Evaluation of Account Receivable Management

Evaluation of management strategies on accounts receivables to minimize loss due to bad debts and assessing its financial impact to B12 Construction Company

One of the key factors underlying the growth of a company is through making sales on its goods or services. However, the strong competition in the market forced to agree to carry out a variety of credit activities which is the postponement of payments in order to survive and continue to develop. This lead to accounts receivable which is the amount due from customers for a service rendered or product received. It comprises the largest financial asset of many companies and relatively liquid asset usually converting to cash within a period of 30 to 60 days. Accounts receivable is one of the very important accounts in the Balance Sheet, as it is one of the most viewed accounts by investors when they are making investment decisions and an important factor in a company’s working capital. It appears in the said financial report after cash and short-term investment in marketable securities due to its ability of being converted quickly into cash and it is considered a source of cash on company’s Cash Flow Statement.

Some companies face a difficulty in collecting the amount due from customer arising from credit sales. Customers may lack the ability to pay for some reasons such as bankruptcy or may generally lack the ethics to complete their half of the bargain. Of course, a company does have legal recourse to try to collect such accounts, but those often fail. As a result, it becomes necessary to establish an accounting process for measuring and reporting these uncollectible receivables. Accounts receivable is reported in the balance sheet at the net realizable value or simply the collectible amount. An accounts receivable that has been determined to be uncollectible is no longer considered an asset, thus, it should be written off. The process of receivable write off reduces the balance due from customer and generates...