Summer Internship Project Report 1 (1)

Summer Internship Project Report

on

A STUDY OF RECEIVABLE MANAGEMENT AND ROLE OF e-PAYMENT IN INDIAN OIL CORPORATION LTD.

Submitted towards the Partial Fulfillment

of

MASTER OF BUSINESS ADMINISTRATION

ACADEMIC SESSION

2011-2013

Under the kind guidance of

Industry Guide Mr.KAMAL THAKUR (Accounts officer ) Indian Oil Corporation Ltd.

Submitted by

College Guide

PAWAN KUMAR MEENA

1

http://www.google.co.in/imgres?imgurl=http://2.bp.blogspot.com/-1T3FtAu0s3w/TfhrrndZgAI/AAAAAAAADfk/-zJvVp12n9M/s1600/Rajasthan_University_logo.jpg&imgrefurl=http://www.rajasthantalkies.com/2011/06/rajasthan-university-online-admission.html&usg=__TCUKDYBVULiIto0Jis4a5FNR3KU=&h=360&w=300&sz=25&hl=en&start=2&zoom=1&tbnid=g3KulQ07e-JaPM:&tbnh=121&tbnw=101&ei=lOgEULDIGo_rrQeZ0s2nBg&prev=/search?q=rajasthan+university+logo&hl=en&biw=1366&bih=673&site=imghp&tbm=isch&itbs=1

Student Declaration

I, Pawan kumar meena to the best of my knowledge & belief, hereby declare that the project report

entitled :

“A Study of Receivable Management and Role of e-Payment in Indian Oil Corporation

Ltd.”

is the result of my own work in the fulfillment of academic requirement. The training is done in

Indian Oil Corporation Limited (IOCL) [Marketing Division, Rajasthan State office]

for a period of two months commencing from 25.05.2012 to 28.07.2012. This project

work is submitted to R.A.Podar Institute of Management , Jaipur. As well as in Indian Oil

Corporation Limited[ Marketing Division, Rajasthan State Office]. It is

not to be used copied or edited by any person. Written order has to be taken from appropriate

authority for that.

Pawan kumar meena

MBA (Finance)

2

2

CERTIFICATE

Hereby it is certified that the project work entitled – “A Study of Receivable Management andRole of e-Payment in Indian Oil Corporation Ltd” is a work carried out by

Pawan kumar meena

Management Trainee

R.A.Podar Institute of Management ,

Jaipur.

It is certified that all the subjective matter carry out by him is verified. The project report hasbeen approved as it satisfies the academic requirements in respect of Project Work.

3

ABSTRACT

Indian Oil Corporation Limited, with an yearly turnover of about 2 Lac Crores is the biggest

Company in India in terms of sales. It has once again topped the Indian Companies in the

Fortune 500 list of Companies with a rank of 125. In such a large sized corporation the common

problem is the Receivable Management and formulating a sound Credit Policy and Collection

Procedure. In this fluctuating Oil Market it is very difficult to maintain the level of the Sundry

Debtors and hence the Profitability. Moreover the Private Companies are entering the Oil

Industry which has provided a tough competition for IOCL. In this study the Ratios are analyzed

to interpret the Financial Status of the Corporation and then it is compared with the market

Competitors. The Debtors of the Eastern Region has been analysed in details and a few probable

solutions to the existing problems has been formulated.

Acknowledgement

It’s a privilege to be associated with Indian Oil Corporation Limited, a fortune ‘Global 500’

Company, India’s 2nd most top brand also world’s 18th best largest company.

This acknowledgement is not only the means of formality, but to me, it is a way by which I am

Getting the opportunity to show the deep sense of gratitude and obligation to all the people who

Have provided me with inspiration, guidance and help during the preparation of the project.

At the very outset, I would like to express my gratitude from bottom of my heart to Mr. Sharad Rakesh

[ Manager-Finance ] for giving me the opportunity to do my Summer

Internship Project in this esteemed organization.

I articulate my sincere gratitude to my project guide Mr. Kamal Thakur,

RSO Indian Oil Corporation Ltd. who has spent his valuable time and guided me

Throughout the training process in spite his busy schedule and provide, information about Indian Oil.

I have seen the area of Finance activities like: E-payments, Service tax,Sales tax, Capital assets etc.

I also like to thank Mr. Sharad Rakesh, Manager-Finance, who helped to

Provide me the opportunity to undergo my summer Internship Project in Indian Oil.

But last not the least I am thankful to my parents, friends and all well wishers for blessing me for

my success.

Pawan kumar meena

MBA(Finance)

5

Sl. No.

1.

2. 2.1 2.2 2.3 3 45 5.1 5.2 5.3 5.45.5 5.6

TABLE OF CONTENTS

Particulars

Introduction to Oil Industry in India

Company Profile of IOCL Introduction Product Profile, Markets, Organizational Structure of IOCL Business of IOCL Objectives Methodology Receivable Management Introduction Role of SAP in Receivable Management Impact of debtors in the Working Capital Management of the Company Different Ratios related to Debtor Management and Profitability Cash Conversion Cycle Credit Policies of IOCL and RTGS mode of Payment

6 Analysis 6.1 6.2 6.3 6.4

Turnover Ratio Liquidity Ratio Working Capital Analysis Comparative analysis of IOCL with BPCL and HPCL

7.

8.

Case Study Conclusion and Recomendations

9. Limitations 10. Bibliography and Reference

6

6

Table. No Particulars

LIST OF TABLES

Page

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

Retail Market Share (as on Nov-2011)

Salient Features of Implementation of SAP

DTR and ACP of IOCL from 2007-08 to 2011-12

Schedule for Sundry Debtors from 2007-08 to 2010-11

Liquidity Ratios of IOCL

Working Capital including Current Assets and Current Liabilities of IOCL

Change of CA, CL and WC of IOCL from the previous years

Cash & Bank Balances of IOCL

Cash Conversion Cycle

Sales in DGS&D Sector for 2010-11 & 2011-12

Sales Figure of DGS&D Customers on Month-wise basis in 2011-12(ER)

Outstanding from DGS&D as on 31.03.2010 (ER)

Showing Outstanding as a Percentage of Sales in DGS&D Sector as on

IOCL`s Average Collection Period of DGS&D (ER) for 2011-12 31.03.2010(ER) Sales and Outstanding of Non DGS&D Customers till 31 March 2011 (ER) Average Collection Period of Non DGS&D Customers in 2011-12 Comparison DTR and ACP of IOCL with HPCL and BPCL

Debtors as a percentage of Gross Sales for IOCL, HPCL and BPCL

Comparison of Liquidity Analysis of IOCL with HPCL and BPCL

CCC of HPCL

CCC of BPCL

Profitability Ratios of IOCL, HPCL and BPCL

Customerwise Tabulation of Outstanding and Beyond Credit Outstanding

under RSO

Productwise Tabulation of Outstanding and Beyond Credit Outstanding

under RSO Pivot Table showing the outstanding status Customerwise and Productwise

Invoice Details of M/s Rifle Factory, Ishapore

Breakup of the invoice of M/s Rifle Factory in ED, Sales Tax and Cess

3

45

63

64

66

68

69

72

73

77

78

79

79

81

83

84

85

86

87

89

89

90

93

95

97

99

100

7

Fig. No.

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

29

30

LIST OF FIGURES

Particulars

Structure of Oil Industry in India

Market Share of Different Companies in India

Formation of Indian Oil Corporation Ltd.

Organisational Structure of IOCL

Pipeline Network of IOCL in India

Relation between Profitability and Liquidity

Debt Collection Procedure

Flow chart showing Debt Recovery Process

Comparison of Conventional Method and Electronic Payment System

Working Capital Cycle and Sources of Cash

Operating Cycle

Classification of Debts considered Unsecured & Good and Unsecured &

Classification of Debts from Subsidiary Companies and Other Companies Doubtful Line Graph showing the different Liquidity Ratios of IOCL Bar Graph showing Working Capital including Current Assets and Current Liabilities of IOCL Area Graph showing Breakup of Current Assets

Area Graph showing Breakup of Current Liabilities

Bar Graph showing the Cash and Bank Balance Trend of IOCL

Sales in DGS&D Sector for 2010-11 & 2011-12

Comparison of the Outstanding as a % of Sales in Eastern Region And Overall

Comparison of IOCL`s ACP of DGS&D (ER) with Overall ACP for 2011-12 for the Company Comparison ofAACP of Non DGS&D Customers with Overall in 2011-12 Comparison DTR and ACP of IOCL with HPCL and BPCL Line graph comparing Current Ratio and Quick Ratios of IOCL, HPCL andComparison of CCC for IOCL, HPCL, BPCL BPCL Area graph showing Profitability Ratios of IOCL, HPCL and BPCL Line Graph showing Return on Capital Employedand Return on Fixed Assets Bar chart showing Outstanding and Beyond Credit Outstanding under RSO

Line Graph showing the Beyond Credit Outstanding as a % of Outstanding

Graph showing Productwise Outstanding under RSO

Page

2

3

5

17

20

30

34

39

43

49

52

64

65

66

68

70

71

72

77

80

82

84

85

87

89

90

91

93

94

95

8

Background

OIL INDUSTRY OVERVIEW

After the Indian Independence, the Oil Industry in India was a very small one in size and Oil was

produced mainly from Assam and the total amount of Oil production was not more than 250,000

tones per year.

This small amount of production made the oil experts from different countries predict the future

of the oil industry as a dull one and also doubted India's ability to search for new oil reserves.

But the Government of India declared the Oil industry in India as the core sector industry under

the Industrial Policy Resolution bill in the year 1954, which helped the Oil Industry in India

vastly.

Oil exploration and production in India is done by companies like NOC or National Oil

Corporation, ONGC or Oil and Natural Gas Corporation and OIL who are actually the oil

companies in India that are owned by the government under the Industrial Policy Rule. The

National Oil Corporation during the 1970s used to produce and supply more than 70 percent of

the domestic need for the petroleum but by the end of this amount dropped to near

about 35 percent. This was because the demand on the one hand

increasing at a good rate and the production was declining in a steady rate.

Oil Industry in India during the year 2004-2005 fulfilled most of demand through importing oil

from multiple oil producing countries. The Oil Industry in India itself produced nearly 35 million

metric tons of Oil from the year 2001 to 2005. The Import that is done by the Oil Industry in

India comes mostly from the Middle East Asia.

The Oil that is produced by the Oil Industry in India provides more than 35 percent of the energy

that is primarily consumed by the people of India. This amount is expected to grow further with

both economic and overall growth in terms of production as well as percentage. The demand for

oil is predicted to go higher and higher with every passing decade and is expected to reach an

amount of nearly 250 million metric ton by the year 2024.

7

UPSTREAM

Exploration&Production

ONGC

OilIndia

Limited

PrivateE&P

Companies–Cairo,RIL,NIKO

OIL INDUSTRY STRUCTURE

DOWNSTREAM

Refining&

Marketing

IOCL

(Refining&

Marketing)

HPCL

(Refining&

Marketing)

BPCL

(Refining&

Marketing)

GAIL

(GasTransport&

Petrochemicals)

RIL

(Refining&Marketing)

INDUSTRY

BODIES/

OTHERS

Petroleum

Planning&

AnalysisCell

PetroleumIndia

International

CentreforHigh

Technology

PetroleumConversation

ResearchAssociation

PetroFed

OilIndustry

Safety

Directoriate

EngineersIndia

Ltd.(Project

Consultant)

Fig.1: Structure of Oil Industry in India

8

Oil Industry Dynamics in India

At present, there are four PSUs namely, IOC, HPC, BPC and IBP (subsidiary of IOC) marketing

oil products in the country. In addition, certain private players like Reliance, Essar and Shell

have also in marketing rights for transportation fuels. Their marketing presence today, however,

is not significant and is limited to about 1370 outlets out of total retail outlet strength of about

29,380 . Some additional players like ONGC, who have also been granted marketing rights for

transportation fuels, are in the process of setting up retail outlets to integrate across the entire

hydrocarbon value chain. The company – wise market share in sales is tabled below:

It is evident that the share of the private sector in meeting total consumption of refined petroleum

products presently stands at around 15%. This proportion is however, expected to grow

significantly in the coming years

IOC Group BPCL HPCL Other PSUs Total PSUs Private

Total

Company Market Share (%) 46.2 18.6 16.5 2.2 83.5 16.5

100

Table 1: Retail Market Share (as on Nov-2011)

Fig. 2: Market Share of Different Companies in India

11

COMPANY PROFILE

INTRODUCTION

In order to ensure greater efficiency and smoothe working in the petroleum sector , Government

of India decided to merge the refineneries and the distribution activities.

The Indian Refineries and Indian Oil Company were combined to form the giant Indian Oil

Corporation (IOCL) on 1st September 1964, with its registered office at Bombay. In 1967, the

pipeline division of the corporation was merged with the refineries division. Research &

Development of Indian Oil Came into Existence in 1972. In October 1981 Assam Oil Company

was nationalized and has been amalgamated with IOCL as Assam Oil Division(AOD).

1

Fig.3: Formation of Indian Oil Corporation Ltd.

2

Beginning in 1959 as Indian Oil

Company Ltd., Indian Oil Corporation

Ltd. was formed in 1964 with the

merger of Indian Refineries Ltd.

(established 1958). Indian Oil and its

subsidiaries account for 49% petroleum

products market share, 40.4% refining

capacity and 69% downstream sector

pipelines capacity in India

As the flagship national oil company in

the downstream sector, Indian Oil

reaches precious petroleum products to

millions of people everyday through a

countrywide network of about 34,000

sales points. They are backed for

supplies by 166 bulk storage terminals

and depots, 101 aviation fuel stations

and 89 Indane (LPGas) bottling plants.

About 7,100 bulk consumer pumps are

also in operation for the convenience of

large consumers, ensuring products and inventory at their doorstep.

Indian Oil operates the largest and the widest network of petrol & diesel stations in the country,

numbering over 17,600. It reaches Indane cooking gas to the doorsteps of over 50 million

households in nearly 2,700 markets through a network of about 5,000 Indane distributors.

Indian Oil’s ISO-9002 certified Aviation Service commands over 62% market share in aviation

fuel business, meeting the fuel needs of domestic and international flag carriers, private airlines

and the Indian Defense Services. The Corporation also enjoys a do4

minant share of the bulk consumer business, including that of railways, state transport

undertakings, and industrial, agricultural and marine sectors.

3 INDIANOILCORPORATIONLIMITED(IOCL)

LOCATION

Registered Office : Indian Oil Bhavan,

G-9, Ali Yavar Jung Marg,

Bandra(East), Mumbai-400 051

Corporate Office : 3079/3, Sadiqnagar,

J B Tito Marg, New Delhi- 110 049

Refineries Division

Head Office : SCOPE Complex, Core-2

7, Institutional Area, Lodhi Road

New Delhi -110003

Barauni Refinery: P.O. Barauni Oil Refinery,

Dist. Begusarai -861 114 (Bihar)

Gujarat Refinery: P.O. Jawahar Nagar,

Dist. Vadodara -391 320(Gujarat)

Guwahati Refinery : P.O. Noonmati,

Guwahati-781020 (Assam)

Haldia Refinery: P.O. Haldia Refinery

Dist. Midnapur-721 606 (West Bengal)

15

Mathura Refinery: P.O. Mathura Refinery,

Mathura -281 005(Uttar Pradesh)

Panipat Refinery: P.O. Panipat Refinery,

Panipat-132140(Haryana)

Bongaigaon Refinery: P.O. Dhaligaon

Dist. Chirang, Assam - 783 385

Marketing Division

Head Office: G-9, Ali Yavar Jung Marg,

Bandra (East), Mumbai -400 051

Northern Region: IndianOil Bhavan,

1, Aurobindo Marg, Yusuf Sarai

New Delhi -110016

Eastern Region: IndianOil Bhavan,

2, Gariahat Road, South (Dhakuria)

Kolkata -700 068

Western Region: 254-C, Dr. Annie Besant Road,

Worli Colony, Mumbai -400 025

Southern Region: IndianOil Bhavan

139, Nungambakkam High Road

R&D Centre

R&D Centre: Sector 13 Faridabad -121 007(Haryana)

Pipelines Division

Head Office:

Northern Region:

Western Region:

A-1 Udyog Marg,

Sector-1, Noida-201301

P.O. Panipat Refinery

Panipat -132 140 (Haryana)

P.O. Box1007,Bedipara,

Morvi Road,Gauridad,

Rajkot-360 003

16

Southern Region:

Assam Oil Division

139, Nungambakkam High Road

Chennai – 600034

Assam Oil Division: P.O. Digboi -768 171(Assam)

IBP Division

IBP Division: 34-A, Nirmal Chandra Street,

Kolkata - 700 013

Business Group(Cryogenics) Sewri Terminal II,

Sewri (East), Mumbai - 400 015

Business Group(Cryogenics),

A-4, MIDC, Ambad, Nashik - 422 010

Group Companies

Chennai Petroleum Corporation Ltd.: 536, Anna Salai,

Teynampet, Chennai - 600 018

IndianOil Technologies Ltd:

IndianOil (Mauritius) Ltd.:

IOC Middle East FZE:

Lanka IOC PLC:

17

SCOPE Complex, Core-2

7, Institutional Area, Lodhi Road,

New Delhi-110003

Mer Rouge Port Louis

Maruritius

LOB 14209, Jebel Ali Free Zone,

P.O.Box: 261338

Lanka IOC Head Office Level 20,

West Tower, World Trade Center,

Echelon Square, Colombo - 01,

Sri lanka

SALIENT FEATURES

India’s Most Trusted Fuel Pump Brand (ET. Brand Equity-AC Nielson Survey 2007)

India’s largest commercial enterprise with leading market shares in downstream

segment of oil business.

Highest ranked Indian corporate in Fortune’s list of world’s 500 largest Companies (2008::

116th)

20th largest petroleum company in the world- Fortune Global500

Local Currency Rating of A1+(short-term) & LAA+(long-term) from ICRA

India’s No.1 corporate in annual listing of Business Standards (BS 10000),Business India(BI

Superior 100) &Economic Time (ET 500).

18

VISION, MISSION AND VALUES

Vision

A major diversified, trans-national, integrated energy company, with national leadership and a strong

environment conscience, playing a national role in oil security & public distribution.

19

Mission

To achieve international standards of excellence in all aspects of energy and diversified business with

focus on customer delight through value of products and services, and cost reduction.

To maximize creation of wealth, value and satisfaction for the stakeholders.

To attain leadership in developing, adopting and assimilating state-of-the-art technology

for competitive advantage.

To provide technology and services through sustained Research and Development.

To foster a culture of participation and innovation for employee growth and

contribution.

To cultivate high standards of business ethics and Total Quality Management for a

strong corporate identity and brand equity.

To help enrich the quality of life of the community and preserve ecological balance and

heritage through a strong environment conscience.

Values

Care stands for: - Empathy

Understanding Co-operation

Empowerment

Passion stands for: -

Commitment Dedication

Pride Inspiration Ownership Zeal & Zest

20

Innovation stands for: -Creativity

Ability to learn/absorb Flexibility

Change

Trust stands for: -

Delivered Promises Reliability Integrity

Truthfulness Transparency

OBJECTIVES & OBLIGATIONS OF IOCL

Objectives:

To serve the national interests in oil and related sectors in accordance and consistent with

Government policies.

To ensure maintenance of continuous and smooth supplies of petroleum products by way

of crude oil refining, transportation marketing activities and to provide appropriate

assistance to consumers to conserve and use petroleum products efficiently.

To enhance the country's self-sufficiency in crude oil refining and build expertise in

laying of crude oil and petroleum product pipelines.

To further enhance marketing infrastructure and reseller network for providing assured

service to customers throughout the country.

To create a strong research&development base in refinery processes, product

formulations, pipeline transportation and alternative fuels with a view to

minimizing/eliminating imports and to have next generation products.

To optimize utilization of refining capacity and maximize distillate yield and gross

refining margin.

To maximize utilization of the existing facilities for improving efficiency and increasing

productivity.

To minimize fuel consumption and hydrocarbon loss in refineries and stock loss in

marketing operations to effect energy conservation.

To earn a reasonable rate of return on investment.

To avail of all viable opportunities, both national and global, arising out of the

Government of India’s policy of liberalization and reforms.

To achieve higher growth through mergers, acquisitions, integration and diversification

by harnessing new business opportunities in oil exploration production, petrochemicals,

natural gas and downstream opportunities overseas.

To inculcate strong ‘core values’ among the employees and continuously update skill sets

for full exploitation of the new business opportunities.

To develop operational synergies with subsidiaries and joint ventures and continuously

engaged across the hydrocarbon value chain for the benefit of society at large.

4

Financial Objectives:

To ensure adequate return on the capital employed and maintain a reasonable annual

dividend on equity capital.

To ensure maximum economy in expenditure.

To manage and operate all facilities in an efficient manner so as to generate adequate

internal resources to meet revenue cost and requirements for project investment, without

budgetary support.

To develop long-term corporate plans to provide for adequate growth of the

Corporation’s business.

To reduce the cost of production of petroleum products by means of systematic cost

control measures and thereby sustain market leadership through cost competitiveness.

To complete all planned projects within the scheduled time and approved cost.

Obligations:

Towards customers and dealers:- To provide prompt, courteous and efficient service and

quality products at competitive prices.

Towards suppliers:- To ensure prompt dealings with integrity, impartiality and courtesy and

help promote ancillary industries.

Towards employees:- To develop their capabilities and facilitate their advancement through

appropriate training and career planning. To have fair dealings with recognised representatives of

employees in pursuance of healthy industrial relations practices and sound personnel policies.

Towards community:- To develop techno-economically viable and environment-friendly

products. To maintain the highest standards in respect of safety, environment protection and

occupational health at all production units.

Towards Defence Services:- To maintain adequate supplies to Defence and other para-military

services during normal as well as emergency situations.

5

Class A:

PRODUCTS PROFILE (IOCL)

The Products produced by IOCL are broadly classified into the following cases:

1. Liquid Petroleum Gas (L.P.G) Class B:

2. Motor Spirit (M.S.)/Gasoline 3. Super Kerosene Oil (S.K.O) 4. High Speed Diesel Oil (H.S.D)

Class C :

5. High Speed Diesel Oil (H.S.D) 6. Furnace Oil (F.O.) 7. Bitumen 8. Naphtha 9. Aviation Turbine Fuel (A.T.F)

Class D :

10. Mineral Turpentine Oil (M.T.O) 11. Jute Batching Oil (J.B.O) 12. Light Diesel Oil (L.D.O) 13. Unleaded petroleum 14. Lubes & Greases 15. Fuel & Feedstock 16. Super Kerosene Oil

6

MARKETS

IndianOil has one of the largest petroleum marketing and distribution networks in Asia, with

over 34,000 marketing touch points. Its ubiquitous petrol/diesel stations are located across

different terrains and regions of the Indian subcontinent.

From the icy heights of the Himalayas to the sun-soaked shores of Kerala, from Kutch on India's

western tip to Kohima in the verdant North East, IndianOil is truly 'in every heart, in every part'.

IndianOil's vast marketing infrastructure of petrol/diesel stations, Indane (LPG) distributorships,

SERVO lubricants & greases outlets and large volume consumer pumps are backed by bulk

storage terminals and installations, inland depots, aviation fuel stations, LPG bottling plants and

lube blending plants amongst others. The countrywide marketing operations are coordinated by

16 State Offices and over 100 decentralised administrative offices.

Several landmark surveys continue to rate IndianOil as the dominant energy brand in the country

and an enduring symbol for high quality petroleum products and services. The heritage and

iconic association that the brand invokes has been built over four decades of commitment to

uninterrupted supply line of petroleum products to every part of the country, and unique products

that cater not only to the functional requirements but also the aspirationalneeds of millions of

customers.

IndianOil has been adjudged India's No. 1 brand by UK-based Brand Finance, an independent

consultancy that deals with valuation of brands. It was also listed as India's 'Most Trusted Brand'

in the 'Gasoline' category in a Readers' Digest - AC Nielsen survey. In addition, IndianOil topped

The Hindu Businessline's "India's Most Valuable Brands" list. However, the value of the

IndianOil brand is not just limited to its commercial role as an energy provider but straddles the

entire value chain of gamut of exploration & production, refining, transportation & marketing,

petrochemicals & natural gas and downstream marketing operations abroad. IndianOil is a

national brand owned by over a billion Indians and that is a priceless value.


ORGANIZATION STRUCTURE OF IOCL:

Fig. 4: Organisational Structure of IOCL

25

STRUCTURE OF EASTERN REGION OFFICE:- GM – Regional Service(Eastern Region) G.M – Aviation G.M – Human Resource G.M – Finance

STRUCTURE OF STATE OFFICE:- There are 16 state office all over India. Under each state office there are divisionalofficers, state officers, plants, terminal & depots.

STRUCTURE OF WEST REGIONAL STATE OFFICE (W.B.S.O):- ED – W.B.S.O CRSM – Retail Sales D.G.M – Consumer Sales D.G.M – Finance Sales D.G.M – L.P.G D.G.M – Operations D.G.M – Lube D.G.M – Law

STRUCTURE OF HR DEPARTMENT UNDER W.B.S.O:- One senior HR Managers One HR Officer

AREA OF OFFICES UNDER W.B.S.O:- W.B.S.O has three area offices: 1. Durgapur area offices. 2. Kolkata area offices. 3. Siliguri area offices.

L.P.G UNDER W.B.S.O:- The L.P.G plants under W.B.S.O are situated as the following places: 1. Budge Budge 2. Durgapur 3. Kalyani 4. Malda 5. Rangpo 6. Raninagar 7. Port Blair

DEPOTS UNDER W.B.S.O:- 1. Hasimara 2. Kantapukur 3. Malda

4. Rangpo


REFINING:

BUSINESS OF IOCL

Born from the vision of achieving self-reliance in oil refining and marketing for the nation,

IndianOil has gathered a luminous legacy of more than 100 years of accumulated experiences in

all areas of petroleum refining by taking into its fold, the Digboi Refinery commissioned in

1901.

IndianOil controls 10 of India’s 20 refineries. The group refining capacity is 60.2 million metric

tonnes per annum (MMTPA) or 1.2 million barrels per day -the largest share among refining

companies in India. It accounts for 33.8% share of national refining capacity.

The strength of IndianOil springs from its experience of operating the largest number of

refineries in India and adapting to a variety of refining processes along the way. The basket of

technologies, which are in operation in IndianOil refineries include: Atmospheric/Vacuum

Distillation; Distillate FCC/Resid FCC; Hydrocracking; Catalytic Reforming, Hydrogen

Generation; Delayed Coking; Lube Processing Units; Visbreaking; Merox Treatment; Hydro-

Desulphirisation of Kerosene&Gasoil streams; Sulphur recovery; Dewaxing, Wax Hydro

finishing; Coke Calcining, etc.

The Corporation has commissioned several grassroot refineries and modern process units.

Procedures for commissioning and start-up of individual units and the refinery have been well

laid out and enshrined in various customized operating manuals, which are continually updated.

IndianOil refineries have an ambitious growth plan with an outlay of about Rs. 55,000 crore for

capacity augmentation, de-bottlenecking, bottom upgradation and quality upgradation. Major

projects under implementation include a 15 MMTPA grassroots refinery at Paradip, Orissa,

Naphtha Cracker and Polymer Complex at Panipat, Panipat Refinery expansion from 12

MMTPA to 15 MMTPA, among others.

In addition, petrol quality upgradation projects are under implementation at Panipat, Mathura,

Barauni, Guwahati and Digboi refineries proposed to be completed by the end of 2011.

On the environment front, all IndianOil refineries fully comply with the statutory requirements.

Several Clean Development Mechanism projects have also been initiated. To address concerns

on safety at the work place, a number of steps were taken during the year, resulting in reduction

of the frequency of accidents.

16

Innovative strategies and knowledge-sharing are the tools available for converting challenges

into opportunities for sustained organisational growth. With strategies and plans for several

value-added projects in place, IndianOil refineries will continue to play a leading role in the

downstream hydrocarbon sector for meeting the rising energy needs of our country.

PIPELINES:

Fig. 5: Pipeline Network of IOCL in India

Indian Oil Corporation Ltd. operates a network of 10329 km long crude oil and petroleum

product pipelines with a capacity of 71.60 million metric tonnes per annum. Cross-country

pipelines are globally recognised as the safest, cost-effective, energy-efficient and environment-

friendly mode for transportation of crude oil and petroleum products.


During the year 2010-11 IndianOil’s crude oil pipelines registered the throughput

of 38.46 million metric tonnes. Corporation’s largest crude oil handling facility at Vadinar

marked the berthing of 4000th tanker since inception. The terminal operates two offshore Single

Point Mooring (SPM) systems, to feed Koyali, Mathura and Panipat refineries.

Raising efficiency and emerging as the least-cost supplier, IndianOil has added the 330-km

Paradip-Haldia crude oil pipeline (PHCPL) to its bustling pipeline network during the year. The

PHCPL system has a Single Point Mooring installed 20-km off the Paradip coast. With this, it is

now able to pump crude oil from Very Large Crude Carriers to the tank-farm set up onshore and

onward to Haldia through the pipeline. The Pipeline has replaced the earlier system of receipt of

crude oil at Haldia port through smaller tankers.

On the west coast, the Mundra-Panipat pipeline is being further augmented to transport an

additional 3 Million Metric Tonne Per Annum (MMTPA) of crude oil to Panipat Refinery, under

expansion from 12 to 15 MMTPA. Additional requirement of crude oil for Koyali, Mathura and

Panipat refineries is planned to be met by de-bottlenecking and augmenting Salaya-Mathura

Pipeline system.

IndianOil’s product pipelines, connecting its refineries directly to high-consumption centres,

achieved a throughput of 20.92 million tonnes during 2010-11. IndianOil has now joined the

select group of companies in India which owns and operates LPG pipelines by building its first

such cross-country facility linking Panipat with Jalandhar. Apart from providing better logistics,

this pipeline can transport 700,000 tonnes of LPG from Kohand near Panipat refinery to

IndianOil’s bottling plants at Jalandhar and Nabha in Punjab. The pipeline will also

simultaneously to meet the requirement of LPG at Una and Baddi in Himachal Pradesh and at

Jammu and Leh in J&K.

Two pipelines linking the major airports of India have been commissioned during the year to

transport Aviation Turbine Fuel to these airports. The 36 km long pipeline from existing

Devangonthi terminal to New Bengaluru International Airport, Devanhalli, Bengaluru was

commissioned in October 2008. The 95 km long ATF pipeline from CPCL to Chennai AFS was

commissioned in December 2008.

In its continuous efforts of expanding the network IndianOil is implementing 290 km long

product pipeline from Chennai to Bengaluru to facilitate cost effective positioning of products at

consumption centre located in and around Bengaluru and to strengthen product positioning

29

capabilities of CPCL Refinery. IndianOil is also implementing a 217 km long branch pipeline

from Koyali-Sanganer Pipeline at Viramgam to existing scrapper station at Churwa along with

use of a 14 km long existing pipeline from Churwa to Kandla.

One of the major product pipelines currently under execution is 290 km long Chennai-Bengaluru

Pipeline. A 21-km spur line from Mathura to Bharatpur and a 94-km branch line to Hazira on the

Koyali-Dahej pipeline are also under implementation. A grassroots terminal facility is being set

up at Ratlam to feed the local markets. A 118-km pipeline is being laid from Bijwasan to Panipat

for transporting Naphtha from Mathura Refinery to the upcoming Naphtha Cracker unit at

Panipat.

IndianOil sees gas pipelines as a major growth area in the future. The gas market in India is

expanding fast, thanks to enhanced availability of the product from indigenous sources and

through imports. The Corporation will commission its first regassified LNG pipeline from Dadri

to Panipat (132 km) to synchronise with the completion of the first phase of the power plant

coming up under the Naphtha Cracker project at Panipat.

IndianOil has translated the expertise of its personnel in pipeline operations into a business

opportunity, by offering training and consultancy to several Indian and overseas companies.

Currently, the Corporation is imparting training for personnel of the Greater Nile Petroleum

Company, Sudan.

MARKETING

Reaching out to a Billion Hearts

IndianOil has one of the largest petroleum marketing and distribution networks in Asia, with

over 35,000 marketing touch points. Its ubiquitous petrol/diesel stations are located across

different terrains and regions of the Indian sub-continent. From the icy heights of the Himalayas

to the sun-soaked shores of Kerala, from Kutch on India's western tip to Kohima in the verdant

North East, IndianOil is truly 'in every heart, in every part'. IndianOil's vast marketing

infrastructure of petrol/diesel stations, Indane (LPG) distributorships, SERVO lubricants &

greases outlets and large volume consumer pumps are backed by bulk storage terminals and

installations, inland depots, aviation fuel stations, LPG bottling plants and lube blending plants


amongst others. The countrywide marketing operations are coordinated by 16 State

Offices and over 100 decentralised administrative offices.

Several l and mark surveys continue to rate IndianOil as the dominant energy brand in the

country and an enduring symbol for high quality petroleum products and services. The heritage

and iconic association that the brand invokes has been built over four decades of commitment to

uninterrupted supply line of petroleum products to every part of the country, and unique products

that cater not only to the functional requirements but also the aspirational needs of millions of

customers.

IndianOil has been adjudged India's No. 1 brand by UK-based Brand Finance, an independent

consultancy that deals with valuation of brands. It was also listed as India's 'Most Trusted Brand'

in the 'Gasoline' category in a Readers' Digest - AC Nielsen survey. In addition, IndianOil topped

The Hindu Businessline's "India's Most Valuable Brands" list. However, the value of the

IndianOil brand is not just limited to its commercial role as an energy provider but straddles the

entire value chain of gamut of exploration & production, refining, transportation & marketing,

petrochemicals & natural gas and downstream marketing operations abroad. IndianOil is a

national brand owned by over a billion Indians and that is a priceless value.

31

LITERATURE REVIEW:

A Prescription for Debt Recovery Management, Towards Reducing

Costs and Increasing Recovery of Receivables

Author: David Coyle, President,

Published by: SeeWind Design 2008

Debt recovery and collections managers are always looking for less costly and more efficient

ways of collecting on bad debt. This is especially true in todays business climate of diminished

budgets and pressures from restructuring. This paper reviews six debt recovery management

best practices that ensure swift and accurate recuperation of receivables for less operational cost

than is usual within a typical collections process. As well the workflow that enables the

application of these best practices is described. Finally this paper outlines the features and

benefits of FORCE, a business analysis and collections management software solution that

incorporates the fully automated workflow and best practices discussed. The prescription

suggested here focuses on the ability to uncover and see the business reality along with the

capability to detect, diagnose and action opportunities that center on TIME and MONEY:


OBJECTIVES:

To find the Trend of the Sales and Debtors of the Company and to find a relation

between the two.

To find out the Average Collection Preriod of Various Customers, DGS&D and Non

DGS&D.

To analyze the Cash Conversion Cycle and the Liquidity of the Company.

To analyse the Working Capital of the Comapany and how it can be regulated.

To find out the different Ratios related to Liquidity and Profitability of the Company

and compare them with the competitors like HPCL and BPCL

To know the Credit Policies of IOCL for different Customers.

Analyse the efficiency of different Collection Procedures with special emphasis on

the e-Collection Mode like RTGS and Core-to-Core banking.

17

METHODOLOGY

The methodology followed in this project involved the following Phases:

Collection of Data

Type of the project

Analysis of Data

Conclusion & Recommendation

Collection of Data:

Data required for the project e.g. Balance Sheet, statement of Profit & Loss Account etc. were

collected from the annual reports of IOCL, for the period of 2009-10 to 2011-12. Besides for

Explanation of several issues, different articles, Internet data’s, books etc were consulted. The

data collected are Secondary & Published Data. Few data have been collected from the SAP

module used in IOCL

Type of the project:

The project is descriptive and analytical in nature.

Analysis:

For the comparative analysis ratio’s were used along with graphs, charts, and necessary

diagrams. The current year i.e., 2011-12 has not been taken into calculation in many ratios

because, at that time of preparation of this report the Annual Report 2011-12 was not published.

Interpretation & Recommendation:

After completion of the entire analysis, interpretation & recommendation were made on the basis

of figures and diagrams. Statistical tools like Tables, Charts, Bar graphs Correlations are

used for representation of data.


RECEIVABLE MANAGEMENT INTRODUCTION: A sound managerial control requires proper liquid management of

liquid assets and inventory. These assets are a part of working capital of the business. An

efficient use of financial resources is necessary to avoid financial distress. Receivables

result from credit sales. A concern is required to allow credit sales in order to expand its

sales volume; it is not always possible to sell goods on cash basis. Sometime other

concern in that line might established a practice of selling goods on credit basis. Under

these circumstances it is not possible to avoid credit sales without adversely affecting

sales. The increase in sales is also essential to increase profitability. After a certain level

of sales this increase in sales will not proportionately increase production costs. The

increase in sales will bring in more profits.

Receivables constitute a significant portion of current assets of a firm. But for investment

in receivable a firm has to incur certain costs. Further there is a risk of bad debts also. It

is therefore very necessary to proper control and management of receivables.

Cash is the most important component of current assets; therefore the firm basic

strategies are to reduce the operating cash requirement. The company’s aim is to

accelerate the collection of receivables so as to reduce the average collection period. The

receivables represent an important component of current assets of a firm. The purpose of

this analysis is the important dimension of efficient management of receivables within the

framework of a firm objective of value maximization.

OBJECTIVES: The term receivables are defined as “debt owed to the firm by customer

arising from sale of goods or services in the ordinary courses of business”. Receivable

management is also called trade credit management. Thus account receivables represent

an extension of credit to customers allowing them a reasonable period of time in which to

pay for the good received.

The objective of receivable management is to promote sales and profit until that point is

reached where return on investment in further funding receivables is less than cost of

funds raised to finance that an additional credit, i.e. cost of capital. The specific costs and

benefits which relevant to the determination of receivables management are examined

below.

8

The major categories of cost associated with the extension of credit and account

receivables are:

COLLECTION COST:

These are administrative cost incurred in collecting the receivables from the customer to

whom credit sales have been made.

CAPITAL COST:

The increased level of accounts receivables is an investment in assets. There is time lag

between the sale of goods to, and payment by the customer. Meanwhile the firm has to

pay employees and suppliers of raw materials. Thereby implying that firm should arrange

for additional funds to meets its own obligation while waiting for payments from its

customers. The cost on the use of additional capital to support credit sales, which

alternatively could be profitability employed elsewhere, is , therefore a part of extending

credit or receivables or capital cost.

DELIQUENCY COST:

This cost arise out of the failure of the customers to meet their obligation when payment

of credit sales become due after the expiry of credit period, the cost are (i) blocking of

funds for extending period, (ii) cost associated with steps that have to be initiated to

collect the overdue, such as reminders and other collection efforts, legal charges etc.

DEFAULT COST:

The firm may not be able to recover the over dues because of the inability of the

customers. Such debts are treated as bad debts these cost associated with credit sales and

accounts receivables.

BENEFITS:

The benefits are increased sales and anticipated profits because of a more liberal policy.

When firm extended trade credit, i.e. invest in receivables they intend to increase sales.

The impact of liberal trade credit policy is likely to two forms. First, it is oriented to sales

expansion, in other words, a firm may grant trade credit either to increase sales to

existing customers or attract new customer. This motive for investment in receivables is

growth oriented. Secondly, the firm may extend credit to project its current sales against

emerging competition. Here the motive is sales retention. As a result of increased sales,

the profit of firm will increase.


What are Debtors?

Debtors are people or other firms who owe money to the firm. This will usually happen

where the firm has sold goods with a period of credit. The firm sells the good or service

but allows the purchaser a period of credit to pay - usually a month. During this month

the purchaser owes the firm the money and is therefore a debtor.If the firm has debts

these are considered an asset, because when the debtors pay the firm will have converted

the debt into cash in the bank. Because most debts are relatively short-term they are

considered current assets. The other current assets are stocks and cash.The amount of

debtors a firm has depends on the line of business they are in. If most of their business is

with trade customers where they have to offer credit then the level of debtors may be

high. For many retail businesses, however, the level of debtors will tend to be relatively

low as most of their sales are cash sales.

Ways to manage debtors - credit policy and collection procedure

A sale is not a sale until the money is in your bank account. Having an effective credit

policy and collection procedure in place is one of the most important facets of owning

your own business. When it comes to dealing with customers who seem unwilling to pay

on time it can mean the difference between prosperity and failure.

Credit policy

Credit policy effects debtor management because it guides management about how to

control debtors and how to make balance between liberal and strict credit. If company

does not restrict to sell the products on credit after a given limit of sale. This liberated

credit policy will increase the amount of sale and profitability. But risk will also increase

with increasing of sale. If we sell the good to those debtors whose capability to pay is not

good, then it is possible that some amount will become bad debts. Company can increase

the time limit for paying by such debtors. On the other hand, if company’s credit policy is

strict, then it will increase liquidity and security, but decrease the profitability. So,

finance manager should make credit policy at optimum level where profitability and

liquidity will be equal. We can show it graphically.

10

Fig. 6: Relation between Profitability and Liquidity

Mode of payment: Any type of payment is acceptable, but the costs involved with such

things as credit card transactions as you may need to add a surcharge to cover them must

be seen.

Dealing late payments: The policy should appear on the credit application form, and

should clearly state the consequences of late payment. This may take the form of

withholding goods, not processing orders, and in some cases, legal action.

Sub part of credit policy

(a) Length of Credit period : Length of credit period is also an element that affects

decisions of finance manager relating to manage debtors. It is the time which allows to

debtor to pay his debt for purchasing goods on credit from vendor. Finance manager can

increase the length of credit period according to reputation of customers.

(b) Cash discount: Cash discount is technique to get money fastly from debtors. It is

cost of investment in credit sale.

Credit policy analysis

It means decision relating to analysis of credit policy. Evaluation and analysis of credit

policy is based on following factors.


a) Collection of debtor’s information

For analysis the financial position of debtors, we have to collect the information relating

to debtors. This information can be obtained from customer’s financial statements of

previous years, bank reports, and information given by credit rating agencies. These

information will be useful for deciding where debtors will our debt or not. It will also be

useful for knowing capability to pay the debt.

b) Credit Decisions

After collection and analysis the debtor’s information, manager has to decide whether

company should facilitate to sell goods on credit or not. If company sells the goods on

credit to particular debtor, then at what level it will be sold after seeing his position. For

this manager can fix the standard for providing goods on credit. If a particular debtor is

below than given standard, then he should not accept his proposal of buying goods on

credit.

Formulation Collection Policy : For getting fund fastly from debtor, the

following steps will be taken under formulation of collection policy.

a) Send reminding letter for paying debt

b) Take the help of debt collection agency for getting bad debt.

c) To do legal action against bad debtors.

d) To request personally to debtor to pay his dues on mobile or email.

e) Finance manager should monitor collection position through average collection period

from past sundry debtor and their turnover ratio.

f) To make ageing schedule. Sample of Ageing schedule is given below.

Credit application

To help you to decide which of your customers should be granted credit terms, it is

important to have a credit application form/agreement. This sets out all the conditions of

credit, as well as the rights and obligations of both parties.

Essential components of a credit application:

12

comprehensive details of all directors/partners/owners

at least three trade credit references

signature of the applicant to ensure that they have read and understood all the conditions

and have agreed to abide by them. A Deed of Indemnity and Guarantee for corporate

clients is optional, however it is an excellent safeguard against solvent clients.

the final decision should be based on all the data collected, in particular the references,

the length of time that the business has been operating and whether or not the guarantees

have been signed.

Collection procedure

Step 1: A statement asking for payment should be sent. Some 'Reminder' or 'Final Notice'

adhesive labels can be bought.

Step 2: Telephone the customer and remind them of the debt. Ask them if there is a

problem. If no barrier to payment exists, ask them to settle the debt by a specific date.

Step 3: If there is a cash flow problem, try to arrange a payment plan that accommodates

both parties.

Step 4: If the problem is recurrent then it is a good idea to review the customer's credit

terms.

Step 5: If the debt is not settled within the agreed timeframe, you may wish to take legal

action

To deal with situations as they occur so you don't contribute to any potential cash flow

problems resulting from delinquent payments. If you design an effective credit policy,

credit application and collection procedure, you are helping to ensure the financial

security and stability of your business venture.

CREDIT ANALYSIS:

Two basic steps are involved in the credit investigation Process.

A)OBTAINING CREDIT INFORMATION-The first step in credit analysis is

obtaining the information which form the basis for the evaluation of customers.The

sources of information may be internal such as the historical payment pattern of a

customers,or may be external such as :

I)FINANCIAL STATEMENTS-The published financial statements such as

balance sheet and profit and loss account.


II)BANK REFERENCES-The firm’s banker collects the necessary

information from the applicant’s Bank.

III)TRADE REFERENCES-Reputed Credit organization are approached about

the credit worthiness of proposed customers.

IV)CREDIT BUREAU REPORTS-Credit Bureau reports from organization

which specializes in supplying credit information can also be utilized.

B)ANALYSIS OF CREDIT INFORMATION-The information collected from

different sources are analyzed to determine the credit worthiness of the applicant.The

analysis should cover two aspects:

I)QUANTITATIVE-The quantitative aspects is based on the factual information

available from the financial statements,the past records of the firm’s and so on.

II)QUALITATIVE-The qualitative judgement would cover aspects relating to the

quality of management.

Customers Evaluation-The 5 C’s-

CHARACTER- Reputation, Track Record

CAPACITY- Ability to repay( earning capacity)

CAPITAL- Financial Position of the company.

COLLATERAL- The type and kind of assets pledged

CONDITIONS- Economic conditions & competitive factors that may affect the

profitability of the customer.

Effective accounts receivable management can help you in a variety ways:

It can cut and maintain your average collection delay or DSO

It can lessen your direct and indirect expenses

It can considerably reduce your bad debt

It can tell you various ways to take advantage of your cash-flow

It can help you capitalize on your internal resources

It can maximize interventions on sales, service and market share

14

Fig 7: Debt Collection Procedure.

Reasons for incurring Debts?

1.Debtors are the current assets for a company and provide the liquidity for a company.So to

improve the liquidity position of a company it is important to incur debts. However if the

debtors are too high in comparison with the other Current assets then there will be a problem

of high working capital for the company which can hit the profitability badly.

2. Secondly, most of the sales are credit sales in every organization. Cash sales constitutes

insignificant amount of the sales of a company. So to maintain the sales revenue company

has to incur debts.


3. It is important to reach the sales potential of a company in this growing

market. So if the company doesnot allow the credit to the customers then the market will be

untouched.

4. To Optimize the return on investments on the assets.

5. To get a competitive advantage over the competitors and to stay in the competition it is

important to give the customers to credit period so the can utilize the extra advantage.

Confirmation of debt(How to establish correctness of debtors):

These are some points to establish the correctness of the Debtors.

One must be sure to know who he is doing business with. Always obtain a signed Credit

Application from new customers and check them out thoroughly.

Only three trade references cannot always be relied upon. Some organisations only pay

three customers on time just so that they can use them as references.

Always a mercantile report must be obtained and checked for previous legal actions and

directors that have been associated with previously failed businesses. If one find either,

credit should not be extended. COD facility may be offered instead.

A credit limit must be set. Whilst a credit limit should always be seen as a guide, if a

customer is going to exceed that limit by a considerable margin (say 20%), one must

always recheck their credit worthiness and reset the limit accordingly.

Every Company should have a written policy that clearly sets out when, and under what

circumstances, the organisation offers credit. This should be distributed to all interested

parties (especially the sales force).

Customers must not be given any excuse not to pay you on time. Make sure all your

paperwork is easy to read and understand.

Company should give their customers plenty of payment methods to use (i.e. cheque,

EFT, bankcard, Mastercard, Visa, Diners and American Express).

If cla and disputes are unavoidable, it must be made sure that he have an effective

dispute resolution procedure that always results in effective corrective action.

Sales personnel should play an active role in ensuring that all invoices are paid on time.

43

Terms and Conditions of Sale should include retention of title clause and should be sent

to the customer with a new account welcome letter. This letter is an opportunity to advise

the customer of their credit limit and your payment terms.

Customers must be asked to sign personal guarantees, if he is unable to justify the level

of credit that they require.

Personal guarantees must not be used as a reason to open an account for a customer with

a poor payment history. Stick to COD.

Ring all new accounts before the first payment is due. Make sure that they are happy with

the service / goods and confirm that payment will be made on the due date.

Once customers are five days overdue with their payment, ring them and ask for YOUR

money. Do not be shy or embarrassed. They aren’t.

If Company have provided a good product or service and the customer still will not pay,

the account should be closed and handover the debt over to a professional collection

agency and never trade on a credit basis with these people again.

Analyse the financial status of the company you are lending to by checking their previous

financial accounts history or analysing the previous Legal Cases the customer have

Seek for the credit rating the company have. The higher arted comapanies are

comparative risk free and credit can be extended in that cases.

Non Recovery of debts

A company that extends credit to a customer faces the risk of not collecting the account

receivable. If a loss does occur from extending credit, it is reported as an operating expense,

such as bad debts expense.

There are two ways of reporting losses from credit sales. One is the direct write-off method.

Under this approach, the company does not anticipate any loss. The asset Accounts

Receivable is reported at its full amount and no expense is reported until it is known with

certainty that a customer will not pay the amount owed. This method is not encouraged by

accountants, because it may be overstating assets and net income.


The preferred way to report losses from credit sales is to anticipate that some

receivables will not be collected. This approach is the allowance method. It gets it name

because of the contra account to Accounts Receivable entitled Allowance for Doubtful

Accounts. The credit balance in the allowance account works to value the accounts

receivable at their approximate net realizable amount. Under the allowance method, the bad

debts expense and the credit to the allowance account is reported closer to the time of the

sale—thus providing a better matching with revenues. Under the allowance method the

accounts receivable are reported at a more realistic and conservative amount.

To assist in the managing of accounts receivables, an aging of the accounts receivable is

prepared. An aging sorts the customers' balances by how long the customers have owed the

open invoice amounts.

Ways to collect Bad Debts:

Recovering bad debts is not an easy or pleasant task, and it is advisable for businesses to

take measures to avoid or at least minimize bad debt. This can be done by having a credit

management system in place. Credit management strategies may include:

* clearly stating terms and conditions in the credit contract

* ensuring all credit transactions are documented and signed

* maintaining records accurately

* keeping track of due and overdue payments

* checking the credit rating of debtors before extending credit

* checking the credit rating of the debtor on a regular basis after giving credit

* collecting a deposit from the customer before delivering goods or services

* collecting portions of the payment as a project progresses

* reminding customers of payments through phone, letters or visits

In spite of having an efficient credit management strategy, it is still possible to incur bad

debts. All businesses will have some percentage of customers who delay payments or even

avoid them. Businesses have many options to deal with delinquent customers. Some of these

are discussed below.

45

Consultation

Businesses can try to recover bad debt from customers through consultation. The

consultation can bring about an agreement between the creditor and debtor regarding the

payment. In case of any disputes over the debt, the Community Justice Center can be called

upon to intervene and resolve the issue.

Demand letter

A demand letter can be sent to the company or individual in debt, if the consultation does not

give satisfactory results. A demand letter must clearly state the details of the debt, along with

the total amount of debt involved and the date by which the debt must be settled. The demand

letter can also include a warning of legal action in case the debt is not paid by the specified

date.

Statutory letter

The credit company may choose to send a statutory letter instead of a demand letter. A

statutory letter will also give details of the debt, total amount of debt and expected date of

debt settlement. Statutory letters are sent out like court documents and hold greater clout than

demand letters. The statutory letter warns the debtors of legal action, within 21 days of the

specified date, if they fail to make the payment.

Litigation

A business may have to file a lawsuit against the debtor to recover the debt. All other debt

recovery strategies, within legal boundaries, must be tried before reaching this stage.

Litigation is always the last option. Taking legal action is a time-consuming and costly

business. It is advisable to get some idea of the potential cost involved before proceeding

with the litigation.

Bad debts are an unavoidable side effect of extending credit. Though there are many avenues

to collect debts, they are by no means easy and can cost the business a good amount of time

and money. Therefore, it is better to develop an effective credit management strategy to

minimize bad debts. Also, consider a partnership with a good collection agency that can take

over the task of collection if your in-house resources and expertise is inadequate to resolve

the situation.


Fig.8: Flow chart showing Debt Recovery Process

Varoius modes of Debt Collection(How to collect debts?)

Payment options include estimated annual fees paid in periodic instalments (preferably by

debit authority); cheque; direct deposits; Electronic Fund Transfer(EFT) ; BPay; Credit or

Debit Card (via phone or website); direct debit; or Professional Fee Funding.Others include:

Online Credit Card Payment System

Electronic Cheque System

Electronic Cash System and

Smart Card based Electronic Payment System

Real time Gross Settlement (RTGS) System

NationalElectronic Fund Transfer (NEFT) System and

Electronic Clearing Service (ECS).

Electronic funds transfer or EFT refers to the computer-based systems used to perform

financial transactions electronically.

The term is used for a number of different concepts:

Cardholder-initiated transactions, where a cardholder makes use of a payment card

47

Direct deposit payroll payments for a business to its employees, possibly via a payroll

services company

Direct debit payments, sometimes called electronic checks, for which a business debits

the consumer's bank accounts for payment for goods or services

Electronic bill payment in online banking, which may be delivered by EFT or paper

check

Transactions involving stored value of electronic money, possibly in a private currency

Wire transfer via an international banking network (generally carries a higher fee)

Electronic Benefit Transfer

RBI Control:

Recognising the importance of ensuring the safety, security of the paymentsystems, the

Reserve Bank of India (RBI) has put in place three modes ofelectronic payments i.e. Real

time Gross Settlement (RTGS) System, NationalElectronic Fund Transfer (NEFT) System

and Electronic Clearing Service (ECS).Payments by these modes have been steadily growing

in the last few years. Aninternal Working Group set up by the Reserve Bank to examine the

variousissues related to migration from paper-based systems to electronic

systemsrecommended a phased approach of encouraging, monitoring and mandating for this

migration. The Reserve Bank has been using the approach of encouragingand monitoring

resulting in almost 40,000 bank branches spanning over 9773 centres being covered by the

RTGS and NEFT systems. A study conducted by the Reserve Bank revealed that during a

three month period about 2,100 cheques each valued at Rs.1 crore and above were processed

in the clearing houses in the four metros. It is proposed that with effect from

April 1, 2008 all payment transactions of Rs. 1 crore and above between RBI regulated

entities i.e. banks, primary dealers and NBFCs as well as in RBI regulated markets i.e.

money market, Government Securities market and foreign exchange market may be

mandated to be undertaken through electronic mode only. This move will not only reduce

risk from moving large paper-based value retail payments to safer electronic modes, but will

also bring greater efficiency and customer convenience to the payment systems.

Recognising the importance of electronic payment systems in ensuring safe, secure and fast

payment and settlements RBI has put in place three modes of payments:


Sl. No. PaymentSystems Features

1

2

3

RTGS (Real Time Gross

Settlement)

NEFT (National Electronic

Funds Transfer)

ECS (Electronic Clearing

System)

For online real time settlement of systemically

important payments. Minimum transaction value

Rs.1.00 lakh. Transaction window from 9.00 a.m.

to 4.00 p.m. Amount is credited to the beneficiary's

account within a maximum time of 2 hours.

For settlement in batch process – 6 settlements a

day on week days and 3 settlements on Saturday.

Customers accounts credited on the same day for

first four settlements and by the next day for the

last two settlements

Netted settlement for bulk transactions of repetitive

nature (dividend, salary, pension payments,refunds,

vendor payments).

Efficiency Of e-Collection:

By migrating away from the paper check, businesses have the ability to increase

efficiency and realize numerous hard and soft benefits, both in their bottom lines and to

their corporate citizenry.

Cost Reduction

Cost reduction is among the key drivers for making the organizational move to electronic

payments. Cost savings come from a variety of areas related to electronic payments –

among the most readily quantifiable are reduced head count, lower administration costs

and decreased paper usage. The reduced amount of paper consumption can have a drastic

and far reaching effect. By making the switch from paper check printing to electronic

49

payments, businesses can eliminate enormous amounts of check, forms and approval

documents and envelopes. These savings also cascade into postage reduction.

Stremlined Payment Processing

For organizations of all sizes, the move to electronic payment processing can bring

additional challenges, however. Although cost savings can be found by replacing paper

checks with electronic payments, many organizations are finding that in order to execute

electronic payments they must log in to several proprietary vendor systems. This can add

operational complexity to an already inefficient accounting process. A simpler approach

is to consider working with a payment processor that can execute all payment types on

your behalf. Some of these vendors, such as SunGard, can accept payment files directly

from your accounting/ERP applications, and even provide least cost routing of payments,

dramatically increasing payment processing efficiencies without requiring process

change. The speed with which electronic payments can be received and delivered can

have even further reaching effects on the bottom line when considering the effort to attain

early payment discounts (generally the 2 percent 10 net 30 terms). the average business

organization is unable to capture anywhere between 50 percent-60 percent of discounts

offered, because their A/P departments are unable to process and pay the invoice using a

paper check within the 10-day window that applies to the discount. According to statistics

from PayStream Advisors, the average paper check approval and disbursement cycle

can take between 30-40 days or more, placing the 10-day discount opportunity well out

of reach. Aside from the standard discount practices among businesses, electronic, faster

payments also means fewer late fees. If the average payment and approval cycle is

around 30-40 days, with variances going even higher, then the likelihood of incurring late

fees and other penalties must increase dramatically, again impacting the bottom line.

Improved Visibility to cash, taking advantage of Error Detection and

Increased Fraud Detection

The most widely selected benefit of electronic payments is improved cash forecasting,

selected by 41 percent of the organizations polled. Improved cash forecasting is directly

related to the improved visibility to cash made possible by automating the payment


process. 60 to 70 percent of all enterprises note a lack of visibility across

many key aspects of the A/P process, making it increasingly difficult to mitigate risk. In

the middle office, an electronic payments process also creates faster cycling times and

payments processing assists the detection of fraud in a timelier manner. Electronic

payments are subject to more immediate methods of payment verifications and more

accurate matching without being exposed to as much chance for human error

Going “green” and improving corporat e citizenry in addition to the bottom

line

The green movement plays an important role in today’s business landscape. Not only is

there the environmental impact many companies are reducing, but the positive effect on

their corporate culture and the way they are viewed by other organizations and consumers

can also have a beneficial effect on bottom lines. According to statistics found on the

non-profit PayItGreen Alliance Web site, paper checks require more than 674 million

gallons of fuel and produce over 3,628,200 tons of greenhouse gases over the course of

their lifetime.

Fig. 9: Comparison of Conventional Method and Electronic Payment System

51

Role of SAP in Receivable Management in IOCL

Indian Oil Corporation Ltd. (IOCL) is the 18th-largest petroleum company in the world. As

the flagship national oil company in the downstream sector, IOCL delivers petroleum

products to millions of consumers via 10 refineries, 34,000 sales points, and a country-wide

network of 9,300 kilometers of pipeline. To integrate business processes and establish a

standard communication platform, IOCL deployed SAP NetWeaver® Process Integration

technology and the SAP NetWeaver technology platform.

Key Challenges

• Ensure accounting of correct quantities in

business transactions

• Ensure on-time update of end-product rates

• Prevent delays in signing of joint

certificates (JCs)

• Prevent mismatch between JC and system

quantities to prevent disputes in transactions

• Use correct valuation for transactions

Implementation Best Practices

• Embraced open source software – the

Linux operating system – supported by SAP

• Completed implementation through


Why SAP Was Selected

• Support for open XML Java standard

• Integration with the existing SAP® ERP

application

• Harmonized with all other components

of the SAP NetWeaver technology

platform

• Integration tool for all SAP solutions

• Support for industry-standard adapters

such as RosettaNet and chemical industry

data exchange (CIDX)

Low Total Cost of Ownership

• Leveraged funding for enterprise

resource planning (ERP) deployment for

this project too

• Deployed more economical option of

inhouse consultants

• Deployed open-standard-based hypertext

transfer protocol (HTTP) over secure

sockets layer (SSL) for securing data

communication between participating

partners

Financial and Strategic Benefits

using open source software

• Reduced cost of business transactions

with other oil companies by accelerating

the frequency of settlements from monthly

to daily

• Completed deployment in 9 months, on

time and within budget

Operational Benefits

• Achieved transparency of intercompany • Promoted error-free quantity

settlements and accelerated their processing

frequency from monthly to daily

reconciliation at the plant level

• Streamlined supply chain performance

• Improved planning for• Improved data accuracy by 99%

“exchange”transactions

• Exercised better control over placement

and operating costs

• Minimized inventory levels

• Eliminated paper-based JC exchange

process

• Replaced old system with reconciled

data flow

• Reduced cost of exchanges by as much

as 95%

53

11

Impact of debtors in the Working Capital Management of the

Company

Working capital, also known as "WC", is a financial metric which represents operating

liquidity available to a business. Along with fixed assets such as plant and equipment,

working capital is considered a part of operating capital. It is calculated as current assets

minus current liabilities.

Investment in fixed assets only is not sufficient to run the business. Working capital or

investment in current assets, howsoever small it is, is a must for purchase of raw materials,

and for meeting the day-to-day expenditure on salaries, wages, rents, advertising etc., and for

maintaining the fixed assets. “The fate of large scale investment in fixed capital is often

determined by a relatively small amount of current assets.” Working capital is just like a

heart of industry if it is weak, the business cannot prosper and survive, although there is a

large body (investment) of fixed assets. Moreover, not only the existence of working capital

is a must for the industry, but it must be adequate also. Adequacy of the working capital is

the lifeblood and controlling nerve center of a business. Inadequate as well as redundant

working capital is dangerous for the health of industry. It is said, ‘Inadequate working capital

is disastrous; whereas redundant working capital is a criminal waste’. Both situations are not

warranted in a sound organization.

The advantages of working capital or adequate working capital may be enumerated as below:

-

1. Cash Discount:

If a proper cash balance is maintained, the business can avail the advantage of cash

discount by paying cash for the purchase of raw materials and merchandise. It will result

in reducing the cost of production.

2. It creates a Feeling of Security and Confidence:

The proprietor or officials or management of a concern are quite carefree, if they have

proper working capital arrangements because they need not worry for the payment of

business expenditure or creditors. Adequate working capital creates a sense of security,

confidence and loyalty, not only throughout the business itself, but also among its

customers, creditors and business associates.


13

3. ‘Must’ for Maintaining Solvency and Continuing Production:

In order to maintain the solvency of the business, it is but essential that the sufficient

amount t of fund is available to make all the payments in time as and when they are due.

Without ample working capital, production will suffer, particularly in the era of cut throat

competition, and a business can never flourish in the absence of adequate working

capital.

4. Sound Goodwill and Debt Capacity:

It is common experience of all prudent businessmen that promptness of payment in

business creates goodwill and increases the debt of the capacity of the business. A firm

can raise funds from the market, purchase goods on credit and borrow short-term funds

from bank, etc. If the investor and borrowers are confident that they will get their due

interest and payment of principal in time.

5. Easy Loans from the Banks:

An adequate working capital i.e. excess of current assets over current liabilities helps the

company to borrow unsecured loans from the bank because the excess provides a good

security to the unsecured loans, Banks favor in granting seasonal loans, if business has a

good credit standing and trade reputation.

6. Distribution of Dividend:

If company is short of working capital, it cannot distribute the good dividend to its

shareholders inspite of sufficient profits. Profits are to be retained in the business to make

up the deficiency of working capital. On the other contrary, if working capital is

sufficient, ample dividend can be declared and distributed. It increases the market value

of shares.

7. Exploitation of Good Opportunity:

In case of adequacy of capital in a concern, good opportunities can be exploited e.g.,

company may make off-season purchases resulting in substantial savings or it can fetch

big supply orders resulting in good profits.

13

losses, business oscillations, etc. can easily be overcome, if company maintains adequate

working capital.

9. High Morale:

The provision of adequate working capital improves the morale of the executive because

they have an environment of certainty, security and confidence, which is a great

psychological, factor in improving the overall efficiency of the business and of the person

who is at the hell of fairs in the company.

10. Increased Production Efficiency:

A continuous supply of raw material, research programme, innovations and technical

development and expansion programmes can successfully be carried out if adequate

working capital is maintained in the business. It will increase the production efficiency,

which will, in turn increases the efficiency and morale of the employees and lower costs

and create image among the community.


ASSETS

BALANCE SHEET

LIABLITIES

CAPITAL SUPPLIED

-Current(Short- Term)

-Fixed (Long Term)

-Others

-Current -Long Term

Shareholder`s

EQUITY

CASH FLOW

SELL EQUITY

ISSUE DEBT

<BUY ASSETS> <BUY INVENTORY>

MAKE SALES <PAY TAXES> <PAY COSTS>

<PAY INTEREST> <PAY DIVIDENDS>

DEBT

STOCK

Retain profits or

“repay” Debt holders (with Interest) and Stock Holders (with Dividends)

Fig. 10: Working Capital Cycle and Sources of Cash

Debtors have the following effect on the working capital of a company:

1. Provides high liqidity position for the company

2. The business depends more on the external sources for financing the day-to-day activity

because payment by the debtors depends on their will. Though the company have the

definite credit terms laid down for the debtors but it depends on them and the efficiency

of the collection procedure for the rules to get implemented.

3. If debtor Collection period is moderate or low then it increses the working capital

57

14

Different Ratios related to Debtor Management and Profitability

Liquidity Ratios

‘ Liquidity’ means ability of a firm to meet its current obligations. The liquidity ratios,

therefore, try to establish a relationship between current liabilities, which are the obligations

soon becoming due and current assets, which presumably provide the source from which

theseobligations will be met. The failure of a company to meet its obligations due to lack of

adequate liquidity will result in bad credit ratings, loss of creditors confidence or even in law

suits against the company. The following ratio are commonly used to indicate the liquidity of

business:

i) Current Ratio- This ratio is most commonly used to perform the shortterm financial

analysis. Also known as the working capital ratio, this ratio matches the current assets of the

firm to its current liabilities.

Current ratio = Current Assets /Current liabilities

ii) Acid Test Ratio/ Quick Ratio- One defect of of Current Ratio is that it fails to convey

any information of the composition of the current assets of the firm . A rupee of Cash is

considered as equivalent to a rupee of Inventory which is not the same as the cash is more

readily available to the Business. So it is called the Quick Ratio which measures the firm`s

ability to convert current assets quickly into cash. The Acid Test Ratio is the ratio between

Quick Current Assets and Current Liabilities.

Acid Test Ratio = Quick Assets / Current Liabilities

iii) Cash Ratio- It is a measure of the absolute liquidity of the firm where only

cash and bank balances in hand is considered. It is the indicators which shows how

immediately a firm can meet its liability obligations. It the Ratio between the Cash and Bank

Balances and Current Liabilities.

Cash Ratio = Cash and Bank Balances / Current Liabilities

Turnover Ratios

Turnover ratios are used to indicate the efficiency with which assets and resources of the firm

are being utilized. These ratios are known as turnover ratios because they indicate the speed

with which assets are being converted or turned into sales. These ratios, thus, express the

relationship between sales and various assets. A higher turnover ratio generally indicates

better use of capital resources which in turn as a favorable effect on the profitability of the

firm.

i) Debtors Turnover Ratio – This ratio indicates the relationship between net credit sales

and trade debtors. It shows the rate which cash is generated by the turnover of debtors. It is

computed as follows:

Debtors Turnover Ratio = Credit sales /Average debtors

Where, Average debtors = Opening debtors + Closing debtors

2

Average Collection Period – The debtors turnover ratio is usually supplemented by average

collection period. The debtors turnover ratio together with average collection period involves

the following steps:

a) Calculation of daily sales – This is computed as follows:

Sales per day = Net sales/No. of working days in a year

b) Calculation of average collection period – This is calculated as follows:

Average collection period = Days in the year / Debtors turnover ratio

15

CASH CONVERSION CYCLE:

In management accounting, the Cash Conversion Cycle (CCC) measures how long a

firm will be deprived of cash if it increases its investment in resources in order to expand

customer sales. It is thus a measure of the liquidity risk entailed by growth. However,

shortening the CCC creates its own risks: while a firm could even achieve a negative

CCC by collecting from customers before paying suppliers, a policy of strict collections

and lax payments is not always sustainable.

CCC = Days between disbursing cash and collecting cash in connection with undertaking a

discrete unit of operations.

= Inventory conversion + Receivables conversion – Payables conversion

=

period

Avg. Inventory

COGS / 365

+

period

Avg. Accounts

Receivable

Revenue / 365

–

period

Avg. Accounts

Payable

COGS / 365

Fig. 11: Operating Cycle


Cashflows insufficient. The term "cash conversion cycle" refers to the

timespan between a firm's disbursing and collecting cash. However, the CCC cannot be

directly observed in cashflows, because these are also influenced by investment and

financing activities; it must be derived from Statement of Financial Position data

associated with the firm's operations.

Equation describes retailer. Although the term "cash conversion cycle" technically

applies to a firm in any industry, the equation is generically formulated to apply

specifically to a retailer. Since a retailer's operations consist in buying and selling

inventory, the equation models the time between

(1) disbursing cash to satisfy the accounts payable created by sale of a unit of inventory,

and

(2) collecting cash to satisfy the accounts receivable generated by that sale.

Equation describes a firm that buys & sells on account. Also, the equation is written

to accommodate a firm that buys and sells on account. For a cash-only firm, the equation

would only need data from sales operations (e.g. changes in inventory), because

disbursing cash would be directly measurable as purchase of inventory, and collecting

cash would be directly measurable as sale of inventory. However, no such 1:1

correspondence exists for a firm that buys and sells on account: Increases and decreases

in inventory do not occasion cashflows but accounting vehicles (receivables and

payables, respectively); increases and decreases in cash will remove these accounting

vehicles (receivables and payables, respectively) from the books. Thus, the CCC must be

calculated by tracing a change in cash through its effect upon receivables, inventory,

payables, and finally back to cash—thus, the term cash conversion cycle, and the

observation that these four accounts "articulate" with one another.

five important intervals, referred to as conversion cycles (or conversion periods):

the Cash Conversion Cycle emerges as interval between disbursing cash→collecting

cash

the payables conversion period (or "Days payables outstanding") emerges as

interval of owing cash→disbursing cash

the operating cycle emerges as interval due to owing cash→collecting cash

29

Credit Policies of IOCL:

A firms objective with respect to receivabes management is not merely to collect the receivables

quickly but attention should also be given to the benefit cost trade-off involved in the various

areas of accounts receivables management. IOCL has the same objective like other firms. There-

fore the first decision area is credit policies.The credit policy of a firm provides the framework to

determine :

a) Whether or not to extend credit to a customer considering market demand and how much

credit to be extended

b) Peroid of credit

c) Whether not to change interest rate and if so at what rate

d) Analyse the acceptable mode of security

e) Firms credit evaluation

f) What would be the net margin after credit outgo

g) Consider the performance of the party in past 5 years or so

h) Bank`s evaluating data of party`s performance

Therefore the credit policy decision of firm has two broad diamensions :

1. Credit Standard & 2.Credit Analysis

DGS&D Sector:

Most of the customers in IOCL`s DGS&D Sector are government Companies and they make

payment on boll basis, means when bills are submitted the bills are paid within 2-3 days. These

credit poplicies are determined by the Central Goverment itself at the time of determining

Budget. These credit terms are also determined by them on individual customer requirement

basis. Therefore these customers cannot be treated as credit customers. But it is true that IOCL

has given credit to them but all are determined and controlled by the government.

17

16

Payment Procedure:

Generally all the Para- Military forces give their requirement to MCO New Delhi. Then MCO

Places the order to IOCL in favour of these customers.After supplying the required materials,

IOCL sent the bill to MCO office and MCO has paid the billing amount to IOCL. Government of

India constructs this MCO Office.

Other customers like Indian Railways, Army, Border Roadways, and Air Forces have their own

supplying and paying authority.

Credit Ananlysis:

Besides established credit standards , a firm has developed procedure for evaluating credit

applications. The second aspect of credit policies is credit analysis and investigation. Two Basic

steps are involved in this process:

a) Obtaining credit information

b) Analysis of credit information

After analysing the information, the decision is taken for granting credit to customers. IOCL has

been obtaining this information from various sources like Internal & External.

Internal Sources: Various Forms, Documents, Trade Reference and the contacts of firm`s to

judge the suitability of the customer`s for credit.

External Sources: Financial Statements, Bnaks Reference, Trade Refernce and Credit Bureau

Reports. Generally IOCL take bank gurranty and all required documents for credit supply to their

Non DGS&D customers. But in case of DGS&D customers Govt. takes responsibility.

CREDIT TERMS:

Credit terms have components Credit Period, Cash Discount, Interest, Security, Volume of Sales.

For IOCL the customer especially the DGS&D customers are Govt. customers and they paid

their dues immediately after submitting the bill. This whole procedure takes hardly takes 4 to 8

days. Cash discount is generally given to Railways and to DGBR units @ Rs. 150/Kl.

17

CASH DISCOUNT:

The cash discount has implecations for the sales volume, avarage collection period, average in

investments receivables and profit per unit. The chages in discount rate would have both positive

and negative effects. The implications are:

The sales volume will increase. Due to the reduced price factor the debtors will try to

purcahse more to get the maximum benefit and the debtors decreases drastically

Since the customers would likely to pay within the discount period, the average collection

period would be reduced. The reduction in the collection period would lead to reduction

in the investment in the receivables as also the cost.

The discount would have negative effects on the profits. This is because the decrease in

price would effect the profit margin per unit of sales. IOCL has always given a good

discount rate. In this fluctuating oil market it is quite hard to maintain a good discount

rate but IOCL has efficinctly maintained that. When the crude oil price was 142$ per

barrel, the discount rate was Rs.150/Kl. A well maintained customer beneficial process is

the key mantra of IOCL`s success.

Due to all these policies two aspects are covered:

Degree of effort to collect the overdues: A very rigorous collection strategy would

involve increased collection costs as a result the average collection period will be reduced

and profit will be decreased for that reason IOCL has a very strict Collection Policy

Type of collection effort: The second aspect of collection policy relates to the steps taht

should be taken to collect overdues from the customers. A well-established collection

policy should have clearcut guidlines as to the sequency of collection efforts. IOCL`s

collect effort is in the beginning is very polite and moderate, but, with the passage of

time, it gradually become strict. The steps which are usually taken by IOCL are

a) Letters, including reminders, to expedite payment

b) Telephonic calls for personal contact

c) Personal visits

d) Help from collection Agencies like MCO

e) Legal Action


Checklist for Concurring the Credit Proposal:

Whether proposed credit is as per latest approved Credit Policy of the Corporation in

terms of:

Period of Credit

Credit Cap for the individual customers and Supply location

Credit Cap for the State Office/ Region.

Approving Authority

Whether the Party is already enjoying the Credit Fecility with IOC and if so, whether

there is any beyond credit Outstanding

Reasons for beyond credit Outstanding and Action Plan for collecting the same.

Past payment track record of the customer with specific instance of default. if any, with

reasons for extending credit inspite of above

The nature of business envisaged ie. Whether additional volume/ Customer pertaining to

OMCs/ retentions of existing business etc.

Whether the credit is secured and if so what is the security

Assesment of Creditworthiness of the Customer through CRISIL module in line with

existing guideline duely signed

Whether the credit is interest bearing and if not the reason for the same

Whether the Retained margin as per unit basis after reckoning the cost of credit at IOC`s

current borrowing rate and all the other costs for positioning the product at the intended

supply locations and any other incentives like discount, free delivery etc. but before

reckoning the marketing cost is positive.

Whether it is a one time credit or for a specific period.

If existing customer the sale of product upto the date of the proposal for the Current

Financial Year and the Volume of Sale of the Customer during the cirresponding period

of the previous year to access incremental volume/ incremental earnings of retained

margins

Whether the customer enjoys similar fecilities from other Sate Offices/ Region if product

is uplifted from there.

65

Checklist for Concurring Discount Proposals:

Whether the proposed Credit is as per lastest approved Credit Policy for the Corporation

in terms of:

Ceiling of discount of individual products

Approving Authority

Whether the Party is already enjoying the Discount Facility with IOC and if so, whether

any enhancement sought in this within the policy and reason for the same.

If exixting customer to whom discount is sought to be enhanced or to be extended for

further period , the sale of products upto the date of proposal for the current financial year

and the volume of sale of the customer during the corresponding period of the previous

year to access the incremental volume/ earnings of retained of retained margin

The sale of the customer upto the date of proposal of existing financial year and the

projected volume arising out of the discount proposal for the balance period of the

exixting financial year.

The nature of the business envisaged i.e. additional volume / customer pertaining to

OMC`s etc.

Proof of similar facility by customer with OMC`s if any.

Whether the retained margin as per unit basis after reckoning the discount and other costs

for positioning the product at the intended supply location and any other incentive like

Interest free Credit, free delivery etc. but before reckoning the marketing cost is positive.

Whether there is a growth in the profitability of the margin level for the existing year as

compared to the previous year for the particular product.

Whether the customer enjoys similar fecilities from other Sate Offices/ Region if product

is uplifted from there.

Whether it is a one time basis or for a specific period.

Whether the proposal is only for the purpose of quoting in a tender.


Launching of RTGS mode of collections in IOCL:

IOCL announced that RTGS mode of collection of fund is was launched after successful trails.

Under this system, the funds can be transferred by our customers from any of their bank to

IOCL`s bank (SBI) on “Real Time“and on “Gross” basis.

Major features of this system as follows:

1.This network is provided by RBI across the country among all the banks.

2.The RTGS service window for customer’s transactions are available from 9.00 hours to

15.30 hours during week days (Monday to Friday) and 9.00 hours to 11.30 hours on

Saturdays.

3.While remitting the amount, IOCL customers have to give following details to his

bank:

a. Amount to be remitted

b. Their own A/c. No. With the bank which is to be debited

c. Name of the beneficiary bank (i.e. SBI in our case)

d.Name of the beneficiary customer (i.e. IOC)

e.A/c. No. Of IOC with SBI (18 digit)

f.The IFSC (Indian Financial System Code) of receiving branch

In the proposed system, every payment will be accompanied by an 18 digit code

(which is mandatory) to enable data downloading into SAP and uploading into the

individual customers a/cs in their Specific Credit Control Areas (CCAs).

1. As a precaution, an enrolment form is designed which is to be filled up before allowing

any of our customers using RTGS mode of payment. This format should be signed by

state finance & by the field officer under seal and stamp and acknowledgement of

customer along with customer contact detail should be obtain on the form. One copy of

sign format be sent to HO banking as scanned copy for control purpose.

2. The data of RTGS collection received in SBI A/c will be downloaded centrally by HO

banking at frequent intervals and uploaded into the Customers A/cs through SAP.

19

Other important points / features to be noted are given below:

1.Besides the details to be given as mentioned in points ’a-f’ above, every payment must

bear an 18 digit code as a mandatory requirement to enable downloading the payment

data into SAP and uploading into the Customers A/cs.

2.The 18 digit customer is unique for every customer and foe every Credit Control Area.

The logic and structure of this 18 digit code is explained below:

First 11 digits reflects IOC’s RTGS A/c No. With SBI.

12th is an alphabet field where each alphabet relates to Specific Credit Control Area in

our SAP.

Last 6 digits indicate SAP Customer Code of the party remitting the payment.

With the above structure, every payment is taken not only to the customer code but also

taken up to specific credit control area.

1.A table showing the mapping of each alpha to specific CCA is given in Annexure-B.

Alphabets like ‘B’ ‘I’ ‘O’ are deliberately ignored to avoid confusion in mistaking as

numeric which may be noted.

2.All RTGS payments will be posted in “Owning state of Customer”. In all such cases

where customers are taking supplies from other states, the above feature must be borne in

mind the supplying location and supplies should be effected against available overall

credit balance in the account irrespective of the company code. Owning state of the

customer should take full responsibility in monitoring the a/c and ensuring credit limits or

payment against supplies.

3.Every payment through RTGS is identified with a Unique Transaction Number (UTR)

which will be captured while posting collections in SAP and the same will be reflecting

in the PAD also.

4.From the time the customer remits the payment to the tome his a/c in IOC receives the

credit, the process takes about 2/3 hrs. which may be appraised to the customer while

enrolling.

5.The posted RTGS transaction can be viewed in SAP vide t-code: FBL5N in GL Code

6010100061 in Co Code 0100


Precautions –

1. Customer should strictly adhere to filling up 18 digit code for each payment which

only enables proper accounting of the payment.

2.Any payment transfer not complying the 18 digit structure will get rejected and result in

infructuous interactions between banks, IOC, State Offices and customers which should

be totally avoided.

3.SV/TV remittances by LPG distributors are not permitted under RTGS system since the

SAP code for SV/TV customers is 7 digit and the 18 digit code structure will

accommodate only 6 digit SAP code.

4.Security Deposit / EMD / any other payments by vendors are not permitted under

RTGS system covered by subject circular.

5.NEFT payments by customers is not permitted. Only RTGS collections shall be

allowed from customers.

6.SOs/Field locations should closely monitor the successful operation of the system and

ensure smooth functioning of the process.

Benefits-

1.Enormous manual work of handling instruments, preparation of cash receipts,

DCRs etc. gets eliminated.

2.RTGS payments by customers will enable savings in float of funds to IOCL since in

cash of DD/Pay Order/Cheque funds are credited in IOCL account after 2-3days.

3.Administrative convenience to customers since they are required to advice their

own banker to transfer funds to IOCL account without any further botheration of

ensuring that instrument reaches the supply location.

4.RTGS charges levied by various banks are very nominal or nil in comparison to

DD/ Pay Order making charges.

5.RTGS collections received in IOCL bank account at SBI CAG Mumbai will be

accounted for in sap centrally from HO banking thru file upload option thereby

reducing work at various supply locations as no cash receipts & DCR will be

generated and further bank reconciliation entries will drastically reduce.

69

ANALYSIS

INDIANOILCORPORATIONLIMITED(IOCL)

DEBTOR TURNOVER RATIO ANALYSIS:

Rs.(in Crores) Particulars 2007-08 2008-09 2009-10 2010-11 2011-12

Sales of Products & Crude

Sundry Debtors

183,172.91 220,779.52 249,782.34 287,759.72 271,073.62

6,698.03 6,736.06 6,819.23 5,937.86 5,799.28

Sundry Debtors As a % Of Sales 3.66 3.05 2.73 2.06 2.14

Particulars 2007-08 2008-09 2009-10 2010-11 2011-12

Debtor Turnover Ratio

Average Collection Period(Days)

27.35

13.35

32.78

11.14

36.63

9.96

48.46

7.53

46.74

7.81 Table 1: DTR and ACP of IOCL from 2007-08 to 2011-12

From the table it is seen that Debtors turnover ratio of IOCL shows an increasing trend

with the exception of the year 2011-12 and it indicates that the debts are being collected

more quickly. The changes of the ratio shows that the efficiency in the company’s credit

policy or better performance in its ability to collect from its debtors. For the Year 2011-

10 the sales has decreased for the company by 5.79%. Though the Debtors has also

decreased but not that the same ratio, so the ratio has jumped up. The reasons cannot be

sited due to non availability of sufficient data.

From the table it is seen that the Debtors Collection Period of IOCL is decreasing year by

year except 2011-12 which is a positive trend and it indicates efficient debtor

management of IOCL. Effective debtor management is minimizing the collection period

and also the bad debts incurred by the company. In 2011-12 the ACP has slightly

increased thsn the previous year

Moreover as we can see from Table 3 the Sales of IOCL is increasing year by year but

the the Sundry Debtors are more or less constant and it has actually decreased in the year

2010-11 by 12.9% when the Sales had increased by 15.2%. This shows the efficiency of

collection procedure and the credit policies of the company.

20

Schedule for Debtors:

Sundry Debtors Over Six Months From Subsidiary Companies

Rs.(in Crores)

2008-09 2009-10 2010-11 2011-12

Unsecured, Considered Good From Others Secured, Considered Good Unsecured, Considered Good Unsecured, Considered Doubtful

Subtotal Other Debts From Subsidiary Companies

24.28

0.00

62.44 255.04 341.76

197.39

0.00

28.13

247.24 472.76

162.19

0.00

43.70

540.30 746.19

28.69

8.18

53.77 537.98 628.62

Unsecured, Considered Good From Others

2,145.40 1,790.77 1,950.22 1,553.15

Secured, Considered Good 0.00 0.00 138.31 139.93

Unsecured, Considered Good 4,465.91 4,719.77 4,526.12 4,154.14

Unsecured, Considered Doubtful 0.70 2.47 3.07 3.44

TOTAL 6,953.77 6,985.77 7,363.91 6,479.28

Less: Provision for Doubtful Debts 255.74 249.71 543.37 541.42

Consolidated Total 6,698.03 6,736.06 6,819.23 5,937.86 Table 2: Schedule for Sundry Debtors from 2008-09 to 2011-12

ANALYSIS:

Fig.1: Classification of Debts considered Unsecured & Good and Unsecured & Doubtful


2008-09

2009-10

2010-11

2011-12

Fig. 2: Classification of Debts from Subsidiary Companies and Other Companies

Table 4 shows the Breakup of the Total Sundry Debtors under different heads like Over

Six Months and Other Debts.

Among the debts over 6 months 71.23% has been proposed to be doubtful on an average.

And the whole of it from Other Companies. The Debts over 6 months for subsidiary

companies has been considered as good.

Among the Other Debts, the debts considered Good and Unsecured by other companies

contribute a significant part like 69.85% on an average

From the Fig.12 it can be seen that even though the Debts considered good and

Unsecured has decreased in 2010-11 but the debts considered doubtful has been

increasing over the years and this whole part is contributed by the Other Companies.

From the Fig.13 it can bee seen that the Debts from Subsidiary Companies has fluctuated

over the years but in case of Other Companies the debts has increased round the years

expect in the year 2010-11 when there was fall of 6.74%.

So in Conslusion, IOCL should focus more on the Older debts and the debts from other

companies to reduce the Bad Debts which has incresed over the years. Though the debts

from other companies is incresing year-wise it is not an alarming situation because the

Sales as-well-as Customers has also increased over the years.

22

2008-09

2009-10

2010-11

2011-12

LIQUIDITY RATIO ANALYSIS:

RATIO 2007-08 2008-09 2009-10 2010-11 2011-12

CURRENT RATIO

QUICK RATIO

CASH RATIO

1.42 : 1

0.48 : 1

0.02 : 1

1.31 : 1

0.48 : 1

0.031 : 1

1.5 : 1

0.6 : 1

0.023 : 1

1.25 : 1

0.55 : 1

0.022 : 1

1.32:1

0.51:1

0.029:1

Table 5: Liquidity Ratios of IOCL

Fig. 3 : Line Graph showing the different Liquidity Ratios of IOCL

From the above Table 5 it can be seen that the current ratio is getting decreased in the

year 2008-09 and in 2010-11, whereas it is considerably high in the year 2009-10.

The Quick Ratio is keeping constant in 2007-08 & 2008-09 but in 2009-10 it is climbing

up and then it is getting decreased in 2010-11

The Cash Ratio is remaining almost constant except in 2008-09 when it is getting

increased slightly.

In the case of 2008-09 the decrease in current ratio is mainly due to the the following:

The current liabilities and provisions has increased at a higher rate than the

current assets. Thus there has been an decrease in the working capital of the

company and the liquidity had decreased.

In the case of 2009-10 the current ratio had increased drastically to 1.5 along with the

quick ratio while the Cash Ratio decreased.

The main reason behind this is the soring rise the fuel prices and the recessionary

period which had hit the world.


2007-08 2008-09 2009-10 2010-11 2011-12

There has been a steep rise in the inventory level along with the

loans and advances but along with this the current liabilities also increased. The

cash demand was met due to this.

But this effect was not shown in the Cash & Bank balance as it maintained a

steady Cash Ratio.

The rise in the inventory level was mainly due to the fall in the demand of the

petroleum products due to rise in the prise which is according to the “Laws of

Demand” saying that as the Price increases the demand decreases.

But the company`s management must be given the credit to maintain such good

Financial condition amidst the odd which every industry faced during this period

as the ratio is within the threshhold limit of 2:1. Moreover the company took

strict control on the Debtor position and never allowed the Debtors to rise up

abruptly thus minimising the bad debts.

In 2010-11 as the situation normalised, the Current Ratio decreased to 1.25:1 and the

Quick Ratio decreased as well. The main reason behind this are the following:

There has been a steep fall in the Inventory Level as the excess stock was

liquidated.

More strict control was implemented on the Loans & Advances.

The debtors came down even further to Rs. 5937.86 Crores.

In 2011-12, the Inventory has increased by 44.75% , which has resulted in the increase of

the Current Ratio, when actually the Quick Ratio has decreased to 0.51:1. But the Cash

Ratio has increased also which shows the Absolute Liquidity has increased for the

Comapany.

CONCLUSION:

All the Liquidity Ratio are well within the alarming limits of the Industry. But the Current Ratio

is highly fluctuating for the Company whereas the Acid Test Ratio is more or less stable. This

shows that the fluctuation is due to the Inventory level. So company should try to maintain an

even inventory level by following a proper Inventory Control Technique/Model like EOQ Model

or ABC Model.

24

Working Capital Analysis Of IOCL

Rs.(In Crores)

Particulars Current Assets, Loans & Advances

2007-08 2008-09 2009-10 2010-11 2011-12

a) Inventory 24277.79 24702.69 30941.48 25149.60 36404.08

b)Sundry Debtors 6699.48 6736.06 6819.23 5937.86 5799.28

c)Cash & Bank Balance 744.17 925.97 824.43 798.02 1315.11

d)Other Current Assets 31.55 775.35 790.14 1051.58 1141.50

e)Loans & Advances 4730.10 5917.11 13556.02 11598.13 14728.83

Total Current Assets(A)

Current Liabilities & Provisions

36483.09 39057.18 52931.3 44535.19 59388.8

a)Current Liabilities 23697.85 26576.76 33407.99 32754.58 34480.17

b)Provisions 1978.51 3129.11 1172.99 2603.46 10271.56

Total Current Liabilities(B) 25676.36 29705.87 34580.98 35358.04 44751.73

Net Working Capital 10806.73 9351.31 18350.32 9177.15 14637.07 Table 6 : Working Capital including Current Assets and Current Liabilities of IOCL

Fig. 4 : Bar Graph showing Working Capital including Current Assets and Current Liabilities of

IOCL


2007-08 2008-09 2009-10 2010-11 2011-12

The Working Capital Requirement of IOCL as in most Public Sector Enterprises,

are met through cash credit and advances arranged mainly with the State Bank of India and other

Nationalized Banks.The excess over the margin money if required is usually covered by a

gurantee from the Central Government. Whenever the total requirements of working capital

cannot be met by Cash-Credit arrangements by SBI, IOCL can approach the Government for

term loans. On Such a request the Government ususally examines the validity of the request vis-

a-vis the internal resources of the undertaking and makes the decision to grant the term loans.

This process of taking term loans is undertaken at the Head Office Level.

Year 07-08 to 08-09 08-09 to 09-10 09-10 to 10-11 10-11 to 11-12

Total Current Assets

Total Current Liabilities

Working Capital

7.05%

15.69%

-13.46%

35.6%

16.41%

96.23%

-16.93%

2.24%

-49.98%

33.35%

26.56%

59.49%

Table 7: Change of CA, CL and WC of IOCL from the previous years

From the above Tables and Figs. the following interpretation can be done:

The Company tries to maintain a stable working capital around Rs.10,000 Crores but has

failed to do so in the years 2009-10 and 2011-12. This is mainly because the company

could not maintain a stable Inventory Level in those years. As the inventory constitute

about 65% of IOCL`s Current Assets a strict regulation over it can largely affect the

Working Capital of the Company.

As Petroleum is an essential commodity it has an even demand in the market. So as there

is no huge fluctuations in the demand it helps in predicting the sales. But the main cause

of concern for the company is the availability of the fuel at international markets and the

rise in the International Fuel Prices over the years. As the major part of the requirement is

imported from South East Asian countries, the Ecomonic and Political scenario of these

countries also imporment from IOCL`s business point of view.

26

From Table 7 we can see that 2009-10 has been an year of huge turmoil when there was

a 36.6% increase of Current Assets which occured mainly due to increase in the

Inventory Level and Loans and Advances. The Loans and Advances increased as

Govenment issued Oil Bonds for IOCL in that year to Compensate the huge losses which

the company suffered during this year due to rise in the Crude Prices. Due to in increase

in the Fuel Prices there was a problem in the cash flow of the company. So to finance the

short term obligations the company had to go for the Short-Term Loans. Hence the

Current Liabilities had increased. The Net result was a 96.23% surge in the Working

Capital.

In 2010-11, the situation came back to normal when the Current Assets droped by

16.93% and Working Capital Decreased by 49.98%. This was mainly due to a strict

credit policy which brought down the Debtors and lowering of the inventory due to high

demand of fuels.

Breakup Of the Current Assets and Current Liabilities Under different Heads like Cash & Bank, Debtors, Loans & Advances, Inventory & current

liabilities , Provisions(in CroresRs.):

Fig.16: Area Graph showing Breakup of Current Assets


Fig. 17: Area Graph showing Breakup of Current Liabilities

From Fig. 16: it can be seen that :

Cash and Other Current Assets has increased at a constant rate and Sundry

Debtors has decreased at a constant rate when the Sales of the Company has

increased over the Years.

The controlling factor of Working Capital has been the Inventory which has

fluctuated over the Years along with the Loans & Advances which was geared up

from the year 2009-10 by receiving the Oil Bonds.

From Fig.17 : it can be seen that:

The provisions has drastically increased by about 294% in the year 2011-12.

The current liabilities had incresed in the year 2009-10 but after that IOCL has

maintained a stable current liability level which is good because it finances the

daily cash requirement of the Company.

42

CASH AND BANK BALANCES of IOCL( Rs.In Crores)

Cash & Bank balances

Particulars

1. Cash Balances: a. Cash balances including imprest

b. Cheques in hand Total (1)

2. Bank Balances:

a) Current account

b) Fixed Deposit account

c) Blocked account

Total (2)

3. Bank balances with Non Scheduled Banks:a) Current Account

Myanmar Economic Bank Branch (5), Rangoon [ Maximum balance during the year- 0.88 crore]

TOTAL(1+2)

2008-09

2.7

698.83 701.53

27.85

14.63

0.16

42.64

0

744.17

Years

2009-10

3.75

726.43 730.18

185.02

9.73

0.16

194.91

0.88

925.97

2010-11

2.48

746.96 749.44

64.57

9.38

0.16

74.11

0.88

824.43

2011-12

85.37

712.65 798.02

123.98

10.14

0.16

134.28

0.88

798.02 Table7: Cash & Bank Balances of IOCL

Fig.5 :Bar Graph showing the Cash and Bank Balance Trend of IOCL

ANALYSIS:

From the Table it can be seen that almost 92% of the Cash & Bank Balances comes from the

Cheque Balance. But it would be better if this Balance comes more from the Cash Balances or

the Balance in Current Account.


2008-09 2009-10 2010-11 2011-12

CASH CONVERSION CYCLE OF IOCL:

(in Days)

Particulars 2007-08 2008-09 2009-10 2010-11 Average

Days of Sales Outstanding

Days of Sales in Inventory

Days of Payable Outstanding

Cash Conversion Cycle Table9: Cash Conversion Cycle

ANALYSIS:

13.98

50.67

37.46

27.19

11.36

41.65

31.07

21.93

11.09

50.33

31.50

29.92

8.25

34.95

27.20

16.00

11.17

44.40

31.81

23.76

Cash conversion cycle is likely to be negative as well as positive.

A positive result indicates the number of days a company must borrow or tie up capital

while awaiting payment from a customer. A negative result indicates the number of days a

company has received cash from sales before it must pay its suppliers.

Of course the ultimate goal is having low CCC, if possible negative. Because the shorter

the CCC, the more efficient the company in managing its cash flow.

It can be seen that the Cash Conversion Cycle for Indian Oil is on the higher side with an

average of 23.76 days. It means that IOCL have to borrow for 23.76 days to finance its

working capital requirement.

The main reason for this high CCC is a very high Inventory Holding Period. This is

because IOCL purchases Crude from the International Market and so have to maintain a high

Inventory to meet the unforeseen requirements.

The Days of Sales Outstanding is decreasing yearly which is a positive trend and is

Lowering the Cash Conversion Cycle

But the Days of Payable Outstanding is also decreasing yearly. This is mainly due to the

Circular by the Goverment of India which has restricted the payment period to be 30 days

from the receipt of the delivery of the crude.

The Year 2010-11 shows the lowest CCC of 16 days. The main reason behind this is the

lowest Inventory Holding Period of 34.95 days.

IOCL should try to get more credit period from its Creditors and lower the Inventory

Holding to lower this CCC even negative to better it Cash Flow position.

ANALYSIS OF THE DEBTORS IN THE EASTERN REGION:

Registration with DGS&D

Registration with DGS&D is a process by which firms can get enlisted as an approved

supplier to qualify for participation in DGS&D procurement programme.

DGS&D registers suppliers for specialized items after verification of their technical

capability, financial status and reliability as a supplier.

This registration is widely taken as a benchmark by other procurement agencies in India

both in the State & Central Sectors

20 Registration centres across the country deal with applications for registration for

registration on single window disposal basis.

Different Categories of Registration:

Indigenous Items:

Indian Manufacturers/ Assemblers/ Converters.

Authorized Agents/ Distributors of registered Indian Manufacturers

Stockist of certain specified indegenous stores

Imported Items:

Foreign Manufacturers with or without Indian Agents

Stockist of Imported Stores

Suppliers of Inported Stores

Advantages In Associating with DGS&D:

To Suppliers:

Its registration is held in high esteem by all Govt. Departments.

Award Of Contract lends respectability & Image enhancement.

Marketing effprt requires is nominal.

Consistent & Uniform purchases policies & procedures


Availability of Technical guidance for upgrading manufacturing process &

for building product quality

Uniform Quallity Assurance techniques lead to standardization

Registered Suppliers are given prior intimation about tenders.

To Buyers:

Facility of Bulk purchase of lowest competitive price.

Enables buying as & when required

Saves effort involved in tedious & frequent tendering

Just in Time availability of suppliers & inventory management

Availability of quality goods with full quality assurance back-up

Benefits of DGS&D Registration:

Rate contracts for Govt. Purchases concluded with registered firms.

Registered firms granted exemption from earnest money/ security deposit.

Tender enquiries are supplied free of cost to Small-scale Units

Issue of advance tender notices to concerned registered firms.

Quality Assurance Wing:

Quality Assurance wing of DGS&D(formally Known as Inspection Wing) is the

Inspection Agency of the Govt. Of India.

Consists of a team of professionally qualified experts, trained in India & abroad in

various disciplines of Engineering.

Renders inspection & technical services for Quality Assurance in procurements activities

Technical arm of DGS&D providing complete support in purchase activities by laying

down specifications, assessing the vendors, technical evaluation of bids & assuring

quality of stores for their conformity.

It has 35 centres covering all industrial locations in the country.

Provides third party inspection service for civil indentors.

83

Functions:

Quality assurance of products at various stages of manufacture, commissioning &

testing

Preparation of technical specifications for tender enquiry & technical evaluation

of bids

Vendor assesment for placement of contracts and registration

Testing & evaluation of stores

Failure investigation of stores

Development of small scale industries and KVIC units

Quality Audit of supplies at users end

Provides single window service by giving information about DGS&D functions to

the indentors & the industry

Assisting BIS in preparation and updating of National Standards.


Sales in DGS&D Sector for 2010-11 & 2011-12 in the Eastern Region:

Amt.(in Crores)

Month

April

May

June

July

August

September

October

November

December

January

February

March

Total

2010-11

123.84

143.04

149.02

143.08

147.71

166.80

138.15

178.70

193.01

167.24

183.37

243.85

1977.81

2011-12

176.48

199.98

192.26

243.59

222.28

242.80

219.22

202.12

214.90

166.47

187.41

199.04

2466.55

% Increase(Decrease)

42.51

39.81

29.02

70.25

50.48

45.56

58.68

13.11

11.34

-0.46

2.20

-18.38

24.71

Table 10 : Sales in DGS&D Sector for 2010-11 & 2011-12

Fig.19 : Sales in DGS&D Sector for 2010-11 & 2011-12

85

ANALYSIS:

It can be seen from the above table that the Sales in the DGS&D Sector for Eastern

Region has seen a constant growth in 2011-12 over the previous year. For every month,

except January and March, the sales has increased from 70 to 2%. The overall growth of

sales for the year is also showing positive trend and has a stable growth of 24.71%.

This is mainly due to the excess demand of Lubes and MS/HSD in the Railways and

AirForce.

The drop in Sales in the month of March is due to the stricter credit policy due to the year

ending and more focus on the Credit Collection.

Sales Figure of DGS&D Customers on Month-wise basis in 2011-12(ER):

Rs.(in Crores)

Customers

Month

DGS&D Rly Army Air Force DGBR

April

May

June

July

August

September

October

November

December

January

February

March

Total

8.74

15.58

16.03

17.21

14.47

23.94

15.85

18.64

19.88

18.86

11.81

5.68

186.69

100.48

105.40

109.85

132.86

115.72

118.34

117.68

91.54

114.28

92.22

100.61

125.72

1,324.70

17.75

21.92

24.71

24.55

24.82

28.61

24.40

23.33

25.15

16.73

20.32

25.69

277.98

42.36

43.61

34.21

43.60

40.02

50.92

40.29

45.94

35.06

22.69

23.70

22.35

444.75

7.42

13.22

7.46

25.36

27.79

20.46

21.00

22.67

20.53

15.97

30.95

19.60

232.43

Table 11: Sales Figure of DGS&D Customers on Month-wise basis in 2011-12(ER)


Outstanding in DGS&D Sector as on 31 March 2010(ER):

Rs.(in Crores)

Particulars DGS&D Rly Army Air Force DGBR Total

Opening Balance Current Months Sales Total(A) Collection(B)

Outstanding (A-B)

18.57 5.68

24.25 14.01

10.24

51.01 125.72 176.73 146.22

30.51

17.45 25.69 43.14 32.35

10.79

25.46 22.35 47.81 28.09

19.72

44.14 19.60 63.74 34.24

29.50

156.63 199.04 355.67 254.91

100.76

Table 12 :Outstanding from DGS&D as on 31.03.2010 (ER)

ANALYSIS:

From Table 12 it can be seen that Railways contribute about 53.07% in the total sales in

the DGS&D Sector but contributes only 30.27% in the outstanding in DGS&G Sector.

This signifies a very stable collection period and regulation over the outstanding despite

the huge transactions it gives ti IOCL.

On the other hand DGBR has contributed only 9.42% in the total sales in DGS&G Sector

but has 29.27% of the total oustanding in this sector. This is because of the negotiated

credit period with IOCL and it is regulated by the Central Government of India and IOCL

has no control over it.

Particulars DGS&D Rly Army Air Force DGBR Total

Sales 186.69 1324.7 277.98 444.75 232.43 2466.55

Outstanding Outstanding as % ofSales

10.24

5.49

30.51

2.30

10.79

3.88

19.72

4.43

29.50

12.69

100.76

4.09

Table13:Showing Outstanding as a Percentage of Sales in DGS&D Sector as on

31.03.2010(ER)

87

Fig. 20 : Comparison of the Outstanding as a % of Sales in Eastern Region And Overall

for the Company.

ANALYSIS:

The above graph clearly depicts that the Outsatnding in DGS&G, Army, Airforce and

DGBR in the Eastern Region shows a sharp deviation from the Overall Outastanding

figure . Only the Railways has it near the overall Average.

Specially the DGBR shows a sharp deviation from the National Average of 2.14 and

stands at 12.69. But as already stated previously, that the Central Government fixes this

credit period in the Annual Budget with this Government Bodies and IOCL has to abide

by the Credit terms fixed by Government.

Even the Average of the DGS&G is which is 4.09 is much higher than the Overall

average of 2.06 and Army and the Railways all others have this figure higher than the

average.

From this it can be inferred that the Government has fixed different credit fecilities for

different Government Bodies.


The Average Collection Period for DGS&D can be calculated by the following

formula:

Average Collection Period= Total Outstanding / Daily Sales

Where, Daily Sales= Current Month Sales / Number of Working Days in a Month

Considering 26 days a month the Average Collection Period for Railways for month of March is

Daily Sales=125.72/26 = 4.835

Average Collection Period = 30.51/4.835

=6.31 Days

Similarly, the ACP is calculated for the other customers shown in the following table.

(In Days)

AirCustomers

Month

DGS&D Rly Army Force DGBR Total

April

May

June

July

August

September

October

November

December

January

February

31.37 14.57 20.51

24.88 10.83 22.33

33.66 12.77 23.18

27.68 13.68 22.08

40.82 16.23 29.83

32.58 10.16 18.40

21.15 16.13 22.14

42.21 14.03 23.47

33.58 11.87 23.33

38.04 16.05 26.08

40.85 13.18 22.33

13.55

37.94

21.49

16.66

19.55

13.66

14.89

15.21

16.27

27.57

27.93

132.49

91.41

88.42

39.50

20.22

25.50

28.81

34.42

31.79

50.59

37.08

20.68

20.31

20.34

18.74

20.47

15.38

22.63

20.28

17.84

24.44

21.73

March

Total

46.87

17.11

6.31 10.92

7.19 12.11

22.96

13.83

39.13

39.60

13.16

12.75

Table 14 : IOCL`s Average Collection Period of DGS&D (ER) for 2011-12

89

Fig. 21: Comparison of IOCL`s ACP of DGS&D (ER) with Overall ACP for 2011-12

ANALYSIS:

From Table 14 , we can see that the Average Collection Period for the DGS&D customer

is 12.75 days, i.e. 13 days approximately which is much higher than the Overall average.

Fig. 21 shows the deviation of the ACP of different DGS&D customers from the Overall

Avearge of 7.53. This shows that there is a huge deviation for DGBR and Airforce and

other DGS&D. This has effected the liquidity of the Company and created a cash flow

problem.

For most of the DGS&D customers the negotiated credit period varies from 15, 30 to 60

days . so the ACP is high in their cases. From that perspective it can be said that the

Customers are following the Negotiated period of Credit.


Sales and Outstanding of Non DGS&D Customers till 31 March 2011 (ER):

Customer Sales (in Crs) Outstanding(in Crs) %

Fertilizer

Steel Plant

Power House

Aviation

Shipping Comapny

LPG

Export

Navy

R/O Agency

Others

Total

3908.78

1523.74

1296.28

152.68

31.10

31.89

292.67

21.91

4015.57

14372.75

25647.37

56.85

20.40

20.87

2.49

0.63

0.51

4.84

0.27

68.51

140.65

316.02

1.45

1.34

1.61

1.63

2.03

1.60

1.65

1.23

1.71

0.98

1.23 Table 15 : Sales and Outstanding of Non DGS&D Customers till 31 March 2011 (ER)

ANALYSIS:

From the Table 15 it can be seen that about 56.03% of the Total Sales in the Non

DGS&D sector comes from the Other Customers but they contribute only 44.50% in the

total Oustanding in the same.So the Outstanding from the Non DGS&D sector from the

Other companies is only .98% of the Sales in the same which is a good indication.

Overall it can be seen that only 1.23% of the total Sales in this sector is Outstanding

amount which reduces the chances of bad dedt and indicates the efficient collection

procedure of IOCL.

91

Average Collection Period of Non DGS&D Customers in 2011-12:

Customer name

Fertilizers

Steel Plant

Power House

Aviation

Shipping Co.

LPG

Export

Navy

RO/ Agency

Others

Period(Days)

4.58

4.22

5.07

5.13

6.38

5.03

5.20

3.88

5.37

3.08

Table 16 :Average Collection Period of Non DGS&D Customers in 2011-12

Fig. 22 : Comparison ofAACP of Non DGS&D Customers with Overall in 2011-12

TheFig. 22 shows the Average Collection Period for IOCL and compares this ACP with

the ACP of the different Non DGS&G Customers.

The ACP for the Company is 7.81 in 2011-12 but the ACP for all of the Non DGS&D

Customers is much less than that. The Shipping Co. has the ACP of 6.38 which is

highest among the Non DGS&D Customers.

So it can be said that the Eastern Region has maintained a strong regulation of the

Oustanding for the Non DGS&D Customers.


Comparative Analysis of IOCL with BPCL & HPCL

DEBTORS TURNOVER RATIO AND DEBTOR DAYS (COLLECTION PERIOD)

It is a test of the liquidity of the debtors of a firm. The debtors turnover shows relationship

between credit sales and debtors of a firm.

Company Ratios 2007-08 2008-09 2009-10 2010-11 Average

Debtor Turnover Ratio IOCL Average Collection

Period(Days)


HPCL Average CollectionPeriod(Days)

27.35

13.35

53.18

6.86

32.78

11.14

57.96

6.30

36.63

9.96

60.70

6.01

48.46

7.53

51.96

7.03

36.31

10.50

55.95

6.55


BPCL Average Collection64.71 70.75 75.65 101.98 78.27

Period(Days) 5.64 5.16 4.83 3.58 4.80 Table 17: Comparison DTR and ACP of IOCL with HPCL and BPCL

222

The Average Collection Period has continuously decreased for IOCL and BPCL over the

period of 2007-08 to 2010-11 whereas it has incresed for HPCL in the year 2010-11 after

a constant decrease over the previous 3 years.

Moreover the decrease in the Collection Period for IOCL is more acute than its

counterpart BPCL. For IOCL the ACP has decreased almost 43% which shows that

IOCL has a better collection procedure and credit policies than its competitors.

The situation is a little alarming for HPCL because the ACP has increased 17% in the

year 2010-11 after a slow decline over the previous.

However the average of ACP for IOCL is maximum among the chosen 3 comapanies

putting BPCL at rank1 followed by HPCL and IOCL. But the Average is definite going

to decrease over the years with the present collection procedure which IOCL is following.

Company 2008-09 2009-10 2010-11 2011-12 Average

IOCL

HPCL

BPCL

3.66

1.88

1.55

3.05

1.73

1.41

2.73

1.65

1.32

2.06

1.92

0.98

2.88

1.79

1.32 Table18 : Debtors as a percentage of Gross Sales for IOCL, HPCL and BPCL

Average Sales of the 3 Companies from 2007 to 2012:(Rs in Crores)

IOCL – 2,35,373.62

HPCL – 96,439.40

BPCL – 1,14,919.51

The Debtors as a percentage of Gross Sales is seen in the above table which shows that

IOCL is definitely on the higher side in comparison to HPCL and BPCL. But the sales of

IOCL is almost double than the that of both the companies. So considering the size of the

business it is obvious that the inventory and the Debtors will be on the higher side. But

the positive side of it is that it is constantly coming down. Even in the year 2009-10

which was a year a great turmoil they maintained a low debtor percentage of 2.73.


LIQUIDITY ANALYSIS:


IOCL

HPCL

BPCL

Current Ratio

Quick Ratio

Cash Ratio

Current Ratio

Quick Ratio

Cash Ratio

Current Ratio

Quick Ratio

Cash Ratio

1.42

0.48

0.02

1.38

0.40

0.01

1.41

0.45

0.05

1.31

0.48

0.03

1.13

0.33

0.01

1.21

0.44

0.08

1.50

0.60

0.02

1.55

0.38

0.02

1.35

0.62

0.07

1.25

0.55

0.02

1.36

0.45

0.05

1.19

0.66

0.03

1.37

0.53

0.02

1.36

0.39

0.02

1.29

0.54

0.06 Table19 :Comparison of Liquidity Analysis of IOCL with HPCL and BPCL

ANALYSIS:

Fig.24 :Line graph comparing Current Ratio and Quick Ratios of IOCL, HPCL and BPCL

31

The Current Ratio and the Quick(Acid Test) Ratio for all the 3 Companies is

showing a fluctuating trend over the years.

The year 2008-09 had shown a decrease in the Current Ratios for all the

companies whereas the year 2009-10 showed a sharp increase in the same. But for

IOCL the increase was maximum in the year 2009-10.

This rise is a result of the sharp increase in the fuel prices in this year which

resulted in larger inventory for all the companies specially for IOCL.

For IOCL, though the Current Ratio increased sharply in the year 2009-10, the

Quick ratio rise was less. This indicates that the inventory has increased

drastically in this year. From the balance sheet it can be seen that the inventory

has increased by 25.25% in this year. Parallaly the loans and advances had also

increased by 129.1% in the same year. This abrupt rise is because IOCL received

the Oil Bonds issued by the Government of India.

Same is the case for HPCL as they also received the Oil Bonds and the rise of the

inventory, but the effect of rise of inventory was most pronounced because the

Quick ratio has incresed at a lesser rate in 2010-11.

For BPCL the rise in Current Ratio is lesser in comparison with the rise of the

Quick Ratio which had rised at a very rapid pace in 2009-10. The main reason

behind it is the rise in the grant of loans to other companies which was considered

as good.The Cash Ratio is more or less constant for the chosen companies and

among the 3 BPCL maintains a higher cash and bank balances which is a good

sign of liquidity of the company.

So in conclusion it can be said that though IOCL has highest value of for the

Current Ratio 1.37 but it is below 1.5 which is considered as good. The Quick

Ratio is also on the higher side. But in comparison with size of Sales of IOCL it

has maintained a stable ratio. But there is a chance of improvement in controlling

the Inventory and the Debtors for IOCL which can improve their liquidity

position more.

32

Particulars 2007-08 2008-09 2009-10

(in Days)

2010-11 Average





Table 20: CCC of HPCL

7.47

41.90

26.74

22.63

6.89

35.37

19.11

23.15

6.47

45.49

26.10

25.86

7.48

29.34

18.84

17.98

7.08

38.03

22.70

22.41

(in Days)

Particulars 2007-08 2008-09 2009-10 2010-11 Average





Table 21: CCC of BPCL

ANALYSIS:

6.14

42.19

18.94

29.39

5.63

32.10

23.28

14.44

5.26

34.70

28.31

11.65

3.85

18.43

17.23

5.04

5.22

31.85

21.94

15.13

Fig. 25: Comparison of CCC for IOCL, HPCL, BPCL

PROFITABILITY RATIO:

97


IOCL Gross Profit Ratio Return on CapitalEmployeed

Return On Fixed Assets

HPCL Gross Profit Ratio Return on CapitalEmployeed


BPCL Gross Profit Ratio Return on CapitalEmployeed


4.47

16.89

11.26

0.42

3.26

5.53

1.82

4.45

2.64

5.00

25.78

13.69

2.35

20.49

17.81

4.27

25.79

15.27

4.51

24.53

12.32

1.17

10.50

9.51

3.92

22.24

12.41

1.50

9.84

4.78

0.65

6.64

4.93

3.14

8.28

5.26

3.87

19.26

10.51

1.15

10.22

9.45

3.29

15.19

8.89

Table 22: Profitability Ratios of IOCL, HPCL and BPCL

ANALYSIS:

Fig. 26: Area graph showing Profitability Ratios of IOCL, HPCL and BPCL

Fig.27: Line Graph showing Return on Capital Employedand Return on Fixed Assets


From the above graph we can see that after the year 2008-09 which showed a huge rise in

the Gross Profit for all the companies, there has been a downward trend for the profit of

all the companies. For IOCL it can be said that there had been a huge fall in the

profitability and hence the Gross Profit Ratio. This is mainly due to a huge rise in the

Manufacturing, Administration, Selling and Other Expenses. This expense shot up to

Rs. 160352.58 Crores in 2010-11 from Rs. 115163.07 Crores in 2009-10. The Raw

Material consumption increased in this year which was due to the increase in the

purchase by 24.59% which decreased the Gross Profit of the Company.

The Return on Capital Employed is on the very higher side for all the 3 Companies. This

is because all these companies being PSU s a very small portion of the Capital is through

Equity Shares.

The Return on Fixed Assets has been on a comparatively higher position for IOCL than

HPCL & BPCL. The main difference in the Fixed Assets of the other two Companies is

with IOCL is in the Plant & Machinery. The Plant & Machinery for IOCL is almost 3

times that of the other 2 Companies. This is due to the huge Refineries and Bottling

Plants which IOCL pocess.

So in conclusion it can be said that IOCL has maintained the highest average of Gross

Profit Ratio among the 3 Companies. Though there was a sharp decrease in the

Profitabilty in the Year 2010-11 the situation has completely changed in 2011-12 where

the company has registered a gross profit of 10000 Crores. So in terms of profitability

also IOCL is in a better situation than its PSU Competitors.

99

ANALYSIS OF DEBTORS UNDER RSO

Monitering and Control on Beyond Credit Outstanding:

Guidelines are issued from time to time underlining the need to moniter the outstanding and

control the incidents of beyond credit outstandings. Guidelines are also issued on the checks and

control to be exercised at supply locations to obviate the possibility of releasing supply beyond

authorised limit. The instructions are iterated below:

The copy of Credit Approval Note should beavailable with the location before

commening credit supply to any customer.

The credit approval, apart from other things must specifically contain the following:

Product to be supplied on credit

Monetary limit of credit. Where the product is to be supplied from more than one

location monetary limit for each of the supply location.

Number of days credit and Validity Period

Based on above, location/finance in-charge of location shall feed the required

details/limit in the Credit Master immidiately. Supply shall not be released beyond the

approved limits.

Following is ensured in TDM:

Password security to be maintained and password to be changed periodically.

TDM terminal to be installed in the rooms of the Location in-charge/finance in-

charge for authorizing exceptional cases instantly and over –viewing of

functioning of S&D.

Only Finance in-charge/location in-charge to exersise financial authorization as

per TDM option.

Daily review of exceptional listing by Location in-charge/finance in-charge.

Review of one line PAD on Daily/ monthly basis by Location in-charge/finance

in-charge.

In case of Cash and Carry Customers, product to be supplied only against:

DDs or Pay Orders for the value of product or

Cheque, if cheque fecility have been approved for the party or

Fund Transfer Credit(FTC) covering the value of suply or

Adequete credit balance in the PAD


Customerwise Outstanding and Beyond Credit Outstanding for RSO:

Table 23:Customerwise Tabulation of Outstanding and Beyond Credit Outstanding under

RSO

ANALYSIS:

Fig.28: Bar chart showing Outstanding and Beyond Credit Outstanding under RSO

101

Fig.29:Line Graph showing the Beyond Credit Outstanding as a % of Outstanding

The Outstanding for the 6 Months from January to June in RSO is analysed in this

Section. It can be seen that the Outstanding in the month February is highest among the

chosen 6 months which had drastically decreased in the month of March.

The beyond credit oustanding for the first 3 months is also showing a downward trend

reaching the least in the month of March. This is because of the closing in the month of

March when the Debtors are pushed to make their due payments. All the lagging

outstandings are tried to be cleared in this month. The Private companies are focussed in

this month March and their Outstanding decreased drastically in this month by 42.63%

along with a more or less decrease from all other both Private and Goverment.

But what is alarming in this figures is that the beyond credit outstanding has jumped in

the Month of April to 6.19% from 4.56% in the previous month though the oustanding

has increased minimally by about 19.81%. This may be due to the negligence from the

administration in this month to collect the previous month`s outstanding which was

shown up in this month as beyond credit outstanding.

The situation normalized after April in the months of May and June when the outstanding

increased by 13.87% in May but decresed by 5.46% in the month of June, but for both the

months the beyond credit outstanding decreased to 5.32% and 5.12% repectively.

So in conclusion it can be said that Indian Oil RSO has a highly fluctuating trend of

Outstanding from debtors as well as the Beyond Credit Oustanding which can result into

the increase in the bad debts of the company.


Productwise Outstanding and Beyond Credit Outstanding for RSO:

Table24: Productwise Tabulation of Outstanding and Beyond Credit Outstanding under

RSO

ANALYSIS:

Fig.30:Graph showing Productwise Outstanding under RSO

103

From Fig. 30 it can be seen that among all the products, Naphtha and FO is showing the

highest Credit Outstanding. This due to the credit policy for this two products where the

Company allows 30 days of credit to the Customers. But the Beyond Credit Outstanding

for this two Products is almost nil for the considered 6 Months. This is a highly positive

sign becuase most of the Naphtha and FO customers belongs from Private-Others

Category.

Almost 99% beyond credit outstanding comes from the Lubes and MS/HSD but

relatively the outstanding figures for these two products are almost half that of FO and

one-third that of Naphtha. The Credit Period for the Lubes is 60 Days for Government

and 30 days for the Non- Government.

By analysing the actual data it can be seen that the maximum beyond credit outstanding

for the Lubes and the MS/HSD comes from the RO Agencies, Private as well as

Government Bodies. But the the Beyond Credit Outstanding comes mainly from the

Government Bodies. So the debts are secured in that sense.

But this extra fecility should not be given to the Government Companies because they are

already enjoying an extra 30 days fecility over the Private Companies.


Row Labels POWER HOUSE-

Rs. (In Lacs)

Outstanding Amount Beyond Credit Amount %

GOVT LDO LUBES

STEEL PLANTS-GOVT BITUMEN LUBES MS/HSD P&S OTHERS

GOVT-OTHERS BITUMEN FO LDO LPG LUBES MS/HSD P&S OTHERS

LPG-PVT LPG

STEEL PLANTS-PVT LUBES

POWER HOUSE-PVT LUBES

PRIVATE-OTHERS BITUMEN FO LUBES MS/HSD NAPHTHA P&S OTHERS

RO/AGENCIES LPG LUBES MS/HSD

Grand Total

72.65 44.54 28.12

362.65 50.23

153.38 140.15

18.89

1,083.42 133.58

4.27 564.95

18.37 312.08

43.15 7.02

1.47 1.47

13.08 13.08

2.80 2.80

8,109.72 23.63

2,618.01 212.99 459.68

4,674.14 121.28

179.56 0.47

19.75 159.34

9,825.36

6.75 0.00 6.75

174.37 0.00

137.43 36.94

0.00

147.37 0.00 0.00 0.00 0.00

147.37 0.00 0.00

0.04 0.04

0.00 0.00

0.00 0.00

119.68 0.05 0.00

79.21 40.42

0.00 0.00

74.29 0.00 0.00

74.29

522.50

9.29 0.00

24.00

48.08 0.00

89.60 26.36

0.00

13.60 0.00 0.00 0.00 0.00

47.22 0.00 0.00

2.73 2.73

0.00 0.00

0.00 0.00

1.48 0.23 0.00

37.19 8.79 0.00 0.00

41.37 0.00 0.00

46.62

5.32 Table 25 :Pivot Table showing the outstanding status Customerwise and Productwise

105

CASE STUDY


Issuance of Credit Note against an Outstanding of Rs. 653319 on account of Customer M/s Rifle Factory, Ishapore (SAP 138174) due to discounts not being

passed.

1. M/s Rifle Factory, Ishapore is IOCL`s major Customer under defence category in RSO.

IOCL has All India Rate Contract with Ordnance Factory Board for the supply of various

grades of Lubricants for their 39 Factories. M/s Rifle Factory, Ishapore is one such Unit.

2. IOCL had lodged a claim against their outstanding and M/s Rifle Factory have replied

back that they have no outstanding to IOCL for all the factories.

3. After detailed investigation of all the invoices IOCL have identified the following.

4. M/s Rifle Factory have placed various supply orders on IOCL according to the rate in the

Rate Contract and have made supplies accordingly. However there are certain cases in

which higher rates have been charged and hence those cases have resulted in generation

of non-claimable outstanding in their PAD with IOCL.

5. No Credit Note has been Issued till date for the cases mentioned in the Note.

(in Rs.)

Invoice No. Qty (inLtrs)

ChargedNTV

ApplicableLAV

InvoiceValue(actual)

CorrectInvoice

Difference

605163175 9450 45.13 30.94 511009 348790 162219 608494467608494650

840 840

55.88 42.21

34.66 27.71

61425 46398

38099 30460

23326 15938

612522446615999647616000145616000377616015743616159880619510331

3150 9450 9450 9450 9450 3360 9030

61.04 60.40 59.26

60.4 60.81 55.30 43.95

37.95 56.96 55.82 56.96 57.37 53.40 38.55

251612 156433 746923 704383 732825 690285 746923 704383 751993 709453 243148 234794 520056 456159

95179 42540 42540 42540 42540

8354 63897

620557593 420 43.95 38.55 24189 21217 2972 622284222624393300

TOTAL

5040 8400

43.95 52.32

40.15 44.35

290264 265167 565720 479543

25097 86177

653319 Table 26: Invoice Details of M/s Rifle Factory, Ishapore

28

Bill Value ED(16%) & Cess(2%) Sales Tax(12.5%)

Date Invc. No. Charged Amt.

App. Amt.

Diff. Charged App Diff. Charged App Diff.

2.4.2004 605163175 511,009 348,790 162,219 68,237 46,781 21,455 19,654 13,415 6,239

1,365 936 429

16.7.2004 608494467

21.12.2004 608494650

61,425

46,398

38,099 23,326

30,460 15,938

7,510

150

5,673

113

4,658 2,852

93 57

3,724 1,949

74 39

6,825

5,155

4,233 2,592

3,384 1,771

11.3.2005 612522446 251,612 156,433 95,179 30,764 19,127 11,637 27,957 17,381 10,575

615 383 233

9.6.2005 615999647 746,923 704,383 42,540 91,325 86,124 5,201 82,991 78,265 4,727

1,827 1,722 104

29.11.2005 616000145 732,825 690,285 42,540 89,601 84,400 5,201 81,425 76,698 4,727

1,792 1,688 104

21.2.2006 616000377 746,923 704,383 42,540 91,325 86,124 5,201 82,991 78,265 4,727

1,827 1,722 104

13.8.2006 616015743 751,993 709,453 42,540 91,945 86,743 5,201 83,555 78,828 4,727

1,839 1,735 104

21.5.2007 616159880 243,148 234,794 8,354 29,729 28,708 1,021 27,016 26,088

595 574 20

928

16.8.2007 619510331 520,056 456,159 63,897 63,499 55,697 7,802 57,784 50,684 7,100

19.1.2008 620557593 24,189 21,217 2,972

1,905

2,953

89

1,671

2,591

78

234

363

11 2,688 2,357 330

30.8.2011 622284222 290,264 265,167 25,097 35,441 32,377 3,064 32,252 29,463 2,789

1,063 971 92

15.2.2011 624393300 565,720 479,543 86,177 61,528 52,156 9,373 62,858 53,283 9,575

1,846 1,565 281

TOTAL 5,492,485 4,839,166 653,319 684,556 602,421 82,134 573,152 512,346 60,806

Table27:Breakup of the invoice of M/s Rifle Factory in ED, Sales Tax and Cess

29

ANALYSIS

SUGGESTION:

The difference in charged NTV and applicable LAV per invoice is having difference on account

of exise (Rs. 82134) and on account of Sales Tax (Rs.60806) ie. Total amount Rs.142940. The

same had been calculated on the basis of the breakup of the pricing. The charged NTV had been

checked with the SAP and found correct. The Applicable LAV had been checked with the

pricing agreement as per attached annexures and found to be correct.

FINAL DECISION:

ED , RSO approved the issuance of credit note for differential amount of price for mentioned

invoices except for ED and Cess differential. A Credit Note of Rs.571185 was issued for Rifle

Factory.

RATE CONTRACT FOR SUPPLY OF DIFFERENT TYPES OF LUBRICANTS BY

GOVERNMENT OF INDIA, MINISTRY OF DEFENCE, ORDANANCE FACTORY

BOARD

With refence to IOCL`s rate, a Rate Contract was placed on IOCL on behalf of President

of India for supply of 55 Items in various places of India.

The period of contract was for 12 months

The prices towards the supply of various grades of lubricants and greases was according

to the Annexure 1 & 2.

The prices were exclusive of Exice Duty@ 16% and Education Cess@ 2% on Exise

Duty.

Sales Tax and other Statutory Levels was paid applicable on the Date of Supply.

The Ordanance Factory was also entitled for an additional Discount of Rs.500 per Kl

except for the few items mentioned in the Annexure.

30

Conclusion :

The Debtors of IOCL are more or less well managed because though the Sales is

increasing every year the Sundry Debtors are decreasing. So is the Average Collection

Period which is also showing a downward trend every year.

But from the Schedules of Sundry Debtors it can be seen that Unsecured Debts are on the

Higher side in comparison to the Secured loans and almost 67% of the of the Total Debt

per year is unsecured. Another aspect is that almost 96% of this Unsecured Loans are

from the Other Companies which are not Subsidiaries of IOCL.

The debts from the Other Companies are almost 78% of the total Debt which should be

reduced to meet the Cash Flow of the Company.

The main problem of the Current Assets of IOCL is the Inventory Control which shows a

huge fluctuation every year from -16% to 35.6%. So a better Inventory Control

Procedure should be taken up by the company to regulate its Working Capital.

The Cash Conversion Cycle is on the higher side for IOCL whose basic cause in the

Inventory Holding Period only.

The debtors in the Eastern Region have a higher Average Collection Period than the

Overall for the Company. If this ACP can be reduced then the Overall Collection period

can also be reduced which will also help in reducing the CCC of the Company.

In comparison to the competitors like HPCL(6.55 days) and BPCL (4.80 days), IOCL gas

a much higher Average Collection Period of 10.5 days which can be brought down if the

Credit period in the DGS&D in decreased as the ACP of Non DGS&D is well below the

Overall Company average.

31

Recomendations:

1. Strict collection procedure should be implemented for the Beyond Credit outstanding

Customers for IOCL. In severe cases Debt Collection Agencies can be implemented to

collect the debts and reduce the Bad Debts.

2. IOCL restrict the credit period to the consumers specially the DGS&D Customers so

that the tax proceeds and the consequent equivalents interest amount can be enjoyed for a

longer policy

3. Just in Time Inventory mechanism should be followed by IOCL to reduced the

Inventory Holding Period and there-by the CCC of the Company can be decreased

mitigating the problem of cash flow.

4. IOCL should try to get a higher Credit period from its Creditors to infuse more

liquidity. This can will also solve the Cash flow problems and can allow IOCL to give a

better Credit Period for its Debtors to retain a competitive edge in this Highly competitive

market with Private players like Reliance and Essar Oil entering the scenerio.

5. For better receivable Management, IOCL has to take some Steps:

a. Prices and Discounts should be updated in SAP regularly,so that correct

challans are generated from time to time.

b. There should be reduction in lead time between Sales Data and Actual Data of

dispatch from location.

c. All the customers should use the RTGS or Core-to-Core fecility for better

regulation

6. IOCL buys product at International Prices and it is forced to sell the products to

ratailers and customers at Goverment regulated prices, which is sometimes less than the

purchase prices. All this leads to huge loss to IOCL.Therefore IOCL has to take some

policies:

a. Government should consider the better Pricing Policies to prevent losses.

b. To allow IOCL to control the prices of the Premium Brands. Rates of

commercial products like Naphtha and Bitumen should be regulated correctly.

c. By introduction of differential rate to different income groups in the society for

the same product. Eg. High rate of LPG cylinders to high income groups and

subsidized rate to low income groups.

32

Limitations:

1. Time is definitely the main Constraint. Time was not sufficient enough to assess all

processes and policies of an organization of the stature of IOCL.

2. Inadequecy of required data is another constraint. In such situations data is taken with

certain assumptions.

3. Even if the actual data can be gathered, it is often against the company policy to

disclose such data in the project report.

4. 2011-12 Annual Report was not published during the preparation of the report and so it

is neglcted in many of the analysis.

References:

Books:

Khan M.Y. and Jain P.K. (2007), “Financial Management”, The McGraw-Hill Companies

Pandey I.M.(2008), “Financial Management”

Weblinks:

http://www.iocl.com

http://www.hpcl.com

http://www.bpcl.com

http://myiris.com/shares/research/motilal/INDOILCO_20100129.pdf

http://www.dart-creations.com/article-tree/dbt/Debt_Collections_Law.html

http://www.profitera.com/pdfs/A%20Formula%20for%20Success_Karl%20Boone_Ian%20Robe

rts.pdf

http://www.articlesbase.com/finance-articles/debt-collection-techniques-420145.html

http://www.feefunding.com.au

http://www.sooperarticles.com/business-articles/things-do-before-selecting-debt-consolidation-

company-60339.html

http://www.magfinancial.com/account-receivable-management.cfm

http://www.indiastudychannel.com/projects/1583-working-capital-management.aspx

http://www.ferret.com.au/c/Business-Diagnostics-and-Solutions/Debtor-Control-n667421

http://www.business.qld.gov.au/dsdweb/v4/apps/web/content.cfm?id=7415

33

Summer Internship Project Report 1 (1)

Documents

indian oil corporationltd

indian companies

respect of project work

summerinternship project

podar institute of management

large sized corporation

fluctuating oil market

project report hasbeen