From creation of receivables the firm gets a few advantages & it has to bear bad debts, administrative expenses, financing costs etc. In the management of receivables financial manager should follow such policy through which cash resources of the firm can be fully utilised. Management of receivables is a process under which decisions to maximise returns on the investment blocked in them are taken. Thus, the main objectives of management receivable is to maximise the returns on investment in receivables & to minimise risk of bad debts etc. Because investment in receivables affects liquidity and profitability, it is, therefore, significant to maintain proper level of receivables. In other words, the basic objectives of receivables management is to maximise the profits. Efficient credit management helps to increase the sales of the firm. Thus, following are the main objectives of receivables management:-
(1) To optimise the amount of sales.
(2) To minimise cost of credit.
(3) To optimise investment in receivables.
Therefore, the main objective of receivable management is to establish a balance between profitability and risk (cost). A business can afford to invest in its receivables unless the marginal costs and marginal profits are the same. Although the level of receivables is affected by various external factors like standards of industry, economic conditions, seasonal factors, rate of competition etc, management can control its receivables. Though credit policies, credit terms, credit standards and collection procedures.
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