A
PROJECT REPORT ON
RECEIVABLES MANAGEMENT
IN
HINDUJA FOUNDRIES LTD .(DCU)
Submitted to
JAWAHAR LAL NEHRU TECHNOLOGICAL UNIVERSITYIn partial fulfillment
of the requirement
For the award of the degree of
MASTER OF BUSINESS ADMINISTRATION
BY
Mr.V.VIJAYA BHASKARAM REDDY
HI-TECH COLLEGE OF ENGINEERING & TECHNOLOGY
Gandipet, Himayath Nagar, C.B.Post Hyderabad 500075
2008-2010CERTIFICATE This is to certify that Mr.V.VIJAYA BHASKAR
REDDY bearing Roll No. 08J11E0058 has submitted the project title
RECIEVABLES MANAGEMENT in HINDUJA FOUNDRIES(DCU),HYD-39,for the
partial fulfillment of requirements for the award of the Degree of
Master of Business Administration (M.B.A) with FINANCE
specialization form Hi Tech College of Engineering &
Technology, Hyderabad (affiliated to JNTU, Hyderabad), during the
academic year 2008-2010. It is a bonafied work done and has been
found worthy of acceptance according to the requirements of the
University.
(G.VEERESH REDDY) (Prof. P.BALA ANJI REDDY)MBA.Asst.Professor
professor & Head, Internal Guide
Dept. of Management ACKNOWLEDGEMENTI wish to express my deep
sense of gratitude to all those people who have encouraged me by
giving their valuable suggestions during the project period and
motivated me towards my goal.My thanks to our Head of Department,
Dr.P.BALANJI REDDY without whose help and encouragement I would
have not completed my project.
I wish to express my sincere thanks to Mr.K.UDAYA BABU- A.G.M
(FIN & ACC) of M/S HINDUJA FOUNDRIES LTD(DCU),HYD-39.Who have
provided me an opportunity to do my project work in HINDUJA
FOUNDRIES (DCU), HYDERABADI am grateful to my external guide
Mr.A.V.UMA MAHESHWAR RAO - A.M(FIN & ACC) of M/S HINDUJA
FOUNDRIES LTD(DCU),HYD-39.For his whole hearted cooperation during
my project work at M/S HINDUJA FOUNDRIES LTD(DCU),HYD-39.
I wish to express my thanks to my internal guide, Mr.G.VEERESH
REDDY, Assistant Professor of MBA Department for his valuable
suggestions and guidance during the course of my project work.
My expressible gratitude to my parents and my friends who have
provided me worth all the facilities and are always supportive to
me in completing my project work successfully.
PLACE:
DATE:
(V. VIJAYA BHASKAR REDDY)
DECLARATIONI here by declare that the project report title,
RECEIVABLES MANAGEMENT in M/S HINDUJA FOUNDRIES LTD(DCU).Submitted
by me to the Department of Business Management, Hi-Tech Engineering
College, JNTU, Hyderabad, is a Bonafide work undertaken by me and
it is not submitted to any other University or Institution for the
award of any degree diploma certificate published anytime
before.
(V.VIJAYA BHASKAR REDDY)
H.T.NO:-(08J11E0058)CONTENTS
ChaptersParticularsPage no
I INTRODUCTION
Introduction
Objectives of Study
Scope of the Study
Research methodology
Limitations
IIIndustry &
company profile
IIITHEORTICAL CONCEPTS
IVDATA ANALYSIS & Interpretation
VFINDINGS
SUGGESTION
CONCLUSION
VIBIBLIOGRAPHY
Chapter-1
Introduction
Introduction
Accounts receivable
Money owed to a business by customers who have bought goods or
services on credit. Accounts receivables are current assets that
continually turn into cash as customers pay their bills. Also
calledreceivables.Money owed by customers (individuals or
corporations) to vendors in exchange for goods or services
rendered. Receivables usually come in the form of operating lines
of credit and are usually due within a relatively short period,
ranging from a few days to a year. On a balance sheet, AR often is
recorded as an asset because it represents cash legally owed by a
customer.
Investopedia explains Accounts Receivable (AR)
When a company has receivables, that means that it has made a
sale but has not collected the money from the purchaser yet. Most
companies operate this way. This allows frequent customers to avoid
the hassle of making cash payments for each transaction. In other
words, the company receives an IOU for goods or services rendered.
People have ARs as well in the form of a monthly or biweekly
paycheck. It's the company's IOU for services (work) rendered. ARs
are the opposite of APs (accounts pay
Theclassificationof anoption contractas either aputor a
call.
Receivables Management means planning, organizing, directing and
controlling of receivables.Definition:In the accounting system, the
entries in the accounts receivable ledger represent amounts of
money you are owed. These amounts are usually the result of the
sale of assets or for services you have provided.
A separate accounts receivable ledger is used if your business
sells to customers on credit.
Moneywhich is owed to acompanyby acustomerfor
productsandservicesprovided oncredit. This is treated as a
currenton abalance sheet. A specificsaleis generally only treated
as anaccountreceivableafter the customer is sent aninvoice.Also
Known As:A current asset on your balance sheet.Common
Misspellings:Accounts receivable; accounts receivable.
Examples:A customer who purchases your product on credit would
be listed in your accounts receivable ledger. This ledger would
list each customer by name alphabetically, and contain a running
total of his or her charges.OBJECTIVES OF THE STUDY To study the
current receivables management policy of the company.
To maintain investment in debtors at optimum level.
To study the average credit period in order to prevent undue
credit exposure.
To maintain good customer relationship.
METHODOLOGY
The study is not aimed at collecting information from source,
the players of the industry with sample survey.
Secondary data is the main source i.e., information from
industry fro the effective study of the receivables management.
The basic date for the study from industry will be the profit
and loss accounts and Balance sheet of the unit for the past Four
Years.
The database so collected will be analyzed using different
accounting ratios to find out how effective the receivables
management in the organization is.
PERIOD OF STUDY
For the Financial periods of 4 years
1. 2005-2006
2. 2006-2007
3. 2007-2008
4. 2008-2009
(STUDY AND ANALYSIS FOR 45 DAYS)
SCOPE OF THE STUDY
The impact of receivables management in the castings industry is
to promote better quality of castings and expand the casting
industry to give better quality components to the automotive
industry and tractors industry at reasonable price
NEED OF THE STUDY
Need of Receivable Management arises only when merchandise is
sold on credit. If a company makes all sales for cash, it would
have no accounts receivable and therefore, the question of
management of such assets does not arise at all. Although
concessions like price discount are granted to include customers to
make immediate cash payment, practice of extending credit to the
customers is very popular. If other concerns engaged in the same
line of business activity are selling goods on liberal credit
terms, the firm will have to pursue liberal lending policy to
maintain volume of sales. Since trade credit device is used too
stimulate sales, there is a greater possibility of business profits
to expand.
The customers from whom receivables or book debts have to be
collected in future are Called trade debtors or simply as debtors
and represent the film` s claim or asset.
Receivable Management is to maximize the value of the firm by
achieving the trade off between liquidity and profitability. In
fact the firm should manage its credit in such way that sales are
expanded to an extent to which risk remains within and acceptable
limit. Thus, to achieve the goal of maximizing the value, the firm
should manage its trade credit:
The aim of credit management should be to regulate the control
these costs. A dynamic credit policy and management will help to
optimize sales at a minimum cost. Thus the objective of receivable
management to promote sales and profits until that point is reached
where the return on investment in future funding receivables is
less than the costs of funds raised to finance that additional
credit.
LIMITATIONS OF THE STUDY
This study is based on records of past four years company Profit
& Loss Account, Balance Sheets and other records.
Decisions taken for better relation with big customers to
continue the better business relations.
Government policies and tax system on the business condition in
respective years will have much influence on business decisions.
(Increase in power Tariff etc.).
Liberal credit policies in the recession period to survive in
the industry will have impact strategic decisions like price
reduction, installment system of payment. Zero percent interest
system etc.
Maintenance of international standards in quality and price
impact of competitive market. (High quality & low price).
Shortage of raw materials & Consumables due to natural
calamities during the study period will have impact.
Chapter-2
INDUSTRY&COMPANY PROFILEINDUSTRY PROFILE
Casting Industry is the foundation of the automobile and tractor
industry. This industry is playing very important role in catering
the growth of our economy.
In recent years India playing a key role in the world economy by
producing high power engine machinery, heavy trucks fro industrial
requirement & trucks for goods as well as public
transportation.
From M/s. Kirlaskar Cummins Ltd., Pune and supplying to all
parts of the world including Korea and Japan. Ashok Leyland and
Telco are making heavy trucks for goods transportation and
passenger Trucks for public transportation. These companies are
selling their trucks in all parts of the world. There are many
casting foundries in the country. M/s. Ennore Foundary limited,
Chennai is the foundary which is a sister concern of Ashok Leyland
supplies 90% of components required by Ashok Leyland. M/s.
Kirloskar Foundries Ltd at Hospet, supplies some portion of
castings required for their engines.
India is basically an agricultural country. For better out put
from the agriculture sector the tractor industry is providing the
easy methods of cultivation to the formers with well equipped
instruments. Now-a-days Tractors are helping the framers in
planting, Spraying pesticides and ploughing the land. Once crop is
over, the tractors are helping the former in cutting the crop and
in transporting to the required place. In this way directly or
indirectly casting industry is talking the leading role in the
countrys economy. For this achievement M/S. HINDUJA FOUNDRIES LTD
(DUCTRON CASTINGS UNIT) is playing major role in providing required
requirements to the tractor producers.
COMPANY PROFILEMANAGEMENT: - Founded In 1948, Ashok Leyland has
emerged to be a leading manufacturer of commercial vehicles in
India. From 7.5 T GVW to 125 T GTW for goods transport and from 19
seaters to 80 seaters forpassengertransport, Ashok reliability,
ruggedness, superior performance and durability. With the entry of
the Hinduja Group and European trucking giant IVECO as principal
shareholders in 1987,
Program. Today, it has an installed annual capacity of 50,000
vehicles and 60,000 engines. Employing 14.500 people, it has six
manufacturing plants: Ennore and Housur (two plants) in Tamilnadu,
Alwar in Rajasthan, Bhandara in Maharashtra and a castings unit
i.e., DUCTRON CASTINGS UNIT at Hyderabad, Andhra Pradesh. The
registered office of the company is at Rajaji Salai, Chennai.
UNIT LOCATION: - This unit is spread over 15 acres in Uppal
Industrial Development Area, Uppal Hyderabad. This Unit
manufactures of SPHEROIDAL GRAPHITE IRON CASTINGS (popularly known
as SG Castings) & GRAY IRON CASTINGS (popularly known as GI
castings) required for the automobile and tractor industries.
CAPACITY AND CAPABILITY:- In line with the high growth levels in
the Indian automobile industry, DCU plans to expand its production
capacity and widen its customer base both within India and in the
overseas market. DCU has an installed capacity of 3000
MT/MONTH.
STRENGTH:-Ductron castings is a jobbing foundry is well-equipped
with:
Electric induction melting, and Heat-treatment furnaces,
Simultaneous jolt squeeze molding and machines, shot-blasting
facilities,
A state-of-the-art high pressure molding line (box
dimension1150x750x350/350with production rate of 60
boxes/hour),
In-house pattern making facility,
Fully automated high speed sand mixers(2 sand plants each of
60Tones/hour),
Sand conditioning equipment that includes sand cooler together
with process instrumentation,
Chemical, Sand and metallurgical laboratories.
Spectra meter for metallurgical testing
The latest core making facilities that are available
Hot box process (max.core dimn.450x700c200/100mm, 60 liters
magazine capacity).
Shell process (450x225x1000mm).
Cold box process (900x700x100mm, 60 liter magazine capacity)
.
This unit is also blessed with 5 power generators with a
capacity 1000kva each for continuous production even in the summer
when power cut is imposed.
Final castings after various processes of fetting, grinding,
shot-blasting are averaged and painted before shipment. Inspection
marks every stage of the process. The unit is equipped with
non-destructive testing facilities like ultra-sonic and x-ray. It
is also ell staffed with qualified, trained and experienced
personnel at every level. The unit has installed an effective
system for dust and fume extraction.CERTIFICATION: - Having
complied with the requirements for quality and testing, the foundry
has been recognized by LLOYDS REGISTER OF SHIPPING, LONDON, an
internationally reputed independent inspection agency, for
manufacture of items like crankshafts in SG iron.
DCU received the coveted ISO 9002 Accreditation in 1995. In
1998, the QS 9000 certification was achieved.
OBJETCIVE: - It is the objective of HINDUJA FOUNDRIES (DCU)
Quality Policy to achieve customer satisfaction by meeting customer
expectations in relation to the products and services offered by
the company
Towards this objective, the Quality Policy of HINDUJA FOUNDRIES
is: 1) To make continuous improvement in the products manufactured
by the company as also in the services offered by the company.
2) To enhance employee potential to contribute to quality by
improving the knowledge and skills of the employees as appropriate
to their functions.
3) To induce in vendors commitment to continuous improvement to
meet quality standards.
TO GATHER WE CAN is the slogan of HINDUJA FOUNDRIES.
Produced in bulk volumes, the products typically weigh about 25
to 90 Kgs per piece in SG iron Castings and 70 to 120 Kgs per piece
in GI Castings. More efficient melting, molding and core-making
facilities have been added to keep pace with the ever increasing
demand for heavier and complicated castings.
BUSINESS PLANS IN FUTURE:-
This unit is planning to provide 100% machined castings to the
customers to enable them to send the components directly to the
assembling line of machine by customer. For this purpose the
machining plant has been installed in the premises of the company.
90% of the installation work is completed by the end of this year .
AS customers are demanding for fully machined castings for their
production top management has taken this decision. Earlier we use
to supply raw castings and proof machined castings. The company is
also planning to increase its production capacity.
CHAPTER-3
THEORITICAL CONCEPTPOLICY IN RELATION TO RECEIVABLES
MANAGEMENT:
RECEIVABLES MANAGEMENT Comprises of COSTS OF RECEIVABLES:
1) Cost of Financing: The credit sales delays the time of sales
realization and therefore the time gap between incurring the cost
and the sale realization in extended. This results in blocking of
funds for a longer period. The firm on the other hand, has to
arrange funds to meet its own obligation towards payment to the
suppliers, employees etc. These funds are to be produced at some
explicit or implicit costs. This is known as the cost of financing
the receivables. 2) Administrative cost : A firm will also be
required to incur various costs in order to maintain the record of
credit customers both before the credit sales as well as after the
credit sales. Before credit sales, costs are incurred on obtaining
information regarding credit worthiness of the customers; while
after credit sales, the cost are incurred o maintaining the record
of credit sales and collection thereof.
3) Delinquency Costs: Over and above the normal and
administrative cost of maintaining and collection of receivables,
the firm may have to incur additional costs known as delinquency
costs, if there is delay in payment by a customer. The firm may
have to incur cost on reminders, phone calls, postage, legal
notices etc, Moreover, there is always an opportunity cost of the
funds tied up in the receivables due to delay in payment.
4) Cost of Default by Customers: If there is a default by a
customer and the receivable becomes, partly or wholly,
unrealizable, then this amount, known as bad debt, also becomes a
cost to the firms. This cost does not appear in case of cash
sales.
The total cost of receivables consists of costs of finanacing,
which is a factor of time, plus cost of administration plus cost of
delinquency plus of default. But, the receivables does not result
in increasing the cost only, rather they bring some benefits also
to the firm.
INCREASE IN PROFITS: Increase in sales will help the firm
(i) To easily recover the fixed expenses and attaining the
break-even level, and
(ii)Increase the operating profit of the firm. In a normal
situation, there is a positive relation between the sales volume
and profit.
EXTRA PROFIT: Sometimes, the firms make the credit sales at a
price which is higher than the usual cash selling price. This
brings an opportunity to the firm to make extra profit over and
above the normal profit.
BENEFITS OF RECEIVABLES:
INCREASE IN SALES: Expect a few monopolistic firms; most of the
firms are required to sell goods on credit, either because of trade
customers or other conditions. The sales can further be increased
by liberalizing the credit terms. This will attract more customers
to the firm resulting in higher sales and growth of the firm,Thus,
the receivables bring some costs as well as benefits to the firm.
Both the cost and the benefits are to be looked carefully and a
trade-off between then m should be attempted.
The receivable management must be attempted by adopting a
systematic approach and considering the following aspects
1. THE CREDIT POLICY
2. THE CREDIT EVALUATION
3. THE CREDIT CONTROL
1. CREDIT POLICY: The credit policy is the set of parameters and
principles that govern the extension of credit to the customers.
This requires the determination of
I. The credit standard
II. The credit Terms.
I. CREDIT STANDARDS are criteria to decide the types of
customers to whom goods could be sold on credit. If a firm has more
slow-paying customers, its investment in accounts receivable will
increase. The firm will also be exposed to higher risk of default.
If the standards are set loosely, it may make the firm to bear
loses. Therefore, the problem is to balance the benefits of
additional sales against the cost of increasing bad depts.
The firms credit standards are influenced by three C of
credit:
Character of customer to pay
Capacity of customer to pay and
Customers economic condition.
While setting the credit standards for a firm the following
points are to be noted:
Effect of a particular standard on the sales volume
Effect of a particular standard on the total bad depts. Of the
firms, and
Effects of a particular standard on the total collection
cost.
II. CREDIT TERMS: The credit terms refer to the set of
stipulations under which the credit is extended to the customers.
The credit terms specify how the credit will be the offered,
including the length of the period for which the credit will be the
offered, the interest rest on the credit, and the cost of
default.
The credit terms may relate to
a. Credit period
b. Discount terms
a) CREDIT PERIOD: Credit period is an important aspect of the
credit policy. It refers to the lengthy of time over which the
customers are to allowed to delaying the payment. The credit period
generally varies from 3 days to 6 days. Lengthening the credit
period increases the sales by attracting more and more customers.
The effect of changing the credit period is similar to that of
changing the credit standard and hence requires careful analysis.
The firm mists consider the cost involved in increasing the credit
period which will result in increase in the investment in
receivables.
b) DISCOUNT TERMS: The customers are generally offered cash
discount to induce them to make prompt payment. Different discount
rates may be offered for different periods. Eg.3/10, 2/20,net 30
means that 3% cash discount if payment made within 10 days:2%
discount if payment made with 20 days; otherwise full payment by
the end of 30 days from the date of sale. This will result in
shortening of the average collection period.
2.CREDIT EVALUATION: Credit evaluation involves determination of
the type of customers who are going to qualify for the trade
credit. Several costs are associated with extending credit to less
credit-worthy customers. When more time is spent investigating the
less credit worthy customers, the cost of credit investigation
increases. Default costs also very directly with the quality of the
customers. As the customers credit rating declines, the chance that
the amount will not be paid on time increases. Collection costs
also increases as the quality of the customers declines. More
delinquent customers force the firm to spend more time and money
collecting them. In nutshell, the decline in customers quality
results in increased cost of default, collection and credit
investigation.
Assessment of the credit worthiness of a customer is subjective
matter and a lot depends upon the experience and judgment of the
person taking the decision, there are three basic factor of credit
worthiness of a customer.
First, the character i.e., the willingness and the practice of
the customer to honor his obligations by paying as agreed.
Second, the capacity i.e., the financial ability of the customer
to pay as agreed, and
Third, the collateral i.e., the security offered by the customer
against the credit. Evaluation of credit worthiness of a customer
is a two steps procedure
(I) Collection of Information and
(II) Analysis of information.
COLLECTION OF INFORMATION: In order to better decisions, the
firm may collect information from various sources on the
prospective credit customers. The following are sources of
information which can provide sufficient data or information about
the credit worthiness of a customer:
Bank Reference: Trough the banks may be reluctant to give
financial information of its customers, yet may be asked to comment
on the financial position of a particular customer. The customer
may also be required to ask his bank to provide necessary
information in this respect.
Credit Agency Report: There are certain credit ratings agencies
which provide independent information on the credit worthiness of
different parties. These agencies gather information on the credit
history of different businessman and sell it to the firms, which
want to extend credit. Obviously, people who have failed to pay
their bills in the past are viewed as greater credit risk than
those who have an un-blemished credit record.
Published Information: The published financial statements of the
customers for few preceding years may also be taken as a source of
information, as they contain a lot of details regarding the
operations. Various ratios calculated on the basis of these
financial statements maybe throw light on the profitability,
liquidity, and debt service capacity of a customer.
Credit Scoring: If the credit request is large enough, then the
firm can send its own representatives/employees to collect
information about the customer. In this case, the customer may be
evaluated through the use of credit scoring which involves the
numerical evaluation of each of the new customers who receive a
score based on his answers to a simple set of questions. This score
is then evaluated accounting to a predetermined standard, its level
relative to the standard determining whether credit should be
extended. The major benefit of credit scoring is that it is
relatively inexpensive and less time consuming.
Information collected is often costly and therefore, firms also
weigh the benefits of gathering information against its costs. It
should, in particular, gather only as much as information is
required and necessary to find out the credit worthiness of the
customer with a reasonable degree of accuracy.
ANALYSIS OF INFORMATION: Once all the available credit
information about a potential customer has been gathered, it must
be analyses to reach at some conclusion regarding the credit
worthiness of customer. The five well known C`s of credit:
Character
Capacity Capital
Collateral
Conditions Provide a frame work for the evaluation o a
customer.
These characteristics can throw light on the credit worthiness
of a default0-risk of the customer. Step-by-step analysis of
information may be made and assessment would be made at various to
ascertain whether further analysis is required or not. The firm
should go further information and analysis only if required. If it
is evident at any state that the customer has a satisfactory
accredit worthiness, then there is no need to go for costly
exercise of further analysis. Where a customers credit standing is
either favorable or far below e-established credit standards, the
selection or rejection of a customer is an easy job. The difficult
arises in case f those, customer who are marginally credit worth.
In such a a situation, the financial manager must attempt to
balance the potential profitability against the potential loss for
the default.
CONTROL OF RECEIVABLES: If the credit has been extended to a
customer as per the credit policy, the next important step in the
management of receivables is the control of these receivables.
Merely setting of standards and framing a credit policy is not
sufficient; equally important is their effective implementation to
control the receivables. In this reference, the efforts may be
required in two directions as below:
1)THE COLLECTION PROCEDURE: Once the firm decides to extend
credit and defines the terms of credit sales, it must develop a
policy for dealing with delinquent or show paying customers. There
is a cost of both Delinquent customers create bad debts and other
costs associated with repossession of goods, where as the slow
paying customers cause more cash being tied up in receivables and
the increased interest cost. The firm should have a built in system
under which the customer may be reminded a few days in advance
about the bill becoming due. After the expiry of due date of the
payment, he firm should make statements, reminders, telephone calls
and even personal visits to the paying customer. Ultimately legal
action for recovery of due amount may also be resorted to; through
it can be very costly and time consuming. No doubt, those legal
actions may have little effect on the ability of the customer to
pay, but it can definitely speed up the legal relief.
The overall collection procedure of the firm should neither be
too lenient (resulting in mounting receivables) nor too strict
(resulting sometimes even loss of customers). Strict collection
policy can affect the good will and damage the growth prospects of
the sales. If a firm has a lenient credit policy, the customer with
a natural tendency towards slow payments, may become eve slower to
settle his accounts. Overly aggressive collection policy may offend
good customers who inadvertently have failed to pay in time. One
possible way of ensuring early payments from customers may be to
change interest on over due balances. But this penal interest and
the rate thereof must be agreed in advance and better written in
the sale document. Thus, the objective of collection procedure and
policies should be to speed up the slow paying customer and reduce
the incidence of bad2)MONITORING OF RECEIVABLES: In order to
control the level of receivables, the firm should apply regular
checks and there should be a continuous monitoring system. The
financial managers should keep a watch n the credit worthiness of
all individual customers as well as on the total credit policy of
the firm. For this, numbers of measures are available as
follows:
a) A common method to monitor the receivables is the collection
period or number of days outstanding receivables. The average
collection period may be found by dividing the average receivables
by the amount of credit sales per day i.e.
Average collection period = average receivables/credit sales per
day Number of days sales outstanding may be calculated,
b) Aging Schedule: Is another technique available for monitoring
the receivables. The quality of the receivables of a firm can be
measured by looking at the age of receivables. The order the
receivables, the lower is the quality and greater the likelihood of
a default. In the aging schedule, the total outstanding receivables
on a particular day (at the end of a month or a year) are
classified with percentage of total receivables that fall in each
age group. By comparing the aging schedules fro different periods,
the financial manager can get ideal of any required change I the
collection procedure and can also point out these customers, which
require special attention. However, a basic shortcoming of the
aging schedule is that it is influenced by the change in sales
volume.
c) Lines of Credit: Another control measure for receivables
management is the line of credit which refers to the maximum amount
a particular customer may have as due to the firms at any time.
Different lines credit may be allowed to different customers. As
long as the customers unpaid balance remain within this maximum
limit, the account may be routinely handled. However, if a new
order is going to increase the indebtedness of a customer beyond
his line of credit, then the case must be taken for a approval for
a temporary increase in the line of credit.
The lines of must be reviewed periodically fro all the
customers. This review of credit lines, however, need not
necessarily mean that credit lines must be changed. Rather, the
credit line may remain unchanged or may increase or reduced. In a
extreme case, the credit lines after a review may even be suspended
if the experience request for a review of credit line order to
obtain more credit or more liberal credit terms. Such a request
should be looked into properly and costs and benefits of extending
credit terms should be evaluated.
d) Accounting Ratios: Accounting information may be of good help
in order to control the receivables. Though, several ratios may be
calculated in this regard, two accounting ratios, in particular may
be calculated to find out the changing pattern of receivables.
These areI. Receivables Turnover Ratio, and
II. Average collection periodReceivables Turn Over: This is also
called as Debtors Turnover or debtors Velocity. Of the various
methods of sales adopted by business concerns, one most common
method is t6o sell on credit. Every concern formulates a credit
policy and goods are sold to customers on credit in accordance with
such credit policy. Customers to whom goods are sold on credit are
called Debtors or Book-Debts in accounting language. In America,
they are called asAcconts Receivables. Sometimes, goods are sold to
such customers who are prepared to give their acceptance for bill
or Hundi in consideration of sales payments. The bills or Hundies
received from such customers are called Bills Receivables. In
America, these are called as Notes Receivables. Thus, total
receivables of a concern include book-debts or debtors and bills
receivables. In short, these two will be termed Recei Average
collection period:
It is most essential that a reasonable quantitative relationship
between outstanding Receivables and Sales should always be
maintained. While analyzing the operational efficiency of the
concern, it is useful to compare those debtors and bills
receivables with sales. For this purpose, Receivables turnover is
found out. Receivables turnover measures the number of times the
receivables rotate in a year in terms of sales Since it is
calculated to measure the efficiency of credit policy and credit
collection, it is also sometimes expressed in terms of period [ no.
of days, weeks or months]
CHAPTER-4
FINDINGS,CONCLUSIONS &SUGGESTIONSSALES FOR THE PERIOD
2005-2009PER DAY SALES IN
LAKSPARTICULARS2005-062006-072007-082008-09
CUSTOMER PROFILE
OTHER CUSTOMER
Carraro india2.913.323.592.03
Caterpiller0.340.641.020.85
Escorts ltd1.562.913.633.62
HV Axles1.321.080.730.49
JCB India ltd0.020.080.140.09
New Holland tractors2.373.826.226.07
Shakthi Prec-others2.140.370.20.55
TAFE2.321.273.572.14
TATA Motors1.261.231.391.68
Sub trotal-A14.2414.7220.0617.53
ASHOK LEYLANDS
AL-Ennore5.757.337.594.68
AL-Hosur16.174.774.71.93
AL-HOsur22.14.11.761.49
AL-Bhandara-others0.91.110.850.69
Sub total-B14.9217.3014.908.80
TOTAL29.1632.0335.3626.32
PER DAY SALES (OUTSIDE CUSTOMERS)
X-AXIS-companies
Y-AXIS-rs in lakhsPER DAY SALES (A L CUSTOMER PROFILE)
X-AXIS-companies
Y-AXIS-rs in lakhsINTERPRETATION (TOTAL SALES)
The company has sold goods worth RS 29.16 lakhs during 2005-06,
RS 32.03 lakhs during 2006-07 and RS 35.36 lakhs during 2007-08 but
there is only sale of 26.32 lakhs during the year 2008-09. There is
a decrease of sale in the year 2008-09 worth RS 9.04 lakhs when
compare to the sale of 2007-08.As per company the decrease in sale
was due to market recession.
AVERAGE DEBTORS IN LAKS
2005-062006-072007-082008-09
CUSTOMER PROFILE
OTER CUSTOMER
Carraro india364.69429.47437.83261.61
Caterpiller32.5234.3143.330.3
Escorts ltd218.53260.72299.81291.94
HV Axles74.5698.8769.1854.92
JCB India ltd0.693.045.777.5
New Holland Tractors161.8212.87348.07430.56
Shakthi Prec-Others125.0226.9313.8450.97
TAFE185.09129.33259.2287.5
TATA Motors52.8861.93111.61138.48
Sub total-A1216.391257.451585.621553.78
ASHOK LEYLAND
AL-Ennore378.48439.11462.45275.35
AL-Hosur1302.73332.95295.43125.15
AL-HOsur2266.62289.8198.0153.11
AL-Bhandara-Others130.11142.62140.7976.12
Sub total -B1077.921204.481096.69529.74
TOTAL2294.312461.932682.312083.52
AVERAGE DEBTORS (OUTSIDE CUSTOMERS)
X-AXIS-companies
Y-AXIS-rs in lakhsAVERAGE DEBTORS (A L CUSTOMERS)
X-AXIS-companies
Y-AXIS--rs in lakhsINTERPRETATION (TOTAL SALES)The company has
sold goods worth RS 2294.31 lakhs during 2005-06, RS 2461.91 lakhs
during 2006-07 and RS 2682.31 lakhs during 2007-08 but there is
only sale of 2083.52 Lakhs during the year 2008-09. There is a
decrease of sale in the year 2008-09 worth RS 598.79 lakhs when
compare to the sale of 2007-08.As per company the decrease in sale
was due to market recession.
AVERAGE COLLECTION PERIOD
(DAYS)PARTICULARS2005-062006-072007-082008-09
CUSTOMER PROFILE
OTHER CUSTOMERS
Carraro india125129123129
Caterpiller96534236
Escorts ltd140908381
HV Axles576291112
JCB India ltd42364285
New Holland Tractors68565671
Shakthi Prec-Others59726992
TAFE8010273135
TATA Motors42508082
ASHOK LEYLAND
AL-Ennore66606159
AL-Hosur149706365
AL-HOsur21277111236
AL-Bhandara-Others145129166110
AVERAGE COLLECTION PERIOD (OUTSIDE CUSTOMERS)
X-AXIS-companies
Y-AXIS--rs in lakhsASHOK LEYLAND CUSTMORS
X-AXIS-companies
Y-AXIS--rs in lakhsNUMBER OF DELAY DAYS
PARTICULARSCREDIT PERIOD2005-062006-072007-082008-09
CUSTOMER PROFILE
OTHER CUSTOMERS
Carraro India90 DAYS35393339
Caterpillar30 DAYS6623126
Escorts ltd72 DAYS6818119
HV Axles30 DAYS 27626182
JCB India ltd30 DAYS1261255
New Holland Tractors30 DAYS 38262641
Shakthi Prec-Others60 DAYS0282547
TAFE45 DAYS35572890
TATA Motors30 DAYS12205052
ASHOK LEYLAND
AL-Ennore30 DAYS36303129
AL-Hosur130 DAYS19403335
AL-HOsur230 DAYS 9741826
AL-Bhandara-Others30 DAYS1159913680
NUMBER OF DELAY DAYS(OUTSIDE CUSTOMERS)
X-AXIS-companies
Y-AXIS-rs in lakhs ASHOK LEYLAND CUSTOMERS
X-AXIS-companies
Y-AXIS-rs in lakhs INTERPRETATI0ON OF DELAY DAYS
The finance deportment informed that the company has taken
several steps in action to collect the money as per due date.
Step 1
The company has appointed local resident representative in order
to collect the money as per due date As and When amount are
due.
Step 2
Company has demanded for AT-PAR cheques DEMAND DRAFT S against
their payments from customers in order to credit the payment
immediately soon after deposit of payments received.
Step 3
Company has taken further steps in collecting payments through
RTGS\ ELECTRONIC TRANSFER from customer account to supplier account
in the banks.
Step 4
There is a time to time reconciliation with the customers in
order to confirm the due amounts from the customer.
Step 5
In case of differences in due amount, the disputed amounts are
informed to the marketing department with a copy to head of
marketing , head of the plant and a copy to resident representative
to take necessary action to clear the disputed supplier or payment.
DATA & INTERPRETATIONSSALES VALUE FOR THE FINANCIAL YEAR
2005-2009 (TOTAL SALES)
PERIOD VALUES
2005-200610643.00
2006-200711691.08
2007-200812906.34
2008-20099610.38
INTERPRETATION (TOTAL SALES)
The company has sold goods worth RS 10643 lakhs during 2005-06,
RS 11691.08 lakhs during 2006-07 and RS 12906.34 lakhs during
2007-08 but there is only sale of 9610.38 lakhs during the year
2008-09. There is a decrease of sale in the year 2008-09 worth
RS3295.96 lakhs when compare to the sale of 2007-08.As per company
the decrease in sale was due to market recession.
.SALES VALUE FOR THE FINANCIAL YEAR 2005-2009(OUTSIDE
CUSTMERS)PERIODVALUES
2005-20065195.95
2006-20075374.93
2007-20087466.96
2008-20096398.1
INTERPRETATION (OUT SIDE CUSTOMERS)
The company has sold goods worth RS 5195.95 lakhs during
2005-06, RS 5374.93 lakhs during 2006-07 and RS 7466.96 lakhs
during 2007-08 but there is only sale of 6398.10 lakhs during the
year 2008-09. There is a decrease of sale in the year 2008-09 worth
RS1068.86 lakhs when compare to the sale of 2007-08.As per company
the decrease in sale was due to market recession.
SALES VALUE FOR THE FINANCIAL YEAR 2005-2009(ASHOK LEYLAND
CUSTOMERS)PERIODVALUES
2005-20065447.05
2006-20076316.15
2007-20085439.38
2008-20093212.28
INTERPRETATION (ASHOK LEYLAND (units))
The company has sold goods worth RS 5447.05 lakhs during
2005-06, RS 6316.15 lakhs during 2006-07 and RS5439.38 lakhs during
but there was out side company demanded more material. Hence ashok
Leyland sales have come down. And 2007-08 but there is only sale of
3212.29lacs during the year 2008-09. There is a decrease of sale in
the year 2008-09 worth RS2227.09 lakhs when compare to the sale of
2007-08.As per company the decrease in sale was due to market
recession.
OUTSIDE CUSTOMERSSALES VALUE FOR THE FINANCIAL YEAR
2005-2009
(CARRAO INDIA)
PERIODVALUES
2005-20061063.76
2006-20071211.68
2007-20081301.22
2008-2009742.67
INTERPRETATION (CARRARO INDIA)The company has sold goods worth
RS 1063.76 lakhs during 2005-06, RS 1211.68 lakhs during 2006-07
and RS 1301.22 lakhs during 2007-08 but there is only sale of
742.67 lakhs during the year 2008-09. There is a decrease of sale
in the year 2008-09 worth RS 558.55 lakhs when compare to the sale
of 2007-08.As per company the decrease in sale was due to market
recession.SALES VALUE FOR THE FINANCIAL YEAR
2005-2009(CATERPILLAR)PERIODVALUES
2005-2006124.14
2006-2007234.57
2007-2008372.72
2008-2009310.52
INTERPRETATION (CATERPILLER)
The company has sold goods worth RS 124.14 lakhs during 2005-06,
RS 1234.57 lakhs during 2006-07 and RS 372.72 lakhs during 2007-08
but there is only sale of 310.52 lakhs during the year 2008-09.
There is a decrease of sale in the year 2008-09 worth RS 62.2 lakhs
when compare to the sale of 2007-08.As per company the decrease in
sale was due to market recession.SALES VALUE FOR THE FINANCIAL YEAR
2005-2009(ESCORT LTD)PERIODVALUES
2005-2006569.18
2006-20071062.22
2007-20081324.88
2008-20091321.49
INTERPRETATION (ESCORTS LIMITED)The company has sold goods worth
RS 569.18 lakhs during 2005-06, RS 1062.22 lakhs during 2006-07 and
RS 1324.88 lakhs during 2007-08 but there is only sale of 1321.49
lakhs during the year 2008-09. There is a decrease of sale in the
year 2008-09 worth RS 3.39 lakhs when compare to the sale of
2007-08.As per company the decrease in sale was due to market
recession
SALES VALUE FOR THE FINANCIAL YEAR 2005-2009(HV
AXLES)PERIODVALUES
2005-2006480.17
2006-2007392.94
2007-2008265.56
2008-2009179.56
INTERPRETATION (HV AXLES)
The company has sold goods worth RS 480.17 lakhs during 2005-06,
RS 392.94 lakhs during 2006-07 and RS 265.56 lakhs during 2007-08
but there is only sale of 179.56 lakhs during the year 2008-09.
There is a decrease of sale in continuously fall down. Why because,
as per company the decrease in sale was due to market recession
SALES VALUE FOR THE FINANCIAL YEAR 2005-2009
(JCB INDIA LTD)PERIODVALUES
2005-20066.00
2006-200762.325
2007-200850.02
2008-200932.34
INTERPRETATION ( JCB INDIA LIMITED )The company has sold goods
worth RS 6 lakhs during 2005-06, RS 30.45 lakhs during 2006-07 and
RS 50.02 lakhs during 2007-08 but there is only sale of 32.34 lakhs
during the year 2008-09. There is a decrease of sale in the year
2008-09 worth RS 17.68 lakhs when compare to the sale of 2007-08.As
per company the decrease in sale was due to market recession
SALES VALUE FOR THE FINANCIAL YEAR 2005-2009(NEW HOLLAND
TRACTORS)PERIODVALUES
2005-2006864.41
2006-20071395.65
2007-20082269.77
2008-20092216.26
INTERPRETATION (NEW HOLLAND TRACTORS)
The company has sold goods worth RS 864.41 lakhs during 2005-06,
RS 1395.65 lakhs during 2006-07 and RS 2269.77 lakhs during 2007-08
but there is only sale of 2216.26 lakhs during the year 2008-09.
There is a decrease of sale in the year 2008-09 worth RS 53.51
lakhs when compare to the sale of 2007-08.As per company the
decrease in sale was due to market recessionSALES VALUE FOR THE
FINANCIAL YEAR 2005-2009(SHAKTHI PREC & OTHERS)
PERIODVALUES
2005-2006781.64
2006-2007136.26
2007-200872.97
2008-2009202.08
INTERPRETATION (SHAKTHI PREC & OTHERS)
The company has sold goods worth RS 781.64 lakhs during
2005-06,but here compare to other products are demanded fallowing 2
years RS 136.26 lakhs during 2006-07 and RS 72.97 lakhs during
2007-08 but there is only sale of 202.08 lakhs during the year
2008-09. There is a increase of sale in the year 2008-09 worth RS
129.11 lakhs when compare to the sale of 2007-08.As per company the
increase in sale was demand of product.
SALES VALUE FOR THE FINANCIAL YEAR 2005-2009
(TAFE)PERIODVALUES
2005-2006846.70
2006-2007462.61
2007-20081302.05
2008-2009780.09
INTERPRETATION (TAFE )
The company has sold goods worth RS 846.70 lakhs during
2005-06,but here compare to other products are demanded so sale are
fall down. RS 462.61 lakhs during 2006-07 and RS 1302.05 lakhs
during 2007-08 but there is only sale of 780.09 lakhs during the
year 2008-09. There is a decrease of sale in the year 2008-09 worth
RS 521.96lacs when compare to the sale of 2007-08.As per company
the increase in sale was due to market recession.
SALES VALUE FOR THE FINANCIAL YEAR 2005-2009(TATA
MOTORS)PERIODVALUES
2005-2006459.95
2006-2007448.56
2007-2008507.76
2008-2009613.1
INTERPRETATION (TATA MOTERS)
The company has sold goods worth RS 459.95 lakhs during
2005-06,but here compare to other products are demanded so this
year sales are fall down. RS 448.56 lakhs during 2006-07 and RS
507.76 lakhs during 2007-08 but there is only sale of 613.10 lakhs
during the year 2008-09. There is a increase of sale in the year
2008-09 worth RS 105.34 lakhs when compare to the sale of
2007-08.As per company the increase in sale was demand of
product.
ASHOK LEYLAND COMPANYSSALES VALUE FOR THE FINANCIAL YEAR
2005-2009(AL-Ennore)PERIODVALUES
2005-20062099.99
2006-20072675.00
2007-20082770.32
2008-20091708.00
INTERPRETATION (ASHOK LEYLAND (ENNORE))
`The company has sold goods worth RS 2099.99 lakhs during
2005-06, RS 2675 lakhs during 2006-07 and RS 2770.32 lakhs during
2007-08 but there is only sale of 1708 lakhs during the year
2008-09. There is a decrease of sale in the year 2008-09 worth RS
1062.32 lakhs when compare to the sale of 2007-08.As per company
the decrease in sale was due to out side company demanded more
material. Hence ashok Leyland sales have come down
SALES VALUE FOR THE FINANCIAL YEAR 2005-2009(AL-Hosur I)
PERIODVALUES
2005-20062253.72
2006-20071741.60
2007-20081714.92
2008-2009706.08
INTERPRETATION (AL-HOSUR I)The company has sold goods worth RS
2253.72lacs during 2005-06, RS 3893.755 lakhs during but there only
sales are fall down of 2 years. 2006-07 and RS 3486.710 lakhs
during and 2007-08r RS 706.08 lakhs during the year 2008-09. As per
company the decrease in sale was due to out side company demanded
more material. Hence ashok Leyland sales have come downSALES VALUE
FOR THE FINANCIAL YEAR 2005-2009(AL-Hosur II)
PERIODVALUES
2005-2006764.89
2006-20071495.66
2007-2008646.93
2008-2009544.72
INTERPRETATION (AL-HOSUR II)
The company has sold goods worth RS 764.89 lakhs during 2005-06,
RS 1495.66 lakhs but here compare to other products are demanded so
sale are fall down during 2006-07 and RS 643.93 lakhs during
2007-08 but there is only sale of 544.72 lakhs during the year
2008-09. There is a decrease of sale in the year 2008-09 worth RS
99.21lacs when compare to the sale of 2007-08.As per company the
increase in sale was due to market recession.
SALES VALUE FOR THE FINANCIAL YEAR 2005-2009(AL-Bhandara &
Others)
PERIODVALUES
2005-2006328.45
2006-2007403.89
2007-2008310.21
2008-2009253.48
INTERPRETATION (AL BHANDARA & OTHERS)
The company has sold goods worth RS 328.45 lakhs during 2005-06,
RS 403.89 lakhs but here compare to other products are demanded so
sale are fall down during 2006-07 and RS 310.21 lakhs during
2007-08 but there is only sale of 253.48 lakhs during the year
2008-09. There is a decrease of sale in the year 2008-09 worth RS
56.73lacs when compare to the sale of 2007-08.As per company the
increase in sale was due to market recession.
CHAPTER-4FINDINGS
During the project study we examine that the Receivables
Management performs it activities of how the various credit
policies are been maintained and controlled and how the various
credits are been provided to various individual performing its
functions.
The study generally refer to how the various credit polices,
costs, floats and aging schedules operates its functions and
manages in an organization structure and in order to develop the
performance of various policies and standards. which in orderly
develop and increases the organization structure and develops its
production.
The receivables management also study of how various cost
features and standards are handled and maintained in order to
provide credit various individuals and help in developing its
performance and maximizing its profits.
The HINDUJA FOUNDRIES LTD(DCU),HYD, as it is the one of the
largest casting unit in allover india which is in orderly has to
maintain the Receivables and to develop the cost of various
structures by providing the credits to various individuals and
institutions in order to perform its activities well.
This Receivables management work efficient in an organizational
unit and also enhances the individuals and other organizational
units by providing the credit and by properly maintaining the cost
structure in an organization .It also found that they are various
Floats which helps in performing of activities efficiently and
effectively by properly maintaining the Floats structure which
helps in understanding individuals properly in re-paying of its
debts and bills which are been incurred and have to re-pay at the
time of due date. Thus this type of proper maintenance will help in
developing the performance and maximizing the profits of an
organizational structure.
SUGGESTIONS
The receivables management which is generally laid out and
maintained in an organization for the maintaining the relationship
of various credit policies and other costs. So when maintain
receivables management maintained in providing credit I suggest the
HINDUJA FOUNDRIES LTD(DCU), must have to do credit analysis through
obtaining credit information from banks, credits bureaus internal
external sources etc. with the help of which the organization can
maintain a sustainable and attain profit maximization.
According to me view I suggest the HINDUJA FOUNDRIES LTD(DCU),
must have to open a internet banking mechanism in order to reduce
the cost of collections and credits lended and various float in
cheque receipt, cheque deposit and its clearance.
The organization HINDUJA FOUNDRIES LTD(DCU), while maintaining
the receivables management while providing the credit to various
individuals and owes assets to others must also have to maintain a
proper records and must have to carry out the credit evolution of
the customers by studying the credit worthiness certificate from
the bankers or any other consultants etc, to know that how far the
credit can be allowed to the customers. By maintaining this proper
records of various individuals to whom the credit has been provided
the organization must maximize its profits and also enhance its
development in production.
As the various forms of acquiring the Assets & Liabilities
has been increasing the organization there will be various
opportunities of developing the production and maximizing the
profits can be enabled and can also lead to the development of
organization sector by enhancing more credits and evaluating the
cost structure.
To generate more profits in an organizational context management
of receivables whose main function is to provide the credit forms
to various individuals and organizations, I would suggest that
while providing the credit they must have to provide the cash
discounts. So that they can make a effective and early recoveries
and enhance in the development of the organization and also to play
a key role in developing the organization in maximizing its profits
and achieving its goals.
CONCLUSIONAs we observed during the project study of Receivables
Management in the HINDUJA FOUNDRIES LTD (DCU), organization which
the main function is to operate various forms of credits to various
institutions and individuals and performing the various costs
related functions in the organization structure. The receivables
management owes a credit to various individuals in the form of the
credit and will improve its various forms of performance in an
organizational unit. This receivables management will function
according to the developing the various forms by outlaying the
credit to different structure in an organizational limit .HINDUJA
FOUNDRIES LTD(DCU), is also with the receivables management is
obtaining lot of loans for working capital requirements and
incurring lot of expenditure towards interest payment due to which
the cost per unit of generating is gradually increasing. During the
study of receivables management the credit which has been given to
various institutions shall be retained with less than six months
can be said as the good debts and from the provided float chart in
the study we can be said that HINDUJA FOUNDRIES LTD (DCU), is
taking lot of time for billing float and the credit period float
are found very large. Except these two floats all other floats can
be said to be reasonable. The receivables management while
providing the credit for the up liftment and developing the
performance at the same time it must have to recover it in time and
improve its performance in order to develop the production and
maximize the profits and achieve its
goals.CHAPTER-5biboliography
BIBLIOGRAPHY1) References:
1. Financial Management by I.M.Pandey 2.Cost and Financial mgmt
by S.N.Maheshwari
3.Financial Management by K.Prasanna Chandra
2) HINDUJA FOUNARIES ANNUAL REPORTS: ANNUAL REPORT 2005-2006
ANNUAL REPORT 2006-2007
ANNUAL REPORT 2007-2008
ANNUAL REPORT 2008-2009
3)WEBSITES: www.Hindujafoundaries.com