% 3%
Allowance for
Doubtful Debts $0.00
$2,255.
60
$1,356.
00
$3,61
1.60 $0.00
$1,691.
70
$1,017
.00
$2,70
8.70
year 1 March June
Customer
0-30
days
31-60
days
61-90
days Total
0-30
days
31-60
days
61-90
days Total
Large retail
chain 1
$
70,000.
00
$
100,00
0.00
$
30,000.
00
$
49,000.
00
$
70,000.
00
$
21,000
.00
Large retail
chain 2
$
43,750.
00
$
70,000.
00
$
61,250.
00
$
30,625.
00
$
49,000.
00
$
42,875
.00
Regional drug
store
$
15,000.
00
$
26,250.
00
$
33,750.
00
$
10,500.
00
$
18,375.
00
$
23,625
.00
Small grocery
chain
$
15,000.
00
$
27,500.
00
$
7,500.0
0
$
10,500.
00
$
19,250.
00
$
5,250.
00
TOTAL
$
143,75
0.00
$
223,75
0.00
$
132,50
0.00
$
100,62
5.00
$
156,62
5.00
$
92,750
.00
% OF Doubtful
debts 0.00% 2.00% 3.00% 0.00% 2.00% 3.00%
Allowance for
Doubtful Debts
$
-
$
4,475.0
0
$
3,975.0
0
$
8,450.
00
$
-
$
3,132.5
0
$
2,782.
50
$
5,915.
00
As per the table which is shown above, the provision for doubtful debts are computed
considering the estimation made by the owner regarding a certain level of doubtful debts which
can be expected by the business. The sale figures shows the collection which is anticipated by
the management of the business in March and June for both the years. The interest rate which is
considered is 2% and 3% for the collection period policy of 60 days period and 90 days period as
shown in the table above.

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RECEIVABLE MANAGEMENT
Reference
Ahmadi, M., Pouraghajan, A., & Salehnezhad, S. (2013). Performance measurement of
receivable accounts’ risk management: A case study of Tehran Stock
Exchange.Management Science Letters, 3(6), 1593-1598.
Brooks, R., & Mukherjee, A. K. (2013). Financial management: core concepts. Pearson.
Duru, A. N., Ekwe, M. C., & Okpe, I. I. (2014). Accounts receivable management and corporate
performance of companies in the food & beverage industry: evidence from
Nigeria. European Journal of Accounting Auditing and Finance Research, 2(10), 34-47.
Gill, A. S., & Biger, N. (2013). The impact of corporate governance on working capital
management efficiency of American manufacturing firms. Managerial Finance, 39(2),
116-132.
Seifert, D., Seifert, R. W., & Protopappa-Sieke, M. (2013). A review of trade credit literature:
Opportunities for research in operations. European Journal of Operational
Research,231(2), 245-256.
Wu, D. D., Olson, D. L., & Luo, C. (2014). A Decision Support Approach for Accounts
Receivable Risk Management. IEEE Trans. Systems, Man, and Cybernetics:
Systems, 44(12), 1624-1632.