BUSINESS PROMOTION ACTIVITY BY OPTIMIZING RECEIVABLES
Розглянуто основні методики оптимізації дебіторської заборгованості суб’єкта господарювання та розраховано оптимальний обсяг дебіторської заборгованості для ПАТ «Київхліб».
Ключові слова: ділова активність, дебіторська заборгованість, фінансовий цикл.
Рассмотрены основные методы оптимизации дебиторской задолженности предприятия и рассчитан оптимальный объем дебиторской задолженности для ПАО «Киевхлеб».
Ключевые слова: деловая активность, дебиторская задолженность, финансовый цикл.
This paper has substantiated the basic methods of optimizing receivables and calculated the optimal amount of receivables in JSC «Kyivkhlib».
Keywords: business activity, accounts receivable (receivables), financial cycle.
Formulation of the problem. Increasing competition on both foreign and domestic markets, due to the dynamics of economic processes and changes in global development trends, hences the need to address the urgent problem of providing and maintaining a high level of enterprises’ competitiveness. In terms of economic transformation in Ukraine, the role of business activity of the entity is growing, considering the fact that it is the real basis for achieving sustainable business and acting engine of social and economic progress in a market economy. At the same time, effective management of business activities of the company is closely associated with the management of its resources, prompt implementation of which helps to reduce operating costs associated with these resources, reduce production costs and increase profits. Considering the fact that the receipt of payments from debtors is one of the main sources of funding for the entity, and cost-benefit evaluation can be used to expand sales, there is a great need to consider the analysis of receivables. In particular, the ensuring of the optimal level of accounts receivable and its share in the structure of current assets of the entity play a pivotal role for all businesses, regardless of ownership and size, as through this economic category management can affect the amount of profit the company gets, its liquidity, solvency as well as the risks connected with them.
Analysis of recent research and publications. Lots of scientists continually take an interest in the issue of business promotion activity by optimizing receivables. Conceptual framework related to the calculation of the optimal amount for the investigated categories was investigated in the works of such scholars as I.M. Boyarko, L.O., Lihonenko, A.I., I.A. Luchkova and others.
The purpose of the study is to calculate the optimal value in JSC «Kyivkhlib» for promoting its business activity.
Summary of the basic material. In the current economic conditions it is observed an accelerated growth rate of the accounts receivable value in enterprises, whose share in the structure of current assets of many entities is the largest one. Entity can benefit from receivables in the way that it promotes rapid realization of inventories, increase of its turnover, and also the mass of gross income and profit. However, the presence of accounts receivable indicates a distraction of working capital from economic circulation, but in order to finance the debt, it is necessary to use other sources that also have a price. At present time, many companies are facing lots of problems with management and accounting of receivables, the main of which is the low purchasing power of buyers, absence of the analysis of creditworthiness for debtors and efficiency of commercial lending, lack of reliable information on the timing of payment obligations for companies (debtors). Therefore, in order to improve receivables management, appropriate policy management categories should be researched, for example:
- analysis of receivables in the company for the previous period;
- formation of principles for monetary policy with respect to customers;
- creation of a credit conditions system;
- development of evaluation standards for customers and differentiation of the terms of the loan;
- formation of collection of receivables management
- use of refinancing of receivables on the enterprise of modern forms;
- building effective control systems and timely collection of receivables [3, p. 38].
Accounts receivable management policy should be directed to the expansion of sales and optimization of its size as well as the timely payment. Therefore, joint management decisions, concerning the issue of giving commercial credit and its value, should be based on the determination of the optimal amount of receivables. At this moment there are used several methods of optimizing receivables entity. In particular, according to the method of Blanca O.I., optimal amount of accounts receivable is estimated on the base of the average term of loans and late payments on loans. We believe that this method does not take into account all the key factors that influence its scope, so this optimization method can suggest only approximate results. According to the method presented by Boyarko I.M, concerning optimization of terms of receivables turnover, it takes into account the impact of receivables on liquidity of entity’s assets, and the result of this calculation refers to its credit policy, however, one of the conditions for application is that the length of the production cycle is unchangeable .
In view of the fact that the food industry of Ukraine is one of the strategic sectors of the national economy and bread represents the bulk of consumer basket, it is of paramount importance to calculate the optimal amount of receivable for one of the leading company for bread and bakery products in Ukraine – JSC «Kyivkhlib». While conducting this analysis we have used several methods. In particular, according to the method of Luchkova A.I, where the key factor of optimization is the credit period, which combines credit policy and the policy of the optimal amount of investment in debt, the optimal amount of receivables for the investigated entity was UAH 75432,5 on January 1, 2015, which by UAH 10336,5 less than its actual amount.
If the company’s purpose concerning optimizing receivables is to ensure solvency, there should be used the method of Lihonenko L.O, refer to the fact that it includes impact of receivables on liquidity of entity’s assets as well as the relationship between the change in sales volume and researched categories (Table 1).
The calculation of the optimal level of receivables in JSC «Kyivkhlib»
on January 1, 2015
|Current liabilities and provisions (thousand, UAH)||246651|
|Absolute liquidity ratio||0,0405|
|Terms of receivables turnover for products, goods, works and services (days)||18,27|
|Net profit (thousand, UAH)||1692699|
|Average growth rate of net income, %||-10,27|
|Required turnover rate of funds (days)||3,12|
|Required increase of funds (thousand, UAH)||14681,10|
|Optimal term receivables rotation ratio (days)||15,15|
|Optimal amount of receivables for products, goods, works and services (thousand, UAH)||71223,37|
According to the data presented in Table 1, the optimal amount of receivables for products, goods, works and services at the beginning of 2015 for JSC «Kyivkhlib», in accordance with the method of Lihonenko L.O., amounted to UAH 71223,37 which is by USD 14545, 63 less in relation to its actual value, and it is different from the results obtained by the implementation of model presented by Luchkova A.I.
In addition, method of the analysis of receivables presented by Lihonenko L.O. on one of the stages involves the study of funding sources, according to which it is compared the amount of current receivables with the value of working capital, accounts payable and short-term bank loans . Given the fact that on December 31, 2014 JSC «Kyivkhlib» had these inequalities indicators: A/cs. Pay > A/cs. Rec > STL > WCC, it can be stated that entity implements a balanced financing receivables policy, using source funds along with their own payables-contractors.
However, the optimum amount of receivable calculated by these methods can provide the information only about the current solvency. Therefore, in order to maintain financial stability of entity, financial cycle should be used that enables to combine its credit policy with changes in financial position. One of the instruments to improve the financial situation of the company is the reduction of the financial cycle, while maintaining a balance between creditors and debtors accounts. Refer to this fact, Boyarko I.M. offers to determine the optimal (maximum) amount of receivables considering the fact that the length of its cash cycle is the product of the average annual one-day net sales and the expected change in net income (Table 2).
The calculation of the maximum amount of receivables in in JSC Kyivkhlib on January 1, 2015
|Terms of accounts payable turnover for products, goods, works and services (days)||27,05|
|Length of inventory turnover (days)||19,05|
|Net profit (thousand, UAH)||1692699|
|Growth rate of net income (%)||89,73|
|Maximum permissible value of receivables||22031,74|
According to these data, the maximum allowable amount of receivables in JSC Kyivkhlib on January 1, 2015 amounted to UAH 22031,74 which is by UAH 63737,26 less compared with its actual value and it points to the need to find new and more effective ways of reducing the volume of the studied index.
Conclusions. Have conducted the comparative analysis of methods of optimizing receivables in JSC «Kyivkhlib», we can assert that the method presented by Boyarko I.M. is the most effective one since it allows to compare credit policy to the amount of receivables, it means that for different purposes of monetary policy, companies calculate different optimal amounts of receivables. However, in view of the fact that the actual amount of receivables of investigated entity significantly exceeds optimal size the following measures should be taken:
- conduct the analysis of the debt concerning different products in order to determine disadvantageous goods in terms of indexation;
- ensure timely monitoring of the ratio of receivables and payables;
- conduct accounts receivable age analysis to identify periods in which mistakes were made in the management of accounts receivable;
- assess the feasibility of using factoring;
- establish an internal audit department to monitor the doubtful and bad debts;
- sell accounts for debtors or factoring company.
In addition, such indirect methods of resolving problems as PR-support for the collection of debts and PR-support connected with legal activities for protecting the rights of defrauded creditors are becoming more popular, so they should find its practical implementation in JSC «Kyivkhlib» [6, p. 131]. Regarding the collection of receivables, the most prominent tool is to give discounts for prompt payment products, but we should remember that the discounts can be offered only for regular customers on condition that strict payment discipline concerning timing and amounts will be followed.
Considering all above-mentioned aspects, only calculation and support of optimum size of receivables in JSC «Kyivkhlib» can ensure timeliness and completeness of payments receivable as a guarantee of stability successful development and skillful administration and management of receivables could enable to develop rational use of available financial resources and strengthen economic security.
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