Inventories include raw materials, materials, work in progress, finished products. For a financial manager, stocks are funds diverted from turnover. The presence of a certain stock of raw materials and materials is necessary, since it protects the enterprise from failures in production. In addition, buying raw materials and materials in large quantities, the company can save on purchasing prices, which, as a rule, depend on the volume of purchase. At the same time, storage of stocks is associated with additional costs (maintenance of warehouses, insurance, etc.), and their high cost reduces the turnover of current assets. It is also important to take into account the lost profits of the enterprise from the "freezing" cash in inventory.
Therefore, the financial manager must find a reasonable balance between the costs of maintaining stocks (negative effect) and the benefit from their availability (positive effect). To do this, it is necessary to assess the needs of the enterprise in certain types of reserves and determine the necessary amount of financial resources placed in them. The reserves should increase until the savings exceed the costs of their maintenance.
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The purpose of inventory management is to ensure the continuity of the production process with minimal maintenance costs for stocks. Managing them requires answering the following questions:
- how many units of this or that kind of materials the enterprise must have in stock;
- how many pieces of materials must be ordered;
- when you need to make the next order.
Get answers allows an model of the optimal order size, which is based on the division of inventory maintenance costs into inventory holding costs and ordering costs.
Storage costs include inventory costs, insurance, depreciation, interest on capital invested in inventory, etc. The magnitude of these costs, as a rule, increases in proportion to the growth in the volume of stocks. The costs of acquiring materials (contract conclusion, receipt and quality control, transportation) form the costs of the order. The cost of completing an order per unit of inventory decreases as the order size increases. The optimal order size ( Q ) is associated with the lowest total costs:(8.16)
where S - the required amount of material purchases per year (units); About - the cost of the order (rub.); From - the cost of storing a unit of inventory (rubles).
For inventory management, it is important to know and understand the methods of inventory accounting and their reflection in the company's financial statements. Depending on the methods used, a different estimate of the funds invested in inventories and the means written off into the cost of production is possible.
The element of stock analysis is the estimation of their turnover in days, which is determined by dividing the average over the period of the remainder of the inventory by one-day turnover in the same period. The smaller this number is, the fewer tools & quot; associated & quot; in stocks. Acceleration of inventory turnover means additional involvement of funds in turnover, and a slowdown is the diversion of funds from economic turnover.
Accounts Receivable Management
Delivering products or providing services, an enterprise often does not receive money immediately, but provides a deferred payment, i.e. lends to its customers. From the moment of shipment of goods to the moment of receipt of funds to the settlement account, enterprise funds are reflected in the form of accounts receivable - the amount of money that customers owe to the enterprise for the delivered products (services).
Accounts receivable management is part of a general policy for the management of current assets aimed at expanding the volume of sales of products, optimizing the overall size of this debt and ensuring its timely collection.
The tasks of managing receivables are:
- limit the acceptable level of accounts receivable;
- selection of terms of sales ensuring guaranteed cash flow;
- determination of discounts or allowances for different groups of buyers;
- acceleration of the demand for debt;
- an estimation of the possible costs connected with a debt receivable, i.e. lost profits from the non-use of funds, "frozen" in accounts receivable.
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The process of managing accounts receivable is impossible without a credit policy - a set of rules governing the provision of commercial credit and the procedure for collecting receivables. Developing the policy of lending to customers, the company determines the term for granting a loan, creditworthiness standards of debtors, the need to create provisions for bad debts, a mechanism for collecting payments, a system of discounts and penalties.
Critical payment term - the date not later than which the payment for the provided commercial loan should be made. In order to be able to control the critical period of payment, you need to consider the length of the deferred payment, as well as the date of the receivables. The moment when the receivable arises is considered the date of transfer of ownership of the product from the seller to the buyer, established in the contract. This may be the date of signing the contract, the shipment of goods from the seller's warehouse, the date of receipt of the product to the buyer, etc. In most contracts for the delivery of goods with payment by installments, the critical payment period is determined by adding the set number of days to the date of the receivable.
When determining the terms of payment for the delivery of products, the enterprise must adhere to the solvency criteria that it has set for buyers. Terms of the contract (discount amount, term and form of payment) will depend on the buyer's compliance with these criteria. Buyers, as a rule, have different opportunities in terms of purchases, timely payment, and claim different terms for granting a deferred payment. In order to differentiate the terms of commercial lending, it is necessary to develop an evaluation algorithm for buyers. Creating an algorithm for differentiating the conditions for granting a deferred payment involves a number of steps.
1. Selection of indicators on the basis of which the creditworthiness of the counterparty will be assessed (timeliness of repayment of previously granted deferred payment, business profitability, liquidity, net current assets, etc.).
2. Determining the principles for assigning credit ratings to the company's customers. The rating is assigned for a certain period, after which it must be reviewed, for example, once a month.
3. Development of credit conditions for each credit rating, i.e. determination of the selling price; time of deferred payment; maximum amount of commercial credit; system of discounts and fines.
One of the tools for managing accounts receivable is the register of accounts receivable. The register is made in the form of a table in which unpaid amounts of accounts are displayed, grouped by the periods of delay in payment. Such a table is called the aging account of receivables.
Based on the registry, the average period of delay in payment for counterparties and, in general, for the company is determined. Using this data, you can improve the accuracy of planning cash inflows from debtors. This simplifies the procedure for building a cash flow budget.
To predict the receipt of payments from customers, use collection rates receivables, which is defined as follows:(5.17)
where i - the month the products are shipped; j - the month of repayment of receivables; DZ - accounts receivable.
doubtful debt is understood as any debt to an enterprise that has not been redeemed within the terms established by the agreement, and does not have appropriate collateral (pledge, guarantee, bank guarantee). For such a debt, the enterprise has the right to create a reserve from profit before tax and in the balance sheet to reflect accounts receivable less doubtful debts.
Bad debts are those debts to the enterprise for which the statutory limitation period has expired, as well as those debts for which, in accordance with civil legislation, the obligation is terminated due to its inability execution, on the basis of an act of a state body or liquidation of an organization.
The provision for doubtful debts is made according to the inventory of accounts receivable, held on the last day of the reporting period. The amount of the provision for doubtful debts is included:
- for doubtful debts with a maturity of more than 90 calendar days - the full amount;
- for doubtful debts with a maturity from 45 to 90 calendar days (inclusive) - 50% of the amount of debt;
- for doubtful debts with a maturity of up to 45 days - does not increase the amount of the reserve created.
At the same time, the amount of the provision for doubtful debts created can not exceed 10% of the revenue of the reporting period. The reserve can be used exclusively to cover losses from debts recognized as uncollectible.
The mechanism for collecting payments is a developed procedure for interacting with debtors in case of their violation of the terms of payment (criteria of materiality of violations, the system of punishment of counterparties).
The system of discounts and fines is based on the method of stimulating customers: a discount from the price is provided in case of payment during a certain period; on the contrary, in case of failure to pay before the due date, the buyer must pay a penalty.
An important element of receivables management is the analysis of its turnover. To better visualize the effect of the receivables turnover period on the performance of the enterprise, it is necessary to consider this indicator in the context of the operating cycle. This will determine how much the turnover of receivables increases the duration of the company's operating cycle.
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