(c) Receivables average collection period
Throughout the last three years the average receivables collection period has been consistently above the industry average, increasing from 63 days in 20X3 to 76 days in 20X5. This is somewhat surprising given the pressure on cash resources during the period. Possible reasons for this include poor control of receivables during a time of rapid growth when other areas of the business were seen as more important, and the conscious decision to gain additional business through a generous credit policy.
A thorough review should be undertaken of the credit control and debt collection policies, including an assessment of the effects of any change in policy on the trading performance of the company.
Specific measures to be considered include:
(i) Tightening up the procedures for chasing up slow payers, including the system for
telephoning to request payment and placing consistently late payers 'on stop'.
(ii) Evaluating the relative costs and benefits of introducing a settlement discount scheme.
(iii) Assessing the feasibility of levying a credit charge on accounts that remain unpaid after the
due date.
(iv) Reviewing the procedures by which customers are granted credit, the terms negotiated and the setting of credit limits. |
