Kateryna Fedorova
student of the 4th year of economics faculty
National University of Ostroh Academy
Scientific supervisor : Kharchuk Yuliya Yurievna
associate professor of finance, accounting and audit department
Opportunities to improve the process of managing the receivables of the enterprise
Abstract. The article deals with tasks, methods and tools of management the receivables of the enterprise. Highlighted the typical problems of process of management the receivables and developed the ways for improve.
Keywords: receivables, accounts receivable management, normative regulation, reserve of doubtful debts, bad receivables.
Анотація. У статті розкрито завдання, методи та інструменти управління дебіторською заборгованістю підприємства. Висвітлено типові проблеми процесу управління та розроблено шляхи вдосконалення.
Ключові слова: дебіторська заборгованість підприємства, управління дебіторською заборгованістю, нормативне регулювання, резерв сумнівних боргів, безнадійна дебіторська заборгованість.
Formulation of the problem. In the modern world, under the conditions of constant economic development and expansion of the activities of economic entities, accounts receivable is paid considerable attention, since it has a significant impact on the turnover of capital and on the financial position of the enterprise in general. However, the improvement of accounting alone can not solve the problem of non-payment. Enterprises, regardless of their form of ownership and the specifics of functioning, must first of all control and improve the process of management of accounts receivable, which is part of the overall management system.
The analysis of recent studies and publications. The issues both of regulating the organization of accounting and improving the management of accounts receivable were studied by the following domestic scientists: I.O. Blank, M.D. Bilyk, F.F. Butinets, A.D. Butko, S.F. Golov, L.V. Gorodanskaya, R.O. Kostyrko, V.M. Kostyuchenko and foreign scientists, namely: Zvi Bodi, D.Norton, R.Merton. R. Ka plan. However, most of them still emphasize the need for the further study of this issue. The purpose of the study is to identify possible ways on how to improve the process of managing receivables from the enterprise on the basis of the generalization of theoretical aspects as well as evaluation of the practical aspects of the outlined topic.
Presentation of the main material. An integral part of the financial and economic activities of the enterprise is the conducting calculations with counterparties. Quite often, after shipment of manufactured products, enterprises do not immediately receive payment for it. Thus, the buyer is lending. It can be argued that from the moment of shipment of products until receipt of payment, the company’s funds are in the form of accounts receivable.
The provision (standard) of accounting 10 “Accounts Receivable” determines the accounting methodology, the basic notions and the procedure for disclosing information about the receivables of an enterprise in the financial statements.
According
to Ukrainian Accounting standards 10, receivables of an enterprise are the
amount of debtors’ debts on a certain date. Debtors are legal entities and
individuals who owed a company a certain amount of money, its equivalent or other
assets [6].
Enterprises need to find ways to
reduce receivables, for the profit of the enterprise, payment of wages, the
possibility of repayment of accounts payable, the purchase of raw materials and
materials for further production, the possibility of expanding production depend
on it.
However, it can not be stated
that receivables is only a negative phenomenon because there are the pros as
well. Provision of goods with a installment allows you to expand the markets,
since the desire to have significant volumes of sales forces executives to
agree to provide commercial loans, price discounts , to create more favorable
conditions for buyers and customers for the purchase of products.
At this stage, there is a need to
manage accounts receivable.
Debt management is an integrated
process of planning, organizing, coordinating, motivating and controlling the
status of receivables, which is necessary to achieve the objectives of the
enterprise [4]. It is also an essential element of the system of accounting and
management accounting. The correct organization of the management process
depends on the financial condition of the enterprise and its liquidity.
The need to manage accounts
receivable is due to:
– receipt of payments from debtors is one of the main sources of receipt of funds from the operating activities of the enterprise;
– investment of real costs or benefits from accepted credit decisions can be used as a tool for expanding sales.
The main tasks of managing receivables are:
-Support sales growth by providing a commercial loan and thereby increasing profits;
-increasing competitiveness by means of a delay in payment;
– Defining the level of risk of buyer insolvency;
-Calculation of the planned reserve of doubtful debts;
-Providing recommendations for dealing with actual or potentially insolvent buyers.
The main function on which the process of managing receivables is based is strict control over the financial flows of the enterprise.
Today there are a lot of methods of managing receivables.
Companies introduce a flexible system
of discounts for debtors. They practice spontaneous financing. It means
providing discounts in response to shorter payment terms. The methods of
“outsourcing” are becoming increasingly popular, they involve attraction
of third parties. The enterprise transfers the authority to work with
indebtedness to another organization. Such organizations are factoring
companies and banks [5].
Typical problems encountered by
an enterprise in managing and accounting for receivables of an enterprise:
-The evaluation of creditworthiness of buyers and the efficiency of commercial lending is not carried out;
-Insufficient professionalism of financial managers;
-Low solvency of buyers;
-Unregulated work with overdue accounts receivable;
-There
is no reliable information on the maturity of obligations by the
companies-debtors; -Lack of data on the growth of costs associated with an
increase in the amount of receivables and the time of its turnover;
Receivable management of the
enterprise requires from each enterprise the withdrawal of the natural level of
accounts receivable (in days) for each type of goods (works, services), based
on their own experience and specific business conditions. The natural level of
receivables is calculated on the grounds that it should not affect the normal
functioning of the enterprise. To be natural in that the lower level is not
possible, and the larger one is economically impractical [2]. It is also
necessary to analyze the causes of deviations from the natural level, in order
to avoid deviations in future periods.
For companies that have a large volume of receivables turnover, a special financial management policy should be developed. Financial policy is a set of financial instruments the successful use of which ensures financial stability. An important tool in the management of accounts receivable is to provide discounts to customers. Discounts are provided in the following cases:
- prepayment or quick payment for products (used by the enterprise with a lack of funds);
- the purchase of large volumes of products;
- 3) purchase of products of lower quality;
4) in order to maintain business relations with old customers or with those that are “valuable” for the enterprise [3].
Fast payment for products frees up
money that can be re-invested in production, that is, increasing and
profitability of the enterprise. However, the size of discounts should not
exceed the benefits of fast or prepayment. In this regard, in the process of
forming a credit policy, it is advisable to develop a scale of discounts in
accordance with the terms of the fast payment and the scale of fines for late
payments [2].
In Ukraine, the necessity of
adapting the requirements of international accounting standards to domestic ones
in order to improve the accounting system is determined. The experience of
other countries is also advisable to use in managing the receivables of the
enterprise. In foreign countries there is no separate standard for adjusting
receivables. Some aspects are defined in:
– IASB “Presentation of Financial Statements”;
– IASB “Financial Instruments: Disclosure and Presentation”;
–
IASB “Financial Instruments: Recognition and Measurement”.
In particular, IASB 32 accounts
receivable is treated as a financial asset, but the specific definition of this
concept is not given by international standards [7].
The issue is that today many enterprises in Ukraine do not create a reserve of doubtful debts, arguing that part of the funds accumulated in the form of a reserve does not turn.
The reserve of doubtful debts is, as a
rule, a percentage of the amount of sales on a loan or receivable at the end of
the reporting period and is created at the enterprise, first, for the accurate
presentation of receivables in the balance, because current receivables are
reflected in the balance in the amount of the difference between the
outstanding debt and the reserve of doubtful debts. Secondly, at the expense of
the reserve bad debts are written off.
Bad receivables are current
receivables that are sure not to be returned by the debtor or which is beyond
the limitation period [6]. It is worth pointing out that in foreign literature,
a receivable that is likely to never be paid is hopeless. The two most commonly
used methods for accounting for bad debts in most countries are the direct
write-off method and the provisioning method.
The direct debit method has
certain disadvantages and applies only in cases where the bad debt is
insignificant in size. The method of accrual of reserves allows a calculation
of bad debts in each reporting period, even if it is not known at the relevant
time, which particular accounts will not be paid and it is impossible to
determine the specific size of bad debt.
In the United States, in case at
the date of the financial statements, the entity does not see the ability to
collect the full amount of accounts prior to receipt, there is a contingency
under the “Contingency Account”.
In accordance with the General
Principles of Accounting in the United States, two methods are used in
calculating the questionable receivables of an enterprise:
-Method of the percentage of net realizations (estimate on the basis of total
sales), based on the assumption that the share of proceeds of this year will not
be received;
-Method
of accounting for accounts on terms of payment (approach in terms of balance
sheet), which assumes that part of the balance of accounts receivable will not
be paid.
In Italy it is allowed to
annually assign to the reserve of doubtful debts 0.5% of the total amount of
accounts receivable, and when the amount of the reserve is equal to 5%, its
further increase is prohibited.
In
Estonia, the amount of doubtful debt is written off for costs, irrespective of
whether the collection measures applied to it or not. The difference in
Estonian accounting from Ukrainian is that bad debts that were previously not
transferred to expenses are written off from the balance sheet without
displaying the amount of bad debt on the off-balance sheet account.
In most countries of the
Anglo-American system, besides the reserve for doubtful debts, companies can
create other types of reserves, in particular, a provision for covering returns
of goods and discounts. When managing receivables, it is advisable for an
enterprise to use an irrevocable letter of credit, which is an effective
mechanism and is often used in the United States and European countries. Debt
write-offs can be carried out not only in the event that it is recognized as
hopeless [1].
The main recommendations for improving the process of managing receivables of the enterprise may be as follows:
1) determination of the natural level of accounts receivable and analysis of the causes of deviations;
2) providing discounts to customers;
3) creating a reserve of doubtful debts;
4) control over the ratio of accounts receivable and payable;
5) finding ways to increase the number of customers in order to reduce the risk of non-payment;
6) control over the state of settlement of overdue debts. In the context of inflation, any deferral of payment leads to the fact that the company actually receives only a fraction of the cost of the work performed. It is therefore necessary to extend the system of advance payments;
7) development of a special financial policy for the management of accounts receivable;
8)
timely detection of inadmissible types of accounts receivable, which include,
in particular, overdue debts of buyers over three months.
Conclusions. In order to
make timely and rational decisions on enterprise management it is necessary to
have up-to-date and qualitative information on the state of settlements with
debtors, which is formed on the basis of accounting data and registers of the
corresponding entity. Debt management is an important process that is needed to
achieve the goals of the enterprise and needs constant improvement.
A well-organized process of managing receivables will ensure that a shortage of funds and, as a result, a delay in payables, a lack of inventories, an increase in the need for loan capital, a decrease in the real amount of receivables due to inflationary processes, which in turn negatively affects solvency, liquidity and business activity of the enterprise are avoided.
References:
1. Belokoz O. Differences between domestic and international approaches to the assessment of trade receivables / O. Belokoz / / Galician Economic Journal. – 2010. – No. 3. – P. 197-201
2. Kylynitskaya Ye.V. Structuring of the process of management of receivables of enterprises / E.V. Kilnitsky // Bulletin of the NTU “KhPI”. – 2013. – No. 20 (993). – P. 141-145.
3. Koblyanskaya O.I. Financial Accounting: Teaching manual / Koblians’ka O.I. – K.: Knowledge, 2004. – 473 p. – (Kyiv National Taras Shevchenko University).
4. Kudatska T.S. Features of management of receivables of the enterprise in the conditions of a market economy / T.S. Kudatska // URL:http://www.rusnauka.com/16_ADEN_2011/Economics/7_88089.doc.htm
5. Livoshko T.V. Ways to improve the management of accounts receivable // URL: http://www.zgia.zp.ua/gazeta/evzdia_7_103.pdf
6. Regulation (standard) of accounting 10 “Accounts Receivable” – URL: https://zakon.rada.gov.ua/laws/show/z0725-99
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